[Heyo! Got another killer guest post lined up for y’all today, this time from long-time reader JW who now has a blog of his own over at The Green Swan. He just had one of those amazing conversations about life and money with his father, and thought we’d might enjoy hearing how it all went down. I think he guessed right – check it out :)]
I have something personal to share with you all – an email from my Dad. And not just any old email… a special one, in which I’ve never received anything of the like before. My Dad was wanting to know more about my plans to retire early!
To say I was nervous when I saw his email would be an understatement…
While my Dad doesn’t know I have a blog (and neither do any other friends or family), he does know I do not want to work for the rest of my life. He knows I’ve accumulated a fair amount of wealth so far, although not the exact amount. And he knows my goal is to get out of the rat race early.
I have explicitly told him this before, but that’s the extent of it.
Until earlier in January… At that point, Pandora’s Box was opened. And it started with this email. (By way of reference, my dad is currently 63 and plans to retire in 2018)
My Dad’s Email:
I always do a financial review at year end and it got me thinking about you wanting to retire early. I can relate, I was always planning to retire at 50. A few things to think about (you probably have already considered these, but anyway):
— I don’t think anything greater than a 7% long term return on your investments is realistic. You don’t have to go back too many years where a huge double digit loss was happening
— College education keeps increasing.
— Health insurance is really scary in the future. I’m planning $10,000/yr/person until medicare. You want to make sure you have a good ins. plan. Who knows how much this will increase. But $20,000/yr for 20 years is $400,000.
— If you ever do decide you want or need to re-enter the work force, it’s really hard to re-enter at the salary you were making before.
When I got to my early 50s I realized:
— I would be really bored.
— I still needed a purpose in life
— By working a few more years, mom and I could have this house and possibly a second home if we wanted.
— It was also a good feeling knowing that we could retire whenever we wanted.
Anyway, a few thoughts I wanted to share. I’d love to help you reach your financial goals if there is anything I can help with.
Have a good day,
What a nice note, huh!? Needless to say, he hit on basically all the major concerns any early retiree should think about. At the time of reading this, I didn’t realize that he ever considered early retirement. I always knew that him and Mom did a good job managing their money and were financial responsible, but they did have to raise four boys and paid for half of our college costs (in-state public school tuition).
I thought about how best to respond and decided to put some thoughts on paper. I shot him the below email, and then followed up with a phone call. Below is my unedited response to my Dad.
My Email Response:
Hey Dad, thanks for the email. I didn’t realize that you were thinking of retiring early as well. What you mentioned in your email are definitely some of the key things I’ve been thinking of too. Of course it is hard to pin down hard numbers on some of those things until the day comes. But here is the basic synopsis that I’ve come up with. Let me know if this makes sense and when it would work to discuss.
I hear you on the 7%. I’ve always used 8% as an estimate when projecting my future investment balance based on the long-term historical returns of the S&P 500. Once in retirement I will likely continue to stay 100% invested in stocks, but focus on the “safe withdrawal rate” (“SWR”). There are some good online simulators for determining “FIRE” (financial independence, retire early). Have you ever checked out firecalc.com or cfiresim.com?
I would estimate my required investment balance at retirement based on a 3.0-3.5% SWR and knowing what my core expenses are with some cushion. For example, core expenses of $60K including mtg payment at 3% SWR would require $2 million in investment assets. Realistically, and conservatively, we’d probably be targeting closer to $3 million. The biggest wildcard are long-term healthcare costs in case of illness or disability, which as you mentioned would either require good health/disability/long-term care insurance and/or more cushion in our investments.
Jr’s college fund will be basically fully funded by his 3rd b’day at ~$70K. Invested in a balanced and diversified stock index portfolio, this should cover the majority, if not all, of college costs by 18 estimated at ~$250K. We’ll have the same plan to fully fund baby 2’s 529 by age 3 as well. These funds of course are considered separate from the investment assets needed for the SWR above.
Without an employer or gov’t subsidy, I’d maybe be even more conservative than $10K /yr /person. We’ll see how it evolves in the coming years with Trump though. Lots TBD in retirement including if gov’t subsidies will be means tested or not or simply based on income…and then what will our income be in retirement, etc, etc. With unknowns like these to evolve likely well into retirement, we’ll try to play it safe rather than be sorry later.
Heard you loud and clear on re-entering the workforce at prior wages. But if we needed to build back some cushion, we could do this reasonably at lower wages and even consider temporary side gigs. However, we’d have no intention of doing this. We’d rather work an extra year at the higher wages than risk having to re-enter at lower wages for a couple years.
What to do in retirement…that’s the million dollar question, huh!? I’ve always heard it is important to retire “to” something and not to retire “from” something. So I understand where you are coming from. I would be ideally retiring to: delving into the kid’s activities and development (not much unlike what you did with us); hobbies that have gone by the wayside over years like hunting and others; travel with the fam; and finding ways to volunteer for various good causes TBD.
