Should I retire next year?

[Lordy]

Hello fellow Mustachians,

I need your opinion on whether I can/should retire next year. Here is the basic information:

- Age: 44
- Net worth: ~900K
- Yearly passive income (dividends and interest): ~33K

Last year was the first year, where I was almost able to cover all my expenses with the passive income (2-3K short).

This year, I will move from my rented apartment to a family-owned property, which will eliminate my biggest expense: rent, currently at ~10K/year.

So, starting next year, there is actually a considerable buffer between the passive income and my expenses.

As I have been paying into the national pension fund for 20+ years now, I am on track to receive a decent pension on top starting age 67.

I would prefer to work part-time, but my current employer does not offer this. I make about ~120K which is an OMY magnet, but looking at everything I feel pretty safe.

Health insurance is not a problem, as it is employer-independent and will be a percentage of my passive income, just aas it is a percentage of my salary today.

Would you take the plunge?

Cheers, Lordy

[former player]

You should be fine, financially speaking, especially given that as your expenses are so much lower than your investment income then your invested capital should continue to grow.  And at your age, and with a successful track record so far, finding employment or business opportunities to cover such low expenses should be easy, if it turns out to be necessary.

Things to consider might be:

1.  You haven't said what the tax position on your investment income is, and whether this might change to your detriment.  (At one point in the UK some investment income was taxed at 98%.)

2.  The family property: do you have any guarantees about this being available to you for the rest of your life?  If not, can you cover alternative housing provision?

3.  Have you taken into account the possibility of changes to your expenses that might not be covered by your investment income?  You might find yourself with additional financial obligations (eg creating a new family, or in return for the use of the family property) or that you develop an expensive hobby as a result of retiring early.

Otherwise you look good to go, financially speaking.  Congratulations.

Do you have a plan for your retirement, or are you going to figure it out as you go?

[Lordy]

Thanks for your input!

1.  You haven't said what the tax position on your investment income is, and whether this might change to your detriment.  (At one point in the UK some investment income was taxed at 98%.)

Germany applies a 25% flat tax on dividends and interest. This tax setup has existed since 2009 and I haven't heard any plans to change it.
If they switched to treating it like income (applying income tax), it may actually be cheaper at ~17% tax right now for this level.

2.  The family property: do you have any guarantees about this being available to you for the rest of your life?  If not, can you cover alternative housing provision?

I will get a proper rental agreement (just to be safe) and the plan is to transfer that property to me in the next ~5 years.
So, yes, I have confidence this is available long-term.

3.  Have you taken into account the possibility of changes to your expenses that might not be covered by your investment income?  You might find yourself with additional financial obligations (eg creating a new family, or in return for the use of the family property) or that you develop an expensive hobby as a result of retiring early.

I would really like to travel more, but the list of countries I absolutely have to see is short (maybe 10).
Given that I can leave on a random Wednesday at noon, if that's the cheapest flight, vacations will probably be even a bit cheaper than they are now.

Do you have a plan for your retirement, or are you going to figure it out as you go?

I want to focus more on my health and work on some side projects (electronics, software development, etc.)
These may turn into "side gigs" over time, but I am not pressuring myself.

[EchoStache]

Assuming annual expense of $26k, that is a withdrawal rate of ~2.9%.  Seems pretty safe.

$900k is also not an exceptionally huge pile of money.

For safety/risk reduction, how hard would it be to work part time if the need or want would arise?

[Lordy]

For safety/risk reduction, how hard would it be to work part time if the need or want would arise?

I have 20 years experience in IT, so I am pretty sure I could find some sysadmin/consultant work.
Alternatively, Germany has a ~550$ threshold for "mini-jobs" that basically have no taxes attached, that would be ~6K a year.

If all else fails, I could rent out one room to a student from the nearby college for maybe ~350/month.

[PhilB]

The thing that rang alarm bells for me was your description of your passive income as "dividends and interest." Dividends you can hope will keep up with inflation.  Interest OTOH is generally lucky if it beats the loss to inflation on the associated capital, so I hope that isn't a large fraction of your passive income.

[Laura33]

You're good.  Go.

Yes, there are all sorts of things to consider, so it's good to think through those -- in particular, your plan assumes that your future life is going to be the same as it is now, just without a daily job, but if that changes (say you find a partner, add a kid or two), your plan may no longer be viable.

But you also have a lot of layers of protection built in that insulate you from those sort of changes.  You are in a fairly high-demand profession, so as long as you keep your skills current, you should be able to find another job if at some point you need to.  You have options to supplement your income if needed, and in fact your hobbies might be something that grow into an income source, as well.  Plus you've got that pension coming in another 20+ years.

It is good to think through possible down sides.  But it is not good if you let fear of those possibilities prevent you from taking the leap into something you really want.  Plan for the worst, by all means.  But once you have a reasonable plan, stop thinking about all of that and go live the life you want.  Congratulations!

[EchoStache]

For safety/risk reduction, how hard would it be to work part time if the need or want would arise?

I have 20 years experience in IT, so I am pretty sure I could find some sysadmin/consultant work.
Alternatively, Germany has a ~550$ threshold for "mini-jobs" that basically have no taxes attached, that would be ~6K a year.

If all else fails, I could rent out one room to a student from the nearby college for maybe ~350/month.

You will have a conservative withdrawal rate and some easy backup income if you really needed it for something drastically unexpected.  This would make me feel pretty comfortable pulling the trigger if I were you, especially since you are saying next year which means more contributions and growth(hopefully).

It's funny how drastically different some peoples goals are.  I like your plan.  I was reading on another forum where someone had $2.5M and wanted to keep saving $225k/year for 15 more years before they retire so that they can spend >$300k/year.  Absurd.  The game is already won but they will trade their lives for money for 15 more years.  WTF?

[flyingaway]

Do you really want to not work (retire)?

[Fru-Gal]

Working on your health is an amazing goal in FIRE. I’m 2.5 years into FIRE, always have been healthy, but now achieving PEAK health in last few months, with new insights into what all that entails.

It’s worth all the money you’ve got in the bank and more to look and feel good and have high energy to do whatever interests you.

[Lordy]

Do you really want to not work (retire)?

Yes.

I want to be in control of my most valuable asset: time.
Currently, I am trading it for money, which I think I have enough of already.