Author Topic: Time to gain financial freedom? Advice needed.  (Read 7330 times)

mr.marc.stache

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Time to gain financial freedom? Advice needed.
« on: September 14, 2014, 12:29:50 PM »
Folks: I am now 39 and finally achieved my savings goals > 1M. But now that I've made it I need some advice on making the move to quit my job and regain my freedom. I have been putting off the move because there has always been more money to make, but now that I have achieved the savings goal it harder to put in another 6 - 12 months of work for more savings. I think with my 'stache I can spend about 3-4,000 / month which should be plenty.

Here are my concerns:
- How to quit? I started a new project at work and feel bad about disappointing everyone..
- High transition costs. I'll want to move to a lower cost area. Is it going to be hard to rent a new place being newly 'self-employed'?
- How do I explain the change to friends and family?
- Is 1M really enough at 39? Housing costs and healthcare keep getting more expensive.
- Has anyone tried working on software or web projects on elance for a few hours a week as a backup income source?
- Will I regret quitting later, because of the loss of income or prestige of the job (which I don't like anyway). Has anyone quit a decent paying job?
- With all the newly found free time, will I become less disciplined in my spending?

When is the right time to make the move? Based how much is saved? Age?
Can others that have made the move, share how their transition went? What were the first few months like?
Thanks for your advice?
« Last Edit: September 14, 2014, 12:32:05 PM by mr.marc.stache »

emor061

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Re: Time to gain financial freedom? Advice needed.
« Reply #1 on: September 14, 2014, 04:49:06 PM »
First of all, congrats on acheiving your savings goal!

In terms of how to explain quitting your job to friends and family, I would suggest framing it as "taking a sabbatical" for a year.
This gives you some more flexibility to test the waters and look into some options like freelancing like you mentioned.

In regards to being worried about disappointing your workmates on the new project, I really don't think you have to worry! As long as you give enough notice, they'll be able to find a replacement and the project will be able to continue on without you.

mr.marc.stache

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Re: Time to gain financial freedom? Advice needed.
« Reply #2 on: September 14, 2014, 04:58:39 PM »
Thanks for the advice. It's a big move. I'd like to do this by the end of the year. While I'll miss the yearly bonus, I think at this point I should optimize for happiness not financial gain.
It's really difficult to take the first step, but I think once I do that I'll be able to move forward on my goals.

RetireAbroadAt35

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Re: Time to gain financial freedom? Advice needed.
« Reply #3 on: September 15, 2014, 09:13:24 AM »
Congrats!  How is your stash allocated?  What is your draw-down strategy? 

Keep in mind, you can always go back if you want to.  It's easy, at least in the first couple of years.

mr.marc.stache

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Re: Time to gain financial freedom? Advice needed.
« Reply #4 on: September 15, 2014, 09:52:55 AM »
> Congrats!  How is your stash allocated?  What is your draw-down strategy? 

Right now, 60/40% mix of bond and stock mostly index funds. I'm considering that 3-4% draw down will produce sufficient income.
About 1/3 is in retirement accounts, so I will have to draw-down some cash and other liquid assets for a while

I have considered that most stock and bond funds produce only about 2% dividends, so I have to rely on some capital gains for the rest.

I am investigating some freelance online work to supplement or as a backup.
Another safety measure I considered that one can buy an annuity if one doesn't believe they have sufficient money left later in life.

> Keep in mind, you can always go back if you want to.  It's easy, at least in the first couple of years.

In theory yes. But I think this would be hard to do for a number of reasons. First, I don't think I could get back to a job at the same pay, second I don't think I will ever want to go back to a traditional 9-5 office job, unless I absolutely have to. I have considered maybe a university or research job might be a possibility, if I want to go back.
So mentally this feels like a permanent shift. But I'm thinking if Mr Money Mustache and other folks can do it, I can too! Thanks for everyone's encouragement.

