Retire by 40, what's your retirement plan?

Snapchat boohpo
Jun 22 43 Comments

Has anyone else planned out an early retirement? I am targeting retiring by 40, and my plan is below. Would like to hear what flaws might be present in this plan and what others might have planned.

- I would like to have $X/year post retirement (X=$200k for me)
- I am assuming a market where (conservatively) I can get R=6% annualized returns in the long run. I am basing this on SP500 average annualized returns for 15+ year windows being 8+% over the last 50+ years.
- I would like my retirement savings to support me for Y=35 years.

Based on the following formula, where P is the principal:

P = X(((1+R)^Y) - 1)/(((1+R)^(Y-1))R)

I would need to have just over $3 million in savings.

Caveats:
1) I am not accounting for inflation, but I am using a conservative interest rate, so hopefully that accounts for it. Would love to see if anyone thinks 6% is not conservative.
2) There could be a huge down turn in the markets, just as I am about to retire, where my principal can get cut by 50% (as has happened many times during recessions). How should I account for this. Simplest solution is to have double the capital, but that's a tall ask. I can always work a few more years and wait for my principal to recover, before I start withdrawing.

Would love to hear everyone's thoughts.

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TOP 43 Comments
  • Oracle gh4yk
    What are you planning to do after retiring at 40? Don’t tell me you are going to have fun. All of your peers friends will be working 9 to 6. You will have nothing in common.

    If you think you will see the world, travel on a yacht, get out of that fantasy. It will get boring in six months.

    To live a good life you need purpose. Retiring at 40 means you will have no purpose. Even volunteering will be boring.
    Jun 22 13
    • Vistaprint / Eng
      out of ink

      Vistaprint Eng

      PRE
      Cimpress
      out of inkmore
      I know I have no idea, that's why I'm asking. I have kids and could never imagine spending that much on them. I'm hoping you can enlighten me so I'm not blindsided 😃
      Jun 22
    • Oracle gh4yk
      Food, clothes (they grow too fast), school supplies, and the biggest, extra curricular activities. Man, they’re expensive.
      Jun 22
    • Snapchat boohpo
      OP
      Feel like it's the standard you want to keep. There are millions of households in the US that live with way less than 200k per year.

      gy4yk, can you give us a breakdown of these costs. My kids are still not even in kindergarten, so I would like to make sure I'm not blindsided as well.
      Jun 22
    • Did you account for kids college fees ?
      Jun 22
    • Intel ghakapi
      There are millions of households in the US that don’t live in Seattle or the Bay Area.

      Let’s annualize, and obviously there are choices.

      College savings - $6K/kid for in-state, $12K/kid for out-of-state.

      Food - $5K/kid.

      Clothing - $2K/kid

      Every extracurricular is $3K/kid - soccer, swim, ballet, dance, whatever

      Good luck traveling with a family of four - it will be expensive af

      The one most people don’t factor in are the overall household expenses that increase with family size - having two kids means you go from a 1-2 bedroom to a 3-4 bedroom place, which likely means an extra $300K in total cost plus your property tax goes from $5K to $10K. Cars go from costing $20K to $40K.

      So somewhere around $40K-$50K per kid.
      Jun 22
  • Airbnb New999hire
    Not accounting for inflation is deadly. Especially if you retire that early.

    Also don't underestimate medical expenses. Once you reach 45/50 years old the chronic pain and relentless health issues begin.
    Jun 22 1
    • Snapchat boohpo
      OP
      How would you account for inflation and what do you think the medical costs would be? If someone pulling in 200k an year won't be able to survive due to medical costs, this country is totally f***ed
      Jun 22
  • Microsoft hooray
    I enjoy working. I couldn’t imagine retiring at 40. I stayed home for a few months and got sick of it very quickly. It’s no fun being home when the rest of your age group is at work.
    Jun 22 1
    • Snapchat boohpo
      OP
      Totally agree. Plan is to do stuff I enjoy more, than sitting behind a computer, but those things won't pay anywhere close to what I would like to have in retirement.
      Jun 22
  • Amazon gdxi4nd
    Check out the financialindependence subreddit .

    Based on the 4% rule, your numbers are a bit low. $200k withdrawal a year would need about $5 million, not 3.

    My personal number is $2.5 million invested for a $80k yearly withdrawal. I'm on track to hit that before 40.
    Jun 22 2
    • Tableau krxi15
      Wait, how would you survive on a 80k per year? Are you including housing and kids? Location?
      Jun 22
    • Amazon gdxi4nd
      I'm in Phoenix, so LCOL/MCOL. Already have a really nice house, and my mortgage is less than $2k.

      Our household expenses are currently less than $40,000 a year. We estimate expenses to double with kids. "Surviving on $80k" is pretty easy if you live outside the Valley/Seattle/NYC area. Keep in mind that your expenses post retirement won't include things like 401k contributions, not do you have to pay FICA tax. Your $200k expenses should drop quite a bit.

