Saturday, July 09, 2005

Very early retirement and financial planning phases

Most retirement planners consider three phases of financial planning: accumulation, distribution and legacy. On the other hand, early retirees may have different needs.

Take the distribution phrase, for instance. The typical person will retire at 65 and live up to about 80. Thus, its distribution phase comprises about 15 years on the average while accumulation makes typically 40 years or more.

Compare that to what I plan to do: retiring at 37, after about 15 years of accumulation, and likely 40 years of distribution. Might sound impossible, but you need to put some figures on a sheet of paper: if you accumulate fast enough and compound for a reasonable number of years, then, you should be able to withdraw some money forever. The key is withdrawing the right amount and from the right assets.

Safe withdrawal rates is the proportion of your portfolio you should be able to withdraw yearly without risking depleting your nest egg before you die. Planners often use 4% as a standard value, but I personally don't like that much. I think you will likely have many distinct phases in your retirement lifetime, particularly if you retire very early. My guess:

  • The "early phase": goodbye boss! The first years (1 to 5?), you likely will want to do all the things you promise yourself you would be doing after you retire: travel, relax, starting new hobbies, starting projects, etc. You'll want to enjoy life as much as you can! You likely will need more money those years than subsequently. In those years, I would decrease the value of my portfolio.
  • The "I'm too young to stop working completely". I guess that after some years of retirement, I might be tempted to work part-time, maybe at an unstressful job, 10 hours a week or less. Maybe I would work only for some part of the year (during the winter, for instance). I would be about 42 at that time. My portfolio would likely increase slightly during that phrase, since the work wages would cover some expenses and returns from nest egg will be high. If the "early phase" took a larger part of my portfolio that what I expected, this would be the right time to get it back on track. Also, adjustements to budget and planning would be done, according to real needs, expenses, etc.
  • The “Now, I’m ready to retire completely”. Starting 50, 55 or 60 (who knows?), I might want to get back to full retirement. But, having lived 15 or 20 years doing everything that I want, when I want, maybe this part of my life will be less active and more frugal, with health-related expenses increasing, but some other type of expenses decreasing with time.

But who knows?


Anonymous Anonymous said...

Good post. I've had the same thoughts. I'm possibly going to retire at 35 in 18 months.

I can pull it off with the principle I will have at that point but have considered doing some part-time work the first 1-5 years just to keep the principle growing.

There's one milestone for being able to live off the interest and another milestone to "comfortably" live off the interest. The delima is whether to retire 1-2 years later or work part-time for 1-5 years to ensure comfortable retirement.

8:45 AM  
Anonymous Anonymous said...

Im curious...

What type of job have you 30 somethings had/have that you have accumulated enough money to retire from?

And what are do you live in?

I live in the midwest and horuly wages here are abt $10/hr for regular worker

12:35 PM  
Anonymous Anonymous said...

From RetireAt35:
Skipped college (no loans to payoff). I started in the midwest at $7/hr in a technical support call center. Moved to technical project management. Worked my butt off for past 15 years, averaging 17% raise (including promotions). Also made a key move to a big city 7 years ago, increasing salary by 50%.

9:31 PM  
Anonymous Anonymous said...

OK, congrats

But was also curious abt the owner of the blog. How he managed to retire so young.

2:34 PM  
Blogger Jack said...

I'm not retired yet: I plan to do so, and I'm seven years from that goal.

I earn about $22/hr (electrical engineering), I own a master degree, but I had loans to payoff and started working at 25 and did not lived frugally in the past, so I've been actually starting cumulating wealth for a year only.

3:12 PM  
Anonymous Anonymous said...

Ok thanks Jack

Well keep up the posts cause its really inspiring me to do the same.

I like your very "systematic" approach to this. You have a "system" of thinking it out. Strategy and tactics.

In what ways are you living frugally now tho? Have examples?

Thnks in advance

3:34 PM  
Blogger Jack said...


