An Early Retirement Master Plan: FIRE By 45

Although, after eight years, I failed to stay retired, my plan is to return to early retirement glory with two kids by September 1, 2022.

From now until September 1, 2022, our plan is to accumulate either $1,500,000 in new capital or figure out a way to consistently generate $5,000 a month in additional gross retirement income.

As of now, according to data provided by the California Association of Realtors, my family has a ~$60,000 a year income shortfall to live a middle-class lifestyle in San Francisco.

Based on the median home price of $1,600,000, one real estate group estimates that a household needs to earn at least $310,000 a year to comfortably afford a median-priced home. The calculation is based on a 20% downpayment and spending no more than 28% of monthly gross income on a mortgage.

Is there any wonder why I’ve been aggressively investing in heartland real estate since early 2016? Affordability is an issue here. But given I’m unwilling to move to a lower cost area of the country, I best hedge by making sure I benefit from the obvious demographic shift thanks to people who are willing to move.

If we can accumulate an additional $1,500,000 in capital or consistently generate $60,000 a year in additional gross retirement income, then my family should have the means to stay in San Francisco after September 1, 2022.

If we fail at achieving either financial goal, then we will admit defeat and banish ourselves to Honolulu, Hawaii where the median home price is roughly 40% cheaper. Based on the lower cost of living in Honolulu, a family with two kids should be able to live a comfortable lifestyle off less than $200,000 a year. Further, I’ll also be able to more consistently tan my cheeks.

The Early Retirement Time Frame

September 1, 2022, is an important date because by then I will be 45 and my wife will be 42. 45 years old is still a respectable age to retire early as it’s not too young and naive or too old and immobile.

Originally, I had thought I’d work until 40 or so and then retire. But when I was able to negotiate a severance package worth six years of living expenses, I decided to take a leap of faith at 34.

September 1, 2022, is also the time when our boy will be eligible for kindergarten. If we can get him into one of our target schools in Honolulu, we will likely move since tuition is $15,000 – $25,000 cheaper a year.

If he doesn’t get in, then we’ll likely stay in San Francisco with the extra capital we’ve accumulated and reapply every year to a Honolulu school until he does get in. Meanwhile, if he gets into a great public or private school in San Francisco, then we may be destined to remain here until he graduates high school. But for us, this is not the ideal scenario.

It may seem weird that where our boy gets into school will determine where we live for the next decade. However, we have the flexibility to move. We’ve already lived fulfilling lives. It’s time to focus on our children. While we await our destiny, we plan to fortify our finances.

Early Retirement Financial Targets

Where there is a will, there is a way.

To accumulate $1,500,000 by September 1, 2022, requires us to somehow save on average $500,000 a year after tax. This is a daunting goal given neither my wife nor I have jobs at the moment.

To consistently generate $5,000 a month in additional retirement income by September 1, 2022, requires being on track to generate an additional $833 every six months. Let’s just round up to $1,000 every six months to make calculations easier.

For us, generating an additional $5,000 a month in retirement income may be relatively easier because we have already spent over 10 years cultivating the Financial Samurai platform. If you haven’t created your own platform to rule the world, I suggest you do so. 10 years from now, you’ll be glad you did.

Every financial goal needs a purpose. To be able to retire comfortably by September 1, 2022, we need to be able to pay for the following with our investment income:

Healthcare: An $440 extra a month for a second child for a total monthly healthcare premium of roughly $2,380/month for a family of four.

Childcare/Preschool: An extra $1,000 a month in childcare support and an extra $2,000/month in preschool tuition starting in 4Q2022.

Housing: An extra $2,000 a month in housing expenses to pay for a larger house for our larger family. We want a third bathroom and a fourth bedroom.

Food: An extra $500 a month as we will utilize more food delivery and food making services to save time.

Total near-term extra monthly expense: ~$4,000 after tax

Total extra monthly expense starting in Fall 2022: ~$5,000 after tax

Unfortunately, most of these costs will likely go up by 2% – 7% a year for the next three years.

Early Retirement Mindset

Here are the things I will tell myself during this difficult journey:

• Everything is earned, nothing is given
• Follow a process and believe in the process
• Accept your failures, learn from them, and move on
• Embrace criticism and ridicule for the good of your family
• Prepare for as many variables as possible, but accept that you can’t account for everything
• Consistently take calculated risks
• Instead of complain why life isn’t fair, work harder
• Make it count when it counts the most
• Don’t take a lack of appreciation personally
• Adopt a positive money mindset
• Your family is counting on you to keep going

I fully recognize that nothing good comes easy. The first six months of a child’s life is quite brutal for parents due to the frequency of feeding, crying, and diaper-changing. Being constantly exhausted and sleep-deprived makes life miserable. That said, difficult times don’t last forever. The key is to survive long enough to experience the rewards!

Our main goal is to generate enough retirement income so that we can spend as much time with our children while they’re still young and open to our company. Retiring after the kids leave the house is normal, but kind of backwards.

