Here's an idea for people who are done with school and aren't too excited about the standard life staring them in the face. Instead of grinding through life to retire later, why not work as hard as possible to retire first, and then live the rest of your life on your terms.
There are probably a lot of ways to do this, but I'll suggest one that seems sort of obvious to me.
Your first goal is to buy a place in Las Vegas. Livable places can be had for $35-50k, and then you own it for life. Property taxes will be a couple hundred a year. HOA fees will be $1500-2000. Add in electricity, and maybe your monthly burn is $250 total. Don't get too hung up on Vegas if you don't like it. I just suggest it because I bought a place here in that price range, and I think it's a city that has a lot to offer. Taxes are low, as are flights to other places, and cost of living off the strip is low as well. Detroit probably also works.
You can't get a mortgage for these places, which is part of why they're so cheap. So you'll have to pay cash (or borrow privately). To save up the cash, work for three to five years and save everything. Eat cheap food that you can make yourself, live with your parents or roommates, take the bus. You'll miss out on a lot of stuff that your peers are doing, but that's the tradeoff.
If you can save up $1000 per month, you can buy a place cash in three years. That's not too long of a time to work hard and deprive yourself of entertainment a little bit. Start when you're 21, and you own a place free and clear before you're 25.
When you're done, you are guaranteed low expenses for life. You have a place to live, which is most people's biggest expense. You can even rent out one of the bedrooms, which should be enough to cover your expenses, including food.
The point of this isn't to sit around and do nothing. It's to get your time back. Once you own your time, you can be picky about jobs you get. You have time to build your own business. You can take a year off to learn skills you need to move to the next level. You can spend six months writing a book. One good book on Kindle is enough to cover your expenses at your cheap place for years.
Most people live lives that are high input, high output. They spend nearly all of the money they make, which makes them crawl to retirement. Instead, you can start with moderate input, low output. You make only a moderate amount of money, but you don't spend any of it. Then you parlay that into an asset, a house in a very inexpensive place, that keeps your output down for the rest of your life.
This is more or less what I've done. I did it first with an RV, and now a place in Vegas. I still work very hard all the time, but I do it because I love to do it. Sometimes I take a day off to have tea with a friend, and that's okay. Other times I spend a few weeks working on a project that doesn't end up panning out. There are a lot of people that make much more money than I do, but most of them have higher burn rates, too.
This plan is mainly for young people, but there's no reason anyone else couldn't do it. In fact, if you already have a high paying job that you don't like, you could probably do it in a year. Will any readers actually do this and follow through? I hope so...
Photo is the Vegas strip from the Cosmo Pool
Another potential location to find some good deals is in Coal Country (Southwest Virginia-Kentucky). The coal industry is taking big hits and they are going bankrupt. I see in a news report that they are laying off a lot of workers. Those workers are making an average of $24.00 an hour ($60-$80k a year). They won't be able to replace that type of income in those locations. I suspect there will be lots of foreclosures and bottom dollar deals as those families scramble to find new ways to survive.
I have been doing some research on this. It turns out that this is right in the spirit of how many people acquired their first home up until the early 20th century and particularly the early 1950's in the US. They would build a small house, often called a shotgun shed because you could shoot a load of buck shot from one end to the other, with the idea of expanding it as they acquired the wherewithal to do it. The idea was to AVOID going into debt to get a home--imagine that. Buying an inexpensive condo in Vegas falls right in with this idea in the absence of the ability to buy land. I am looking into buying an acre or two of land and building a small cabin or tiny house on it similar to the stuff you're doing on your island, but on a smaller size/price scale. I trade currencies and futures, so Internet access is all I need to generate income and the costs will be low enough that what I make from that will cover my expenses.
An apartment in the city would be a nice alternate base of operations, and so your Vegas idea also appeals, but I like some room in the country. One can buy 16x28 ft shed for about $10k from Lowes or Home Depot, about half that if you have the skills to build it from scratch. It could be converted to a cabin easily for about $5000 more. Spend a bit more on lumber to make the a seven-foot high second story and you've got 896 sq ft of living space with a loan payment that is less than a lot of people's car payments. This should be way more than enough for one or two people. The most expensive part will be the concrete for the foundation, the total cost can vary a bit from place to place, but should still be under 35K, including the land. Far less depending on where you build. Since I already live in my RV, I could live in that while I was laying the foundation and building the house. Done in stages over the course of three to five years, this could even be done debt free.