      No kids yet, but we plan on a couple.

      The $80,000 will be pure, passive income. It should have about a 95% chance to last over 30 years.

      To be honest, I'm not interested in retiring early. I just want to have enough invested to cover my family expenses. I'll probably drop my big tech job and do something like academia or government.
      Jun 22
  • Intel ghakapi
    1) 8% equity returns were when the 10 year bond averaged 5%. In the age of 2% 10 yr bond, equities will prob return 5%. So your total returns will be 3.5%-4%.
    2) Most of these analyses go awry because you don’t factor in the 4 different occasions over your 40 year retirement when the stock market will probably drop 30-50%. Because you aren’t dollar cost averaging investments over that time, you can end up 70 years old and fucked.
    3) You are virtually unhireable at age 50 if you change your mind or your accounting goes awry.
    Jun 22 1
    • Aren’t the 4 different occasions when the stock market drops 50% already fully factored in the expected stock market returns (e.g. the 8% or the 4% you’re proposing), so why are you calling them out separately?
      Jun 25
  • Apple iCould
    Bro, don't count on that recent $SNAP tendies to last. Snap was lucky to ride the gender swap filter wave recently, but insta will continue its stronghold on Snap business
    Jun 22 1
    • Snapchat boohpo
      OP
      🤣I'm not. I have a long way to go still and trying to plan well ahead.
      Jun 22
  • Juniper / Eng sixpack
    If you are only considering 35 years need post retirement, how will you survive after that?
    Jun 22 1
    • Snapchat boohpo
      OP
      I don't plan to pull of 200k every year. More likely around 150, and hopefully as I get older I will spend less (but health insurance might take a bigger toll). Too many variables, so trying to fudge things a bit. But thanks for the call out.
      Jun 22
  • LinkedIn / Eng iManage
    Health insurance?
    Jun 22 3
    • Snapchat boohpo
      OP
      How much would health insurance cost? Hopefully we will have a good universal health system by then :)
      Jun 22
    • LinkedIn / Eng iManage
      That's the biggest concern for most early retirees. I'm not as hopeful as you are
      Jun 22
    • Snapchat tresleche
      If you have universal health insurance, ur taxes will be up the wahzoo. At a 200k income, a lot of it might disappear just from taxes.
      Aug 25
  • Amazon VYFa25
    $200k/year - given life expectancies, anticipate living to 90, that’s 50 years. Plan conservatively with a wash in interest/inflation and now you need $10 million. That is assuming nothing goes off - taxes, healthcare, college expenses, elder care, divorce, etc. Factor in those items and soon you are looking at $15 million. People are foolish to make decisions on the basis of “I’ll work 15 years and have enough to retire at 40 ... and support 50+ years of life for myself, spouse, kids, etc.”
    Jun 22 1
    • Isn’t 15 million an insanely crazy amount? If you really have 15 million at 40 and are withdrawing 200k, I expect that your heirs will be massively wealthy when you die since your stash will have grown immensely.
      Jun 25
  • Oracle OlJs40
    google Financial Independence Retire Early . There is a subreddit on it too.
    Jun 22 0
  • Amazon / Mgmt testtl
    I am 38, have income from leasing my property and that is equal to my salary today in SEA. Unfortunately, I am still not able to gather courage to retire as I will loose half of my income ... my wife earns nearly similar salary as mine. basically my greed is stopping me to retire today. Any suggestions or recommendations on what should I do? Of course I am not American, but an Indian ...
    Jun 22 0
  • Wells Fargo angel32
    Are you sure you have 2 kids
    Jun 22 0
  • Tableau krxi15
    OP, what is your location? Do you already own your house? 200k is definitely not enough for a mortgaged single family home in bay area or seattle.
    Jun 22 2
    • Snapchat boohpo
      OP
      Have parents house in Seattle.
      Jun 22
    • Tableau krxi15
      You are all set then :)
      Jun 22
  • Chase / Eng rdSk86
    Does this plan account for kids at all or do you plan to not have them?
    Jun 22 1
    • Snapchat boohpo
      OP
      Have 2 kids, according to gh4yk, 200k is not going to be anywhere close to enough. Our current spending is less than 200k (minus the taxes at 200k), and I don't plan on sending my kids to fancy private schools. What's a good number with 2 kids.
      Jun 22
  • BBDO sxYo02
    Friend of the family retired at 42 a multi millionaire. Within a year he was in AA. A year later in AA/rehab again. 10 years after that he works construction just to cure the boredom.

    The problem with retiring at 40 is almost none of your friends are retiring at 40, so finding stuff to do can be problematic.
    Jun 25 0
  • Booking.com Ra80046wbd
    Unemployment
    Jun 22 0