Debt Free in Alabama

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Re: Time to gain financial freedom? Advice needed.
« Reply #5 on: September 15, 2014, 10:10:59 AM »
I'm getting close to the point you're at, and in terms of having enough money vs. dividends vs. capital gains drawdowns.....my thoughts and plans are this:
1. I'll never quit doing SOMETHING that generates income.  I love fixing/organizing the fixing of houses that can be sold or rented.  I like mild handy-man work.  I like gardening for the family's veggies.  I like consulting with folks about achieving financial independence.  I like writing and coaching about FI.  BOttom line: I can keep making money doing projects I like and want to do, for a long time, eliminating the need to touch the capital gains.

I believe you will be well-served to plan on that for the remaining decades of your life, vs. some mystical "couch/TV/playing all day long" mystical retirement idea.

mr.marc.stache

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Re: Time to gain financial freedom? Advice needed.
« Reply #6 on: September 15, 2014, 10:28:06 AM »
> I believe you will be well-served to plan on that for the remaining decades of your life, vs. some mystical
> "couch/TV/playing all day long" mystical retirement idea.

The plan is something I'm thinking about as well. First I'm thinking of finding some freelance software or web work online for a few hours a week. There are now a number of co-working offices in most cities to support this. There is a small cost to rent a desk. This might be a good transitional element. I'm not sure how much income this could produce at first, but long term it might lead to something. Many of the projects on elance have a lot of competition, so I'll need to find some niche I enjoy.

I'm also looking into various hobbies, outdoor activities, healthy lifestyle, and volunteer work I might enjoy that I haven't had time to pursue in the past.

I'm also thinking about spending a few months each year living abroad. While there is a some cost to travel, in many countries one can for less than $3000 / month with a high quality of life.

I definitely don't want to end up on the coach with the TV, which is what ends up happening after working a regular job. There is a lot of uncertainty, but I'm staying positive that I'll find the right path.

Mostly FI is about having the freedom to find happiness and being in control of one's life.

peter bedpan

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Re: Time to gain financial freedom? Advice needed.
« Reply #7 on: September 15, 2014, 05:55:29 PM »
I'm in a similar situation with similar thoughts so let me share some random outcome of my ruminations:

Since I'm not the guy who jumps into the water I decided to go part time although I need to go through a law suit for this.
Quitting outright  was not an option because I have some real estate that needs fixing and the costs are only known when it's done.

Friends and relatives will understand if you explain it often enough.
Maybe your boss won't. Be fair and give a few month notice so they can find someone new.
If they aren't acting and hoping to coax you into staying longer it's their problem.

The 4% rule doesn't exist: Google  "fortuitous Wade Pfau". And plan for taxes of investment earnings, even those that might become the law in the future.
In the last century capital gains in Germany were tax free if shares were held longer than 6 month. Now 25% taxes have to be paid no matter how long you were holding the shares. This bites you in times of high capital gains and high inflation.
That's why I want my withdrawal rate to be below 3%; 2% would be optimal.

mr.marc.stache

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Re: Time to gain financial freedom? Advice needed.
« Reply #8 on: September 15, 2014, 08:24:33 PM »
> The 4% rule doesn't exist

I figure I would try to stick to 3% or around $3000 / month, which seems reasonable. Later in life I could increase to 4% if investments hold up.
I might be able to stay at 2% if I stay extra frugal or have the supplement income.

The 4% rule seems to be covered alot elsewhere:
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

As a backup plan, I would like to find some part-time freelance work online - -maybe web design, blog setup, research, data analysis, SEO, open source software, or some other small project .
Has anyone tried elance?
I also thought about part-year or seasonal work.


As far as taxes, at least 1/3 of my savings are tax deferred or non-taxable. This includes IRA, savings bonds, and muni bonds. The stock dividends, other dividends, and capital gains are now taxed at a low rate if one's income is low. It's also possible to reset the cost basis of some shares each year while taxes are low.
It is true that taxes could increase in the future and decrease one's returns, but this is one of many investments risks. But it's also possible taxes on investment income remain favorable for the near future.

Life expectancy, investment returns relative to inflation and taxes, and one's personal future cost of living are all unpredictable. My opinion is that the MMM philosophy is one makes reasonable assumptions and has a backup plans -- good health, activities that turn into income, etc.

I think the overall question is do I optimize for financial gain or happiness? If I'm not happy at the job and have some solid saving, my thinking is I should go now (or sooner). 

