How to Retire Early - A True Story
Published by Hamilton Software, Inc. on November 1, 2009 | Comments
key to becoming wealthy and retiring at a young age is a lot simpler than you
would expect, as I discovered by doing it myself.
In my career as an engineer I learned the importance of spending time up front
to produce a good design. All too often, projects are rushed into construction without adequately completing this crucial first step, under
the assumption the sooner the building starts, the sooner it will get
finished. But any experienced engineer can testify a project ends up taking
much longer to complete if the planning and design phase is glossed over in the
What really amazed me was the smart engineers surrounding me in the workplace,
who understood this concept and took it to heart in their jobs, failed to apply
it at all in their financial lives. Like the vast majority of people, even the
most well trained strategic thinkers plod aimlessly through the most important
project in their lives without any clear objectives or timetables. Ask the
average engineer when he or she expects to be
financially independent and you’ll get a shoulder shrug.
Certainly it’s true some people don’t want to stop working. But even those who love their jobs would like the freedom and
peace of mind that comes with financial independence, and have other dreams like
owning a vacation home or taking a sabbatical. Most of us care more than we’d
like to admit, but very few have addressed this concern in a meaningful way.
People instinctively shy away from this problem due to ignorance, lack of
confidence, or fear of what they may learn.
Our parents’ generation could reasonably claim that architecting one’s financial
lifespan was too complex and contained too many unknowns to be practical, but
today’s computers and layman-friendly software have eliminated that excuse. Not
only is it possible to design a reliable strategy for becoming wealthy, the
efficiency of doing so can accelerate it by many years.
Thomas Stanley and William Danko’s now famous book, “The Millionaire Next Door”
dispelled the myths of wealth and revealed to us how common it really is for an
average working class American to become wealthy. Becoming wealthy is not a pipe
dream, nor an impossibly difficult task. It does not require one to sacrifice
family or integrity or to possess unique skills. But like any significant human
feat, it does require planning.
In my first job out of college, I sat next to an old man who was about to
retire. He gave me an important piece of advice: every young person should
identify their financial goals and what will be required to achieve them. “Draw
a line on a graph from where you are now to where you want to be”, he said.
When I tried to draw my line, I discovered the line is really a curve with a
number of variables influencing it, and depending on the values of these
variables, can have many different shapes. The old man's advice was simple in
concept, but easier said than done. To adequately address the problem would
require a computer.
To create the “line” my friend had suggested, I needed a program that allowed me to solve for any one of the many variables that
define the line. Since I was young, everything was flexible. I could retire at
any age, I could increase or decrease my rate of saving, I could invest
aggressively or conservatively, and I had several choices of tax-advantaged
savings vehicles, all with complex tradeoffs and hidden consequences. There was
also the question of how rich I wanted (or needed) to be. The choices for any of
these variables had complex effects on the others, and since I didn’t know what
those effects would be, I needed a program that would show me. Ultimately,
determining the ideal “line” was a process of finding a mathematically-derived
compromise that was practical and consistent with what I wanted out of life.
My solution was a program
called EarlyRetire (from Hamilton Software). By allowing me to instantly
solve any of these variables (i.e, examine every line), the program allowed me to
continually explore my options and immediately
see the long-term effects each would have. It allowed me to see what things would
make a difference and what wouldn’t, how much I could afford for big
expenditures like a vacation home, and at what point I could stop working.
importantly, it allowed me to discover ways of enhancing my wealth I wouldn't
have otherwise seen. Seeing what was possible in my life motivated me and gave
me confidence. Knowing what I had to do made it easy to stick to a budget and
invest appropriately without worrying. I was able to retire when I was 45,
knowing it was safe to do so.
I’m always dismayed at the free retirement
calculators found online. Besides being far too
simplistic and constrained to be of much use, they often tell users that early
retirement is hopeless given their current circumstances. While no one can
expect much from a free calculator meant to promote other services, I can’t
help but wonder how many people’s hopes have been dashed by such an encounter.
Certainly, most people are not on the right track to early retirement, but the
job of a good retirement planner is to find the track they should be on, and
carve a new one if necessary.
EarlyRetire was my solution, but there are many ways to engage
oneself in the financial planning process. It will require good software, but if
you're intimidated by finances, there are professional financial planners who
can get you going. The important thing is
to make the commitment to the planning process. Take it one step at a time and
gradually become engaged.
Eventually, you should strive to learn how to use the tools and take over the
controls yourself... after all, it's your life you're planning.
tool like EarlyRetire is like
learning to take the controls of an unpiloted airplane on which you’re a
passenger. Once you get the hang of it, you’ll find it fun and interesting, but
most of all, you’ll be relieved at knowing you have control over where you’re
choose your destination from among the many possibilities and fly wherever you
want to go!
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