Extreme Early Retirement

If you haven't read about Billy and Akaisha Kaderli of retireearlylifestyle.com before, you probably should to understand what is possible with early retirement. While they are definitely on one side of the spectrum, but hearing their story will make you think a little differently about retirement.

They retired in their late 30's (they're now 54) on about $500,000, and did so by only spending about $24,000 per year. How the heck did they do that?? Here's how they did it:

Simplify. A complicated lifestyle costs more.

Look beyond the border. An attractive lifestyle can cost much less in many countries outside the U.S.

Track your spending. And figure out where to cut. This is your life now, not a vacation.

Pursue low-cost entertainment, such as hiking, bicycling and reading.

I like many of the ideas here, including living outside the US for periods of time and also pursuing low-cost entertainment. Personally, however, I don't think I could cut my expenses down to $24k per year. It's amazing that they are able to live on that, even with some of the low cost places they have been living.

My current spending plan for retirement calls for about $60k per year, including allowances for taxes and a small annual buffer. How much will you need to cover your annual expenses in retirement?

More on 529 plans...

You probably remember me calling attention to a comment made by My Pocket Change in one of his posts about the feasibility of using 529 plans for general savings, instead of educational savings. My post was met with some amount of skepticism and I was planning a more formal response until I saw this one over at My 1st Million at 33. Bravo to the sheer amount of work put in to model the possibilities!

ML, the guest blogger who put the post together, calls this part one, and truth be told, I'm very interested in what else could possibly be added to the equation (pun intended). At the end of part one, the following conclusion is reached (emphasis mine):

At this point, you’re probably thinking, “Why bother!” Indeed, 401(k), Roth IRA or the traditional IRA, even the non-deductible kind are much better ways to save for retirement. It is only after those have been maxed out, does the 529 plan emerge as a potential alternative. As described so far, it’s applicable to only a very small segment of the population with high disposable income or a lump sum to invest early on.

If the story ends here, this would not have been a useful exercise. Fortunately, there is much more, both in terms of the 529 vs. taxable plan comparisons and ways of utilizing the 529 for qualified educational expenses thus avoiding the 10% penalty. Please stay tuned for Part 2!

Looking forward to what's next. Thanks for carrying the torch and deeply researching this one!

Reminding yourself to live simply

This article in Kiplinger's contains a lot of the usual mumbo-jumbo about keys to financial security, but this one jumped out at me. It's good to remind yourself periodically in a positive reinforcement sort of way:

Key 7: Live simply today for a more comfortable tomorrow
Deferred gratification is no fun, but it's the only way I know to fund your long-term goals -- college for your kids or grandkids, that vacation home you've always wanted, early retirement, a generous bequest to your alma mater. Take a close look at your current lifestyle, and if you see a lot of spending that is dispensable, consider it found money for the bigger dreams in your life (see The Invisible Rich).

Now, I'm not saying that you should live a hermit's life, but simply that you should be mindful of your spending choices. I've been running the expenses numbers from last year and have a certain amount of frustration with our burn rate because I think it's too high (mostly due to costs associated with the new house). However, as I've said, you can't put life on hold between now and retirement, so I probably just need to let it go and do a little living for today. In the end, it's really a balancing act.

December Net Worth Update (up 1.26% to $915,500)

Ok, so I didn't really get this one out in a timely fashion. It's amazing how the first few weeks of the new year can pull you in so many directions. It has been a heck of a busy new year so far!

Anyway, I'm back and here's the update:

Not a bad month at all to end the year. Overall, my stock gains were up 2.16%, but I used some of these proceeds for other purposes so the gain showing at NetworthIQ is shown a bit lower (see below). Also, my retirement gains were up a meager .69%, given that I moved into some cash early in the month. Following are the details:

1. Investment gains were great, but mostly due to end of year dividends. I racked up around $6000 in dividends and long term capital gains (from mutual funds) in the last two weeks of Dec. Also, I sold about $9000 worth of company stock (@ the 15% capital gains tax rate) and purchased another $5100 in company stock through our quarterly discounted employee stock purchase plan. On the one hand, it's great to have this stock, but on the other hand, it's quite a challenge managing how and when to get out of it.
   
2. As expected, I paid down the mortgage to meet my goal of $170k by the end of 2006. Given that I far exceeded my brokerage account goal for the year, I moved $5k from the brokerage account to realize this goal. To summarize, I've paid down $30k of the principle on my $200k mortgage this year (or 15% of it). Without extra payments, I would only have paid off $5400 (or 2.7%). That a huge accomplishment towards having this baby paid off by retirement in 2011.
   
3. On the Prosper.com front, I have $3000 principle invested into 15 loans, returning an average of 15.89%. All of these loans are current and I'm pretty comfortable with the whole thing so far. It's still more of an experiment for me, so don't expect me to all of the sudden dump $50k in there.

That's it, a pretty basic month.

On final comment I'll throw out there: overall, I'm a little nervous with the market right now. I'm in the camp that says we really need a decent correction at the current levels to be able to go higher. Consolidation in my mind always makes the markets stronger. To this end, I'll continue to hold the cash ($62k in my retirement account) that I have, as well as look to take some profits off the table (around $30k in my brokerage account) to position myself to buy the dip as it materializes. In my mind, it's not if, but when.