Relating frugal changes in my life, you'll find some examples on the blog, but in the last year, some examples:

- Frugal investing: like many people, I was investing in actively managed mutual funds, now I switched to index funds and ETFs (
- My car is five years old. In the past, I would be thinking about buying a new one. I will likely wait another two years at least, many more (
- I now use public transportation as much as I can. Unfortunately, my job office moved recently and the new location is not well serviced by public transportation, I have to use my car.
- I don't like saving coupons or the like since they use my spare time (and I want to FIRE to get more time!), thus I favor small, simple savings that are recurrent with no effort. Switching to low-energy bulbs saves $100 a year on my electricity bill ( Using my cash-back credit card ( which also returns approximately $100 a year. These are only two examples, but when you sum up the savings, it can make a significant amount aften compounding over many years.

Other examples of recurring savings:

- finding the same insurance covering for a lower price
- driving 10% slower, both save gas and tires
- Before buying: do I really need this? will I likely still use it in a year? Can I buy used instead of new? Seems obvious, but when you have a systematic plan and ask yourself systematically these questions, you'll likely buy less often of the objects you just throw away in the closet aften a week of use
- I did change somewhat my perception of rewarding and self-renunciation. More often than before, I will shun buying things that I think will only bring a short-lived satisfaction. On the other hand, I will not give-up some high-cost rewardings, such as travelling, if I think I will get a long-lasting satisfaction from that. For instance, I will travel to Europe in a month, I've been planning this travel for months and I did shun buying things in the last months, thinking to myself: I'll keep the money to pay for some great time during my travel. And it works!

Good luck!


7:50 AM  
Anonymous John said...

Thanks for all the examples Jack. That helps a lot!

My thinking is similar to your thinking abt being frugal...except that you have arrived at this thinking at an earlier age. Im 47 and just NOW thinking like this.

Its getting LATE for me to think abt something such as early retirement espcially when I only have abt 50k in assets at this point in my life. Yes?

Any advice on what someone like me should start doing?

Also Im a bit confused abt "saving coupons" in your previous message. Can you expand a bit more on it? And what you mean by "small simple savings that are recurrent"?

6:24 AM  
Anonymous John said...

One other commnet...

I totally agree with you abt traveling.

At one time in my life I would have thought traveling a luxury. Not something worth spending money on.

But now I see it as the one luxury that I think very worth spending money on. It really does a perosn good to experience new faces, lands, etc on a yearly basis.

6:28 AM  
Anonymous Anonymous said...

I find the idea of retiring at 35 or 37 with a small net worth to be a strange idea. I am 35, married, earn $140,000 - $170,000/year depending on bonus. My wife earns $90,000 a year. We have no kids and won't be having any. We both have jobs that we enjoy and find stimulating. We live in a $600,000 house, I drive a BMW and she has a company car. We have no debt other than a mortgage that will be paid off in 10 years. We have about $350,000 in RRSPs and other savings, stock, cash. If we liquidated everything now we would be able to "retire" if we wanted to live at the poverty level for the next 50 years. Instead, we work hard but take lots of time off and travel, relax and enjoy our nice house and pool, and generally have a great life.

Maybe you should look at changing careers and getting into something you find more stimulating. How about a career that links effort and acheivement to income? I don't even have a University degree but have been making over $100K per year since the age of 26 in a sales position. My wife has a Degree and also works in Sales. We both have tremendous freedom, job security (we are both top performers) and flexibility to work from home when not out on the road.

Jack if you spent as much time and energy managing your career as you do planning to retire early, you might find you wouldn't be as eager to leave!

Just my two cents.

6:51 AM  
Anonymous John said...

What exactly kind of sales is this?

And you do NOT have a college degree of any kind?

Please provide more details OK?


1:39 PM  
Anonymous Matt said...

Ignore the post from Anonymous: either he is making stuff up, or he is extremely lucky. In any case, if he is not interested in early retirement, why is he reading this blog?

I found your post on the different phases of early retirement to be your best post so far. I have been thinking along the same lines for several years now , although my goal is far less aggressive than yours.