I think the American dream is still possible, you just have to start right, keep expenses low, be willing to so some work, and avoid falling into the debt trap and winding up of working your butt off solely to make landlords, bankers and merchants rich.
I really like the idea of doing both what you recommend and tynan have recommended.. Have a cheap apartment in the city (Vegas) and a bit of land with a cabin somewhere at higher altitudes (cooler temps) like Norther Arizona or Southern Utah. You would have the benefit of being able to drive a few hours to either place and move with the seasons.
Where you have looked for land in that price range as described above?
I have been overseas of the past 5 years and have not been in the loop on real estate in the USA lately. I am considering doing the described above. I have the money now and have rejected the golden handcuffs of life. But as Nassim Taleb hinted, that addiction called the monthly paycheck is keeping me from doing it.
My question is, how do you create total passivity on your income? For me, retirement is when I'll be able to live without doing ANY profitable work for an unlimited amount of time (though the silver standard is at least 50 years). Obviously, it'd be hard to save up a 50-year cash hoard given standard 3-percent inflation. So, how did you all do this?
There's something in retirement circles called the 4% rule. It basically means you save up 25x your annual expenses, invest it, and then can withdraw 4% of that (adjusting upwards yearly for inflation) more or less indefinitely.
Some reading on it:
www.cfiresim.com is a cool calculator to let you put in your amount saved, expenses, and see how your portfolio would have done historically, I highly recommend it for retirement planning.
Have you used http://www.runway.co/ before? It's relatively new, but would be curious to hear how you think it compares to cfiresim. Runway seems a bit easier to use IMO, the UI is easier to grok
There's a lot of retirement calculators, from simple to complex.
The beauty of cFIREsim is in the actual historical data--you can see how your exact scenario would have held up if you retired in 1929. In 1930. In 1931. In 1932. And every year since.
Will it guarantee the future? Of course not. But if the future isn't worst than the worst time ever to ER (like Black Friday, or the 60s with the upcoming 70s stagflation, etc.), then you should be fine.
Most retirement calculators are based on monte carlo sims, which are okay, or on whatever projections you put in, which is terrible. The one you linked is in this latter category. It has you pick an investment return (the default is 5%). I don't know the future. Even doing several, and choosing a range, is a bad idea, because of variations. This type of planning assumes smooth returns, which is never the case. In retirement, there's what's known as a sequence of returns risk--the market dives, you have to take out money to live on, and your portfolio can't recover. At that point you don't care if the returns smooth out over 50 years. That calculator is pretty, but also pretty useless (hope that makes sense as to why).
Many of the linked ones above fall into a similar trap. Okay for rough planning when you're decades from retirement, terrible for planning for decades OF retirement.
The monte carlo sim ones are better, as they at least don't assume smooth returns, but more random, but they still rely on assumptions and don't follow anything related to the real world.
It does take awhile to understand the cFIREsim interface, but it's worth figuring out, IMO. YMMV. :)
For me, that's like $450,000. At my current savings rate, minus compound interest of any sort, that'll take more than 70 years to put together. Granted, my expenses will drop by like $800/mo when my debts are all paid off in about 6 years. But still, $206k will be 12 years or so with my current 65-hour week schedule (not counting my ventures, which always seem to fail). In 18 years, I'll be 51. That's not early. Why was I even born when all I can do is fail? USE CONDOMS, PEOPLE! GRR!
51 is early. Most people NEVER have enough assets to retire, so they wait until their mid-60s and live on a small Social Security check. I'd rather use whatever SS you get to supplement your passive income, personally, and have an extra 15 years of retirement/freedom (from 51 to 66) to boot.
It's all about your savings rate, if you read that "Shockingly Simple Math" post I linked to below.
There's two things you can do: Increase your income. Decrease your expenses.
Work on those two to speed up your time to FIRE.
Tynan, thanks for this interesting idea of a post. I'm actually 26, still in pharmacy school, will graduate in 1.5 years. I've had the idea of retiring before 50 at least, but what you're proposing sounds great and definitely gets me considering!
In the Philippines, you can get a place for as low as you like. I know of small studio apartments for as low as $75 per month. You can share a house 2 - 3 ways and hire a helper to clean so that nobody fights over cleaning. There are ways to go lower than $75 / month but at that low, why bother.
