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How to Retire Early - A True Story

Published by Hamilton Software, Inc. on November 1, 2009 | Comments

The true 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 beginning.

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.

Most 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.

Using a 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 going. Then, choose your destination from among the many possibilities and fly wherever you want to go!


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