This article was posted on October 1, 2002.
Early retiree Larry Ferstenou details his path to early retirement in You Can Retire Young! How to Retire in Your 40's or 50's Without Being Rich. Ferstenou and his wife Kris earned an average income of about $48,000 per year during their working career from 1976 to 1993. After their marriage in 1976, Larry worked as a counselor for the Wichita (Kansas) Unified School District. Kris worked as a school teacher. Their combined income at the time was about $25,000 per year. By 1984, after Kris changed careers and started doing accounting work, their combined income had grown to $47,000 per year. A switch to operating their own business in 1985 allowed their income to grow as high as $96,000 per annum in the years just before they retired, but required long hours of work. That's far short of an investment banking salary, but well above the median family income of $37,000 per year in 1993.
You Can Retire Young!
by Larry A. Ferstenou
American Book Business Press, Salt Lake City, UT,
October 2002, 300 pages. Click here to order You Can Retire Young! Today!
Retire Early rating:
The "3 Keys" to Early Retirement
In time-honored fashion, the Ferstenous followed the "3 Keys" to early retirement: 1) Simplify Your Life, 2) Embrace Financial Discipline, and 3) Invest Wisely.
Simplifying your life or "Living Below Your Means" is a common feature of many early retirement stories. Without a big lottery win or a substantial inheritance, early retirement is only possible if you save prodigously and live on a fraction of your income.
Embrace financial discipline means delaying gratification and spending wisely. Many early retirees have standards of living that match their neighbors who spend much more, but they only acquire the "stuff" they really need and drive a hard bargain on every purchase.
Invest wisely. Even if you save prodigously, there's still a danger that poor investments, bad financial advice, or high fees and commissions will delay your retirement or propell you back into the workforce once you're there. I particularly liked Ferstenou's description of his own investing experience in Chapter 10. He enjoyed success with actively managed mutual funds, but sees the merits of index funds. He recognized and avoided the danger that inflation poses for 100% fixed income investors. He had indifferent results buying individual stocks. Real estate limited partnerships, soybean futures, and a rental property proved to be losers. Of course, your experience may be different.
How Much Do You Need?
"How much you need?" depends on how much you spend. In Chapter 6 Ferstenou suggests that someone with a $400,000 portfolio could withdraw $18,000 to $26,000 per year (4.5% to 6.5% of assets) and still protect against inflation. That's well above the 4% initial withdrawal rate ($16,000 from a $400,000 portfolio, with adjustments for inflation in subsequent years) that several historical studies of stock/fixed income portfolios show is "safe", but well below the 7% to 10% that many financial "professionals" said was safe during the bull market. In Chapter 9 he provides detailed budgets for his living expenses of about $1,600 per month. He points out that you can stretch things a bit further if you include pensions, Social Security, and part-time work.
Chapter 15 addresses the issue of part time work and the fact that some people are uncomfortable "just living off their investments". No doubt that's true. Ferstenou also adds that those with insufficient funds in their taxable account may need part-time work let them survive until age 59-1/2 when they can make penalty-free withdrawals from their IRA. Retire Early Home Page readers are aware that it is very easy to make penalty-free withdrawals from an IRA at any age using the 72(t) exception, see link: http://rehphome.tripod.com/wdraw59.html
All in all this is a very worthwhile book. Any testimony from a successful early retiree who still likes being retired after 8 or 9 years should give those uneasy about the whole concept some relief.
Retire Early rating: (4 stars)
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Copyright © 2002 John P. Greaney, All rights reserved.