For that same run on 50k, you could keep going for twice as long and probably fund a full retirement in the Philippines. Then do whatever you like to top that off with some extra living expenses.
I like the idea of geographic arbitrage, and retiring to a lot lower cost of living, but I've often seen people get "stuck" in that situation, because they just get enough to live there, but then don't have the flexibility to go back to the U.S. if they want (or wherever they're from).
I personally wanted to save up enough so we could live in the U.S. if we wanted, then go to live in cheaper COL areas for awhile to check those out as well.
What do you recommend for health insurance ? I am 40 but in good health, eat clean and exercise. I have about 450k in assets and retirement fund but want to retire or semi retire soon.
Buy it on the exchange.
People often ask about health care for early retirement (it's usually an excuse as to why one can't ER "but..but..what about health care?"). The answer is easy: you pay for it.
The ACA was a huge boon for early retirees, capping your health care costs, guaranteeing coverage if you get something like cancer, so now you can't get dropped by your provider, etc. If you keep your expenses low enough, you can fund them cheaply via Roth rollovers and pay $0 in taxes, and get healthcare subsidies even.
Here's some great posts on optimizing the ACA for ER:
Read through those, and I bet they'll answer nearly all of your questions. :)
Early retirement (ER) has become a really popular idea in the last few years among Millennials. People have a bad connotation of the word "retirement," thinking it means you have to do nothing but sit around and watch TV, but most of us who go for ER don't even own a TV. It's about freeing up all your time, and not having to work for money any more. It's more about financial independence than retirement.
The biggest site is www.mrmoneymustache.com -- an engineer who retired at 30. He lives on about 25k/yr (but with a paid off house, so it's equivalent to more like 40-45k/yr).
The post that blows everyone's mind is: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
The blog that started this latest version of early retriement it is www.earlyretirementextreme.com -- though his example is TOO extreme for most people, he lives on about 5-7k/yr.
Root of Good (who retired a few years ago at age 33) just had a really great post where he outlined his exact "zero to millionaire" route (with his actual numbers, not theoretical): http://rootofgood.com/zero-to-millionaire-ten-years/
My wife and I just FIRE'd (financially independent; retired early) at age 30. We lived in Vegas the last 8 years (coincidentally), and now are traveling the world full time. You can find me on the MMM forums under the screen name "arebelspy."
I'm a long time Tynan follower (you'll probably see my comments going back to 2006 or so, sporadically), not just spamming links, but hoping to help someone who wants more info on what Tynan's talking about. :)
Seriously, if you're at all curious about this, go check out MMM and RootofGood's post to start, and then delve into some of the others. It really is possible to ER in a decade or so, and live whatever life you want. Many of us have done it, and more every day are completing their ER journey and starting some amazing adventures after.
Why don't they give mortgages in vegas? Is it because the amounts are so low?I also heard you could get a foreclosure house for a similar amount in vegas, and you'll avoid the HOA fees. But the HOA does do a bunch of maintenance for you although, with a house you will have to cover the time & money of that maintenance.
As I mentioned in other posts, I've bought a place in Vegas and have officially moved there (although I still spend a lot of my time traveling). Living in Vegas is a weird sort of loophole that most people probably aren't even aware of, so I figured I'd talk about why I decided to do it, and the unique advantages that Vegas presents.
If you work independently or remotely, Vegas is very likely to be a place you should consider moving. If doing so would require you to find a job, Vegas is probably not for you. The job market here is terrible, which is part of why this opportunity exists. That barrier is suppressing demand for housing.
The biggest reason to consider Vegas is the very low cost of living. There's no state income tax, and housing is cheap. Ridiculously cheap. My place would have cost approximately twenty-two times as much if I had bought it in San Francisco. Thats crazy! I bought a 1000 square foot place for under $45,000.
The thing that makes this amazing is the location. My place is six minutes from the airport, eight minutes to the center of the strip, twelve minutes from downtown, and five from Chipotle.
Maneesh Sethi was kind enough to write up a guest post for us on striking off internationally and doing the digital nomad thing.
Here's Maneesh -
Every day, someone says to me: “I wish I could travel like you do.”
And every time I respond: “You can too.”
You see, I’ve been traveling for the last three years as a digital nomad, through Asia, South America, Europe. I move to a new city, learn a new language, and do a cool project. I built an online business that is completely outsourced, so now I can work as many---or as few----hours/week as I want.