I think that fear of the worst case scenario can hold myself and others back. But the cost of not taking action is the best case scenario doesn't happen either.

Hugh H

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Re: Time to gain financial freedom? Advice needed.
« Reply #9 on: September 15, 2014, 08:36:38 PM »
Thanks for the advice. It's a big move. I'd like to do this by the end of the year. While I'll miss the yearly bonus, I think at this point I should optimize for happiness not financial gain.
It's really difficult to take the first step, but I think once I do that I'll be able to move forward on my goals.

Oh man, suck it up for a couple more months and get that yearly bonus!

vagon

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Re: Time to gain financial freedom? Advice needed.
« Reply #10 on: September 15, 2014, 08:44:14 PM »
It's easy to say from the side-lines, but I would optimise for happiness.

What do you want to learn? What are you passionate about?

Maybe you could help as a part-time dev for a start-up in that co-working space.
Maybe you want to try tiling and could work as an apprentice to a tiler and then renovate some properties for friends and family.
Maybe you want to assistant coach the local high school team
... and so on.

The point is you historically speaking you have enough cash to retire and in any case you could work part time in any number of lower paying areas and be definitely fine.

Oh man, suck it up for a couple more months and get that yearly bonus!

Depending on the amount (factor in taxes of course), this does make sense.

RetireAbroadAt35

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Re: Time to gain financial freedom? Advice needed.
« Reply #11 on: September 19, 2014, 08:20:09 PM »
In theory yes. But I think this would be hard to do for a number of reasons. First, I don't think I could get back to a job at the same pay, second I don't think I will ever want to go back to a traditional 9-5 office job, unless I absolutely have to. I have considered maybe a university or research job might be a possibility, if I want to go back.
I recently took a two year break from work to go on sabbatical.  When I decided to come back, I was amazed by how easy it was to get job offers by reconnecting with colleagues.  I had several interviews and two offers in just a few weeks of searching.  It was eye-opening.

So treat this like a permanent move, but keep in mind that if you really had to earn some cash, you could.

Thegoblinchief

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Re: Time to gain financial freedom? Advice needed.
« Reply #12 on: September 20, 2014, 06:24:10 AM »
Since no one answered the rent question, based on the journals I've read by recent escapees, it's not much of an issue. Usually one of two things:

1. Show bank account balance in lieu of pay stubs.

2. Offer to pay half of the lease in cash up front.

My question would be this: are you already living at or below the spending level your investments provide? If yes, go ahead and don't worry. If not, work through the end of the year to nab that bonus, all the while getting your expenses down and in line with a sustainable retirement budget.

Screw "disappointing" others.

mozar

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Re: Time to gain financial freedom? Advice needed.
« Reply #13 on: September 20, 2014, 10:15:34 AM »
Also, it's harder to get a mortgage without a job. So you may have to pay cash later which would decrease your stache.

mr.marc.stache

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Re: Time to gain financial freedom? Advice needed.
« Reply #14 on: September 21, 2014, 04:52:25 PM »
> Also, it's harder to get a mortgage without a job. So you may have to pay cash later which would
> decrease your stache.

One could pay cash upfront and then get re-finance to get the cash back for investing.
On the other hand, renting is more flexible. I probably wouldn't buy a house unless I found something that was a bargain or a good investment.

> 1. Show bank account balance in lieu of pay stubs.
> 2. Offer to pay half of the lease in cash up front.

Most states have restrictions on the maximum up front deposit. While I could offer, the landlord may not want to deviate from law as it could cause trouble later. Sometimes landlords are more flexible depending the housing market. In the past, when I was between jobs I said I was a student; maybe saying I was self-employed or an independent investor would work. "Retired" probably wouldn't work at my age.

> My question would be this: are you already living at or below the spending level your investments
> provide? If yes, go ahead and don't worry.

Yes. This is the case. approx 2%-3% withdraw would produce about $2250-3250 monthly income which is more than my historical spending. And maybe more income that maybe jobs provide, after tax and after savings, etc. So I thought I was in a good spot.