One option you might want to consider for the first, second (or both) phases of retirement is: moving to a low-cost country. This can dramatically lower your expenses and allow you to not touch your nest egg for many more years. The third phase can start when you are eligible for social security or company pension, at which point you can move back home.

9:35 PM  
Anonymous Anonymous said...

If you would like to come by my office and look at my t-4's for the past five years, feel free.

My income is good but there are thousands of sales people in Canada who make much more than I do. The financial service industry has the most - lots of brokers, planners, and fund sales people who make over $500K/yr. Lot's of IT sales people that I've met who make $250 - 600K+. I even have a client in a service industry who has reps making between $250K and $1M.

Without good sales people this world would grind to a halt. No business transactions take place without someone selling a product or service to someone else. Sales people tend to make the most money after senior executives (and sometimes more).

Matt, I am interested in early retirement but to me that means at 50 to 55. In my business I will be able to slowly transition out, keeping the clients I enjoy working with so I will be able to take extended periods off but then work 3 or 4 days a week for other periods.

Early retirement to me also means having the resources to live a great life, travel, do what I want to do and not worry about money. Imagine you retire at 37, 40 or 45 with only $500K or so and you run out of capital in your early 70's due to a major recession, or other unplanned calamity. Do you want to have to get a job then? Be a Walmart greeter? No thanks. I'll wait until my house is paid for and I have at least $3 or 4 million put away so I can have the same income levels I do now.

4:12 AM  
Anonymous matt said...


I don't live in Canada, but a quick web search tells me that the median income for individuals in Canada is about $25K. You certainly belong to such a tiny stratum of Canadian society that I'd hate to draw any conclusions from your personal experience.

It is interesting that you don't want to retire until you pay off the house and save enough money to ensure that retirement income is at current income levels. These are exactly the same goals that I (and many other people) have. If you run the numbers, you will see that the time it takes to achieve these goals has little to do with your income; it depends more on a) what fraction of your income you save and b) how big your home loan is compared to your income.

9:57 PM  
Blogger Jack said...


Sorry for the late answer. Had a rush in the last two weeks at work, the kind of rush that reminds me why I want to retire early.

By coupons, I mean the grocery rebate (and the like) you have to cut in a newspaper.. takes more time that the money saved (if you consider that your time has some value).

Recurrent savings: like that I mentioned in my examples. Low-energy bulbs, new insurance at lower cost, car that gives more miles per gallon, etc. You do the effort one time, then, you save for a long while.

Regards, Jack

6:25 PM  
Blogger Jack said...


I've considered the option of moving in another country. Unfortunately, my first choice would be Europe (in the neighbor of the Mediterranean sea), which is not particularly cheap.

6:28 PM  
Blogger Jack said...


If your are happy with this lifestyle, then, that's okay, I won't try to convince you your are wrong.

People are all different and they enjoy life in different ways.

For one part, I think I would'nt be able to earn as much as you do, so forget about the BMW and the $600k house, actually it is a $85k condo and a six years old small sedan :)

But even if I would earn your wages, I am not sure I would change my lifestyle that much. Let me explain you why.

My wife and I have many friends from the local art community, not exactly the kind of people that ride a BMW. We much enjoy our relationships with these friends, our conversations are stimulating and creative. I make much more money that any of them. I'm quite sure things would be different between us if I had the largest house I can afford, a nice car and so far.

It's not that I have to fake a humble lifestyle: my spending habits are actually modest, I've always been living that way.

Let me give you an example. Ten years ago, I went to New-York for a long week-end visit. We've been in what I considered at the time to be a great hotel, next to Time-Square, at $300 a night, a two-beds room that I shared with a friend.

Two-years ago, I went back to New-York, this time, nine of us slept in a cheaper hotel, all in the same suite at $250/night. We were packed to the limit, the suite had two rooms with two double-beds each + a living room with a sofa-bed.

I think I enjoyed more my second stay (which is also funnier to describe).

I also enjoy more travelling with a backpack than with a business case. I just can't enjoy too much of luxury, I don't feel comfortable with it, it's not really my world.

7:15 PM  
Anonymous Anonymous said...

good comments, enjoy.

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