This guest post is written by David Downie, an initial self confessed early retirement skeptic, who bit the bullet and retired at 38. Having not planned for this, and after looking at others who had pulled the pin without a conscious stockpile, he wondered if it were possible for anyone, in almost any position, to retire without notice.
The following is an extract from his short ebook “Radical Immediate Retirement” (available from Amazon at http://www.amazon.com/dp/B00NP4U986), which, by his own admission, is intended to be an easy to read book designed to motivate people to look harder at their options.
Taking stock and making the hard decisions
The mass of men lead lives of quiet desperation.
Henry Thoreau, 1854
It is difficult to free fools from the chains they revere.
Before you Radically and Immediately Retire you need to look honestly at where you stand from a financial, skill and health perspective. Of course retirement depends on all three of these – not just money (which is what your financial planner would have you believe1).
Financially you should consider the market value of everything you own (less your debts). That means everything, including your shitty (or glitzy) car AND your prized home (if you own one). It is worth looking at your home in particular, as that tends to be the most emotional of a person’s assets as well as the biggest money sink.
Yes, I know all of your friends have a house. Yes, I know that ‘losing the home’ is the biggest financial fear of most. But if you want to escape the nightmare, you’ve got to take a good hard look at yourself - as though you were advising yourself professionally. The problem – how to stop work immediately and only do the things that bring you satisfaction. The solution? Well, the solution might just involve your house.
What would you tell your friend who wanted to give up work if he had, say, a $500,000 mortgage and was paying it off with a $75,000 salary? It would be pretty darn obvious wouldn’t it?
He would sell the house, kill the debt, take the cash and solve the housing problem another way wouldn’t he?
Or perhaps he (or you!) could rent the house out? If you can rent the house out for say $25,000 a year, and have over $20,000 clear after expenses and taxes, then, guess what, if you can live on $20,000 a year then YOU ARE COMPLETELY RETIRED AND NEVER HAVE TO WORK AGAIN FOR MONEY.
That’s outrageous, you think. You could never live on $20,000 a year.
Couldn’t you? Almost every single person in the history of the world does. Most people alive at this very moment do. To them you would be a pension carrying millionaire.
Are you that greedy that you aren’t happy living on an income that is greater than almost every person alive (when looking at things globally)?
Are you that inefficient?
Think for a moment. It’s 400 bucks a week. You wouldn’t have to work on things you didn’t want to work on. You could live at a beach resort that allowed camping forever on that amount. You could share a room. You could live in an RV or a tent. You could live in many lower cost countries easily on that amount. Like a rich person.
If you applied the sort of brain power that you clearly had to be able to pay the house off to living on 400 bucks a week don’t you think you could?
This is in effect what most of the early retirement crowd out there encourage you to do: save enough cash and invest it (typically in shares) so that the expected returns are enough for you to live off forever. What’s attractive about the combination of simple (efficient) living and saving the vast bulk of your salary is that if you are disciplined enough you can reach financial independence in as little as 5 years.
One of the giant brains out there who has been hugely influential to many is a fellow by the name of Jacob Fisker of www.earlyretirementextreme.com. He was working as a theoretical physicist (really) when he tired of it all and saved enough to retire forever some time after 3% of his investments covered his living expenses of $7,000 per year. He was 33 years of age when he retired.
Among other things Jacob has used his math brain to assert that a 3% withdrawal rate from your investments is likely to be sustainable over a lifetime (meaning that you shouldn’t run out of money and inflation is covered). In other words, if you can save 25 times of your annual living expenses then you have it covered ($175,000 in his case).
The paradox of this well meaning fellow is that no later than two years after he ‘retired’, and having published some wonderful articles and a dense textbook about the freedom of not working in a cubicle for a living, he promptly went back to full time work in the financial sector! He has remained there for some years now.
That doesn’t detract from his writings though, and you should seek them out regardless of the approach you take. While his life is his to lead, it’s comforting that he has retained his financial independence (which perhaps is a better word than retirement when you swap one full time cubicle career for another), in the sense his expenses are more than covered by his passive income. He can literally do what he wants, and if what he wants to do (for now) provides him with cash then good for him!
Comparison with traditional early retirement
In fact, that’s the difference between the classic early retirement approach and Radical Immediate Retirement. Early retirees will typically tell you what everyone tells you – save money for retirement. They will also tell you to spend less. The more you save (and invest) and the less you spend the faster you will be able to live off your investments and retire to do as you will.
RIR, on the other hand, doesn’t involve any further capital accumulation (saving money in the hellhole for years). It’s about getting out right now.
It may well be that when you stop and consider what capital you have accumulated over your working life you are surprised with the outcome (the capital in your home for instance, when used as an investment rather than a money sink).