Cassie

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Re: Time to gain financial freedom? Advice needed.
« Reply #15 on: September 21, 2014, 04:59:33 PM »
I would say that I was self-employed.

waltworks

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Re: Time to gain financial freedom? Advice needed.
« Reply #16 on: September 21, 2014, 06:08:46 PM »
If you don't know why you want to quit other than "I don't like my job and don't need the money" and have no particular plans, I would probably wait to quit until you have some more ideas of what you want to do with your life. Even a job you don't like much will make you get out of bed in the morning and have goals/deadlines/other people to interact with. If you just replace that with nothing, that could be very bad.

Start doing the things you think you might want to do more NOW. Take lots of vacation time. Do the minimum needed to satisfy your obligations at work. When something (or someone) else is taking up most of your attention and interest, then quit.

-W

Gone Fishing

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Re: Time to gain financial freedom? Advice needed.
« Reply #17 on: September 22, 2014, 12:45:12 PM »
Congratulations on hitting your goal! 

As I am bearing down on my ER date after my "one more year", I have run the full gamut of emotions and it is only getting worse the closer I get.  However, I am pretty good at translating my anxiety into planning,(probably over planning).  Here are the key points to my plan:

My wife plans to continue working part time for several more years.  That will allow for a 3% withdrawal rate for the first 2-3 years, which will hopefully translate into a bigger stache' putting us in a better place to combat inflation (real and lifestyle).  We could probably squeek by on 2% with her part time and around 2.75% with no work for either of us if something went wrong with her job.  I plan on imposing a 4% annual cap on withdrawals (even during downturns).  If I can not make it work on 4%, I need to be looking for work as even a little part time work can significantly reduce required withdrawal rates which is especially effective in preserving the 'stache during a downturn.

I tell my wife it will be 5+ years before we even know if it is working.  I believe it was Dr. Doom who used the monte carlo simulator to show that in 60% of retirement scenarios a portfolio will shrink substantially and stay there for several years before it grows again. 

I plan on leaving my job on good terms, even though my time there wasn't happiest time of my life, I want to option of going back to a good paying corporate job if I need to.

I look at the money saved during my "one more year" as insurance, we can absorb several unexpected expenses (health, casualty, inflationary) or a sizable downturn without panicking.

I just keep reminding myself, if I was badass enough to 'stache more money than most people will see in their lifetimes in my 20's, then surely I will be badass enough to make ER work, and if I decide it is not working for us, there is still plenty of time to go back to work and shore things up if need be, a luxury a 65 year old doesn't have.  And even if I can not obtain my former salary, I can make enough to pay living expenses and contribute something to the 'stache and allow compounding to do the rest, allow for, at minimum, a reasonable traditional retirement.

And last but not least, even if we only make it 5-7-10 years and decide we have to go back to work full time, it will not be a failure, I will have enjoyed 5-7-10 years with my children and aging parents and grandparents, something most folks will never have a chance at.




Thegoblinchief

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Re: Time to gain financial freedom? Advice needed.
« Reply #18 on: September 22, 2014, 03:48:06 PM »
And last but not least, even if we only make it 5-7-10 years and decide we have to go back to work full time, it will not be a failure, I will have enjoyed 5-7-10 years with my children and aging parents and grandparents, something most folks will never have a chance at.

Really good way to put that!

former player

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Re: Time to gain financial freedom? Advice needed.
« Reply #19 on: September 22, 2014, 04:17:18 PM »
If you don't know why you want to quit other than "I don't like my job and don't need the money" and have no particular plans, I would probably wait to quit until you have some more ideas of what you want to do with your life. Even a job you don't like much will make you get out of bed in the morning and have goals/deadlines/other people to interact with. If you just replace that with nothing, that could be very bad.

Start doing the things you think you might want to do more NOW. Take lots of vacation time. Do the minimum needed to satisfy your obligations at work. When something (or someone) else is taking up most of your attention and interest, then quit.

-W
I agree with this advice - you need something to retire towards, rather than just having a backwards-looking "I don't want to do that anymore".  My experience is that it doesn't need to be a big thing, and doesn't need to fill all the hours you currently spend working, but it does need to be something which puts a smile on your face when you think about it.  (In my case, it was "I can go and live full-time in my second home by the sea".  Everything else I am now doing has flowed from that initial lightbulb idea that still puts a smile on my face every time I think about it.)