Early Retirement Master Plan

1) Stay At Home Hustle (First 6 months)

My initial course of action is to be a stay-at-home / work-from-home dad for the first six months of my daughter’s life. This way, I’ll be able to provide the most care when my wife and daughter need it the most. Further, my wife can’t tell me years down the road once I’m bald and have a pot-belly that I was a deadbeat dad.

After six months, our daughter should be able to sleep for 5-hour stretches through the night. Further, my wife should be almost back to full physical and mental strength. Thank goodness our 2.8-year-old now sleeps through the night 80% of the time.

For six months, I will work on trying to better monetize Financial Samurai. I’ve been so lax at building business partnerships, it’s embarrassing. I’d like to partner with new financial companies who have great products that will help every type of reader. I’d also like to do more business with existing financial partners.

My goal for each company I partner with is to help readers save more money, make more money, and/or gain more financial confidence.

Work hours: I will work on Financial Samurai for 2-3 hours starting at 5 am or earlier. I will allocate 10 hours a day towards taking care of my daughter. For two evenings a week, I will take care of my daughter from 9 pm – 10 am. During the 2-3 hour windows between feeding, I’ll try to get at least one hour of work in on Financial Samurai. If I commit to at least 12 hours of work and childcare a day, things should work out fine.

Skills to develop: 1) typing with one hand as I hold my daughter in the other while safely sitting down, 2) writing in short spurts instead of 1+ hours at a time, 3) recording thoughts and ideas that may soon be forgotten in the middle of the night, 4) being OK with good enough, 5) learning to love pterodactyl cries even after a good feed, burp, and diaper change.

2) New Job (After 6 months)

If progress is poor after six months ((<$1,000 a month in incremental new online revenue) ), then I will aggressively look for a job in tech, finance, or media by June 1, 2020.

My preference is to work for an established company that pays a handsome salary and also provides a tremendous amount of resources and benefits. The company will ideally pay a total compensation of $250,000 or greater, offer a 401(k) match/profit sharing, and provide at least 75% subsidized healthcare.

A startup would have to be extremely promising for me to want to join given the below-market salaries, lack of benefits, and much longer hours. For example, I know a handful of people who took 30%+ pay cuts to join Uber in 2015 and 2016 only to end up poorer than if they worked for a non-startup.

If Financial Samurai is generating much more than $1,000 / month in incremental revenue after six months, I will still look for a job, but be much more selective in what I apply for. Being able to work from home 2-3 days a week would be nice.

To get the maximum capital accumulation engine running, it’s good to have both a full-time job and a side hustle. An ideal situation would be if I could find an enjoyable job that has synergies with Financial Samurai. I had this synergy consulting part-time at Personal Capital between 2013 – 2015.

To be clear, income from a job does not count towards generating $6,000 a month in incremental retirement income. The purpose of the job is to earn income to build my capital account that will then produce passive retirement income.

Hours: Wake up by 5 am to work on Financial Samurai for two hours before going to work for 10 hours. Get home by 6:30 pm and take care of kids with my wife until 10 pm. Get one hour of FS work in before going to bed by midnight. Pray that our daughter sleeps at least 5 hours straight a night by six months. If she doesn’t, care for our daughter from 9 pm – 10 am on Saturday night and hire more help throughout the week.

Skills to work on: 1) being productive during work commutes, 2) developing a patience for sitting in company meetings, 3) learning how to complement colleagues on a job well done, 4) not being too outspoken when I disagree, 5) showing appreciation for having a job.

Related: If You Plan To Work For A Startup, Sleep With One Eye Open

3) Save And Invest 100% Of Proceeds

Given our current passive income currently provides for ~140% of our living expenses, we plan to save and invest 100% of all incremental income generated over the next three years. The rough breakdown of where we’ll invest our incremental revenue is as follows:

• 30% allocated towards physical real estate
• 10% allocated towards REITs
• 10% allocated towards real estate crowdfunding
• 20% allocated towards the S&P 500
• 5% allocated towards individual stocks
• 20% allocated towards bonds
• 5% allocated towards venture capital

Based on my capital allocation, I’m most bullish on real estate because real estate lagged the S&P 500 in 2019. I believe real estate prices will catch up in 2020, especially as affordability has increased.

It’s hard for me to allocate more than 20% of my income towards the S&P 500 given current valuations. But I will max out my 401(k), Solo-401(k), SEP-IRA, and both 529 plans. My capital allocation will adjust over the years.

If I can lock down a good deal on a new house, I have the potential to increase instantly our net worth by $100,000 – $200,000, which would count towards the $500,000 annual net worth increase goal.

Finally, we should be able to save and reinvest roughly $50,000 a year from our existing retirement income streams. Reinvested at a 4% rate of return would generate $2,000 a year in incremental gross retirement income. The $2,000 will count towards the $60,000 a year in incremental gross retirement income by September 1, 2022.