But regardless of what money you have, if any, if you have any spark in you whatsoever you are likely not to spend your life vegetating or playing golf. Instead you are going to do what takes your fancy. And if you are clever enough to have read this far, then chances are that deep down you are an interested and capable person who is going to use his or her new found freedom to do some extremely cool stuff.
Some of that activity is likely to be income producing. The less money you have invested, and the less efficient you are at living, the more desirable an income producing activity will be. But in the most part, it is likely that you will just follow your interests, and commercialization opportunities will present themselves. In effect you will be learning new skills, having fun, and doing things that you get a jolly out of doing. It might be spending one day a week looking after guide dog puppies. It might be writing an ebook about pelicans you have rescued, or your year volunteering for board in the French countryside.
It could even be working in the finance sector – if you have an enormous and peculiar brain and enjoy that sort of thing. Or better still, starting an online business that gives you pleasure (in a boss and systems kind of way) – designing the whole thing from the ground up as being something that doesn’t demand much of your time.2
Either way, you have escaped the nightmare grind, freed yourself by living as efficiently as you have to given your skills and resources, and spending your time free to do the things you want to do. Depending on the frequency and nature of the commercialization, and your increasing skill set and resulting living efficiency, you may find you have cash left over which can be invested. That way, your passive income should increase in time with a resulting increase in lifestyle or decreased need for commercialization (depending on your fancy).
Example RIR Retirees
Why should we be in such desperate haste to succeed, and in such desperate enterprises? If a man does not keep pace with his companions, perhaps it is because he hears a different drummer.
- Henry Thoreau, 1854
It’s helpful to look at actual case studies of people who have Radically Immediately Retired, without any planning.
Rachel (35) and Ben (38)
Rachel worked as an analyst and Ben a lawyer when they decided to Radically Immediately Retire. Rachel had no savings but an investment property with about $100,000 equity (and $300,000 debt). Ben owned 3 houses and an interest in his legal firm (with about $500,000 equity and $1,800,000 debt). Ben loathed his employment and it was affecting his health. Rachel could certainly imagine things she would rather be doing.
Both Ben and Rachel gave notice and put 3 houses up for sale. Ben also sold his interest in the legal business. This lead to both Ben and Rachel being debt free. Ben retained 1 house which was paid off completely (the house Ben lived in). He promptly rented this out for a return of $500 per week and both he and Rachel moved into Rachel’s father’s house. Rachel took the equity remaining from the sale of her house, and bought a small cottage outright in Europe.
So Ben and Rachel went from 2.1 million in dollars in debt between them (and an interest payment of over $10,000 a month) to no debt, an income producing asset and somewhere to live rent free in 3 months.
They lived in Ben’s van for 6 months, travelling the country and having the time of the their lives, before moving to Rachel’s new European cottage, where they now live rent free on the income from Ben’s prior residence. They spend their time exploring the world and working on fun lifestyle businesses.
Thomas had had enough. He quit his job, left his apartment, and went to live into the forest of Sweden, where he reduced his costs to almost zero and worked for 5 months on a new internet venture he was passionate about. After it got too cold for him he got a housesitting gig in the jungles of Costa Rica where he has continued to work on the project.3
Thomas is fit, happy and working on his passions with people around the globe.
Radical – for sure. But he’s done it! And what a story. Would it be a better story if he sat depressed, gaining weight in his cubicle as he paid off a house in the suburbs?
Speaking of weight…
Jason was 27 years old worked as a second hand car dealer in the UK. He used to go out regularly and eat greasy UK food. He weighed almost 40 stone (250kg), and doctors had given him 5 years to live.
What was he to do? Continue with his crappy job and crappy lifestyle and put away 15% a year for his retirement at 65 (33 years after his expected death)?
No, Jason decided to retire from his nightmare existence. Radially and immediately. He sold everything and booked a one way ticket to Thailand and started training at a Thai kickboxing school. His expenses were very low and while it wasn’t easy eventually he lost over 23 stone (150 kilograms) and now ‘works’ at the school as a trainer doing what he would be doing anyway – being fit!4
You can’t compare his life before and after RIR. His life was a misery and he was on the fast track to death. He could have kept working so he could pay for health insurance, or to pay for his mortgage, or to buy stuff at the mall…..
But what a waste of life that would have been.
You might have thought in each of these cases that the people involved took huge risks. That they ‘got lucky’. But did they? Don’t you think, given their brains and desires, that something else would have come up if the first choice didn’t pan out? And, if in the unlikely worst case that they had a total brain freeze and couldn’t think of a way forward then what would they have done?
Gone back to their miserable lives.
See, no dramas. Just get another job – in the same area if that’s all you’re good for. They had nothing to lose. It may have been radical, but really, in the end it was pretty much risk free.
1 Is he retired?
2 This is the model of the Four Hour Work Week by Tim Ferris.