So at this point in time, that’s the thought process. We’ll shoot for $3 million in investment assets not including 529s which will be fully funded in coming years. And it gets squishy when thinking about healthcare and disability insurance, but I have time to figure that out and adjust the plan of course.
Like I said, let me know when it works to chat. I just thought it would be easiest to lay out some of my thoughts before doing so. Thanks again for the email.
What do you think? Decent response? I wanted that to lay some ground work for a good conversation with him. And indeed it was good. We talked for quite a while.
Our Follow Up Conversation
My dad was very excited for us and our plan to retire early. He agreed with a lot of the assumptions including a SWR of 3.0-3.5% and having a baseline of $3 million, recognizing it is a lot of money but can be easy to attain when the snowball starts rolling (the FIRE-Starter that we are still in pursuit of!).
Conversation then focused on life purpose, employment in retirement if extra cash is needed, and healthcare; all three of which are somewhat related to each other. Employment, even part-time, can help fulfill my purpose in life while also help provide for some or all of the cost of healthcare and/or allow me to take advantage of employer sponsored insurance.
When your life is devoted to work it can be hard to think of what will fill that void, and the conversation kept reverting back to part time work. He mentioned how ideal it would be to be paid the same and just work less hours, and how, unfortunately, my career in banking really isn’t feasible for that. So we discussed a number of alternatives.
He mentioned there are plenty of ways to be creative with employment and there are unique opportunities out there if I look hard enough. One example he gave was that an old colleague of his who retired and began delivering RVs across the country. He also mentioned part time consulting, etc, given my banking and finance background.
Then he asked what I will do between 8-3 when the kids are in school? He thought that is when part time employment would be ideal. But what if I don’t need the money, will I be that bored that I revert back to employment? Is retiring to family not enough?
I’ll have 10 years with the kids still in the house which will be great. When they are gone, then what? Well at some point grandkids. I’ve always heard how great it is to have grandkids! :) I’m sure they’ll keep us busy and provide for a great time as well.
So kids will keep me busy and, if I’m so lucky, grandkids as well. What will I do when I get bored?
- With the kids gone, Lucy and I will have more flexibility to travel and we’ll no doubt take advantage.
- I enjoy reading books, magazines, blogs, etc about a wide-array of topics including history, finance, religion, nature & the outdoors, etc. Does that not provide plenty of rabbit holes to chase down?
- I’ll be able to focus more on my health and fitness. It’ll be a lot easier for me to fit in a good balanced exercise program and improve my diet. I enjoy cooking at home with Lucy. We can focus more on new, unique and healthy foods for us and the family.
- What about other hobbies or projects? Many hobbies have been pushed to the side as I entered the workforce. This would include hunting, playing various sports (would I be too young to enter an old man basketball or soccer club?), and following college and professional sports more closely.
- There are endless great causes I could volunteer my time to as well, including perhaps at the school system in some capacity that my kids will then be attending.
We also talked about his scenario with my mom. They were basically at FI 8 years ago. He wasn’t ready to leave work though because he needed that as his purpose in life. Also, they wanted their dream home on a lake which they had recently moved to, but were still in the process of paying off.
The additional years of employment would allow them to pay that loan off and have more cushion. He also acknowledged how much greater work was knowing that he could quit at any point if he wanted or needed to (albeit then move to a less expensive home). So the “one more year” syndrome was more like eight years for them in order to have the nice lake home for the rest of their lives.
An interesting takeaway from this was when I asked him how he’d fulfill his purpose in life once he does retire from his work here shortly. He said that he didn’t think he would have the need for purpose anymore and that days spent on the lake would be what he will fill his time with.
I think that begs the question for all of us – when will we no longer need that purpose in life filled by work? At what point can we say enough is enough. I’m done climbing that corporate ladder and I’m completely satisfied with a more leisurely lifestyle?
It’s a tough question, one that many retirees struggle with (especially early retirees). I may think I will be ready, but when I’m in the moment I may not be. We all need to try to determine when enough is enough in our lives.
I could probably continue on, but there you have it. My conversation with my Dad on retiring early! And the outcome: much congratulations and excitement, as well as some things to continue to ponder.
What are your thoughts? Do you agree or disagree with anything? J. Money thought the parts about not needing purpose anymore was pretty surprising to learn from my dad. Share your own thoughts below and I’ll happily answer any questions!
JW is a corporate banker, a small business owner, a personal finance blogger, and a family man with a wife, a kid and another on the way. He amassed his first million by age 30 and is on the path to reach financial independence and retire early in his mid-30s. JW blogs at The Green Swan to help others achieve their financial objectives and believes anyone can be on the path to retire early with the right habits and mindset. You can also find JW on Twitter (@TheGreenSwan1) and on Facebook too.