4) Create A New Online Product

I haven’t created a new product like a book or a course since 2012 because it takes a tremendous amount of work, i.e, I’m lazy. It’s hard to find the motivation to start given so much of my time is spent writing on Financial Samurai and more recently, taking care of kids.

That said, I should have continued to create new products every one or two years because they can be profitable. The third edition of How To Engineer Your Layoff has been generating between $4,000 – $5,000 a month for the past year. Below is a snapshot with names whited out from several days in December 2019.

A product that consistently generates $50,000 a year in profits is like having $1,250,000 in capital generating a 4% return. Therefore, it would be wise of me to leverage my platform and create another premium product over the next three years. By itself, a new product could achieve our financial goals.

At the moment, I potentially have an opportunity to sign with a traditional publisher for my next book. However, I’m not sure whether it makes economic sense given my already built platform. It sure is nice to keep 100% of the spoils.

It may be easier to just start marketing the How To Engineer Your Layoff affiliate program for anybody that writes about entrepreneurship, early retirement, and career strategies. If you do, sign up as the book is a perfect fit.

5) X Factor – My Wife

So far, I’ve assumed my wife will continue to stay at home and take care of the household until September 1, 2022. Staying at home is her preference and I’m all for it. However, if she decides to go back to work at some point, it will make accumulating capital easier since she should be making at least 4X the cost of additional childcare expenses.

I see a 5% chance of my wife going back to work during the first year of our daughter’s life. In 2021, I see a 35% chance. And in 2022, I give it a 50% chance. But I see a 100% chance my wife spending some time helping out with the backend and maybe even front end of Financial Samurai.

Related: How To Convince Your Spouse To Go Back To Work So You Can Retire Earlier

6) X Factor – The Economy

I do not want to count on our existing investments to help reach our goals. One of the reasons is because our investments could easily go down in value if World War III starts. Another reason is that my investments might make me lazy.

Having our existing investments is equivalent to living in America. Because living in America is so good, it’s easy to take life for granted by eating too much, not exercising, not saving enough, not bothering to learn another language, not working hard and so forth.

I 100% want to have the immigrant mentality of coming to this country with nothing. It is the best way to appreciate what I have and take nothing for granted.

Related: Spoiled Or Clueless? Try Working A Minimum Wage Job As An Adult

7) X Factor – Google Algorithm Change

Most of the traffic that comes to Financial Samurai comes from Google. So far, Google has been kind to Financial Samurai since 2009. However, Google could easily turn on Financial Samurai, thereby hurting traffic.

In other words, it’s best not to count on Google for growth. For more defensible traffic, I need to more aggressively build my newsletter subscription, the Financial Samurai brand, and create other direct channels of traffic.

I’m hopeful that after 10+ years of writing about personal finance, Google will continue to reward a 21-year finance veteran who writes from firsthand experience. However, based on what I’ve observed about websites entirely focused on making money, it seems quite easy to manipulate Google without any expertise or authority. Therefore, I need to deploy new strategies to get ahead.

8) X Factor – A Big Offer

In 2018, I turned down an offer to sell Financial Samurai. I’m glad I did because of strong growth and a rise in valuations in 2019. I turned down an offer to sell in 2019 as well because I was emotionally not ready. I wanted to at least focus for at least a year on entrepreneurship to see what I could do.

But if there is some really attractive offer between 2020 – 2022 to sell, I must consider the option. Selling Financial Samurai would achieve our capital accumulation goal. After the non-compete period is over, I can simply start another site or sail off into the sunset, forever.

9) X Factor – Other People’s Financial Forecasts

One of the surprising things I’ve noticed on my financial journey is how quickly pundits change their financial forecasts. It’s as if economists, financial analysts, and housing professionals are just basing their estimates on numbers and not including various nuances of life e.g. tastes, levels of frugality, adaptability, etc.

We’ve been very comfortable living off less than $200,000 a year in retirement income for the past three years. But Compass Group said we needed $343,000 to stay middle-class in 2Q2019. Then in 3Q2019, Compass Group said we only need $309,000 to stay middle-class in 3Q2019. If this trend continues, we won’t need any retirement income in 2.5 years!

It’s almost as if you can’t trust others to tell you how much you need to live your life. Instead, it might be better to trust yourself. That said, I will continue to use other people’s higher financial estimates for what we need to keep challenging myself.

Related: The Average Net Worth For The Above Average Person

Let The Early Retirement Journey Begin

I am so excited to get going! Finding a way to retire early from from 2009-2011, and then actually doing so in 2012 was one of the most fun challenges of my life. I hope this three-year journey will be equally as eventful.

There is no greater honor than being able to take care of the people I love the most. I am grateful for the opportunity to try and make a livable retirement income stream again.

Although the cost of healthcare, tuition, and housing are out of control, I say bring it on! I’m confident the rising cost of life will not defeat us.

Once you have your why, you’ll do everything possible to make your goals a reality.

Readers, what are some ways in which you plan to make more money this year? Are there some obvious money-making ideas I’m missing?

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