Sunday, January 29, 2017

How I Retired

Last January, I wrote a post on this blog about Why I Retired. A year later seemed like a good time to address the "how" portion, as in "how did I afford this?"
Here's one of those completely accurate yet almost entirely useless "easy steps" lists that you see in self-help books everywhere.

1. Make lots of money.
2. Don't spend much of it.
3. Invest the remainder wisely.

Simple, right? Obviously not, but it's a useful outline.

Step 1: Making money involves being both skilled and fortunate. Thanks in large part to good genes and upbringing, I had the aptitude needed to succeed in school and work with technology. Choosing computer science as a field of study meant that I had no lack of job opportunities, and I put in the work needed to be at the top of that field. Across my 15 years as a consultant and systems architect, I averaged around $100,000 a year.

Certainly the hard work was important to my success, but I think luck played a big part as well. If hadn't enjoyed working with technology and chosen a less lucrative field of study, or been born into different circumstances and never had the educational opportunities, I'd have had a much more difficult time making good money.

I also had several chances to take bigger risks - joining start-up firms, jumping to other career paths - but I chose to play the odds and stay on the less risky path. Could those risks have paid off with greater rewards? Sure, but it likely would have taken longer, and there's a chance I'd have ended up with much less.

Step 2: People spend money on all sorts of things, most of which never appealed to me. I don't really care for fancy cars, a huge wardrobe, a giant house, the fanciest home theater system, and so on. I do like travel and good food, but my choice of career meant that much of that was provided for me in the form of business trips. Keeping expenses down by buying economical cars, a small condo, used TV/stereo, etc was pretty easy for me. I'll admit that I did splurge on some high-end computers on occasion, but even there I'd usually build my own.

The biggest way that I kept my expenditures low, though, is by not marrying or having kids. Those are pretty important things to most people, but I'm just not built that way. I actually like living alone and I'm not particularly concerned about leaving a legacy (my brother's kids have the next generation covered anyway). Being single and unattached means that just about every line item in my budget is smaller than the average family: I need less space in my home, smaller car, less food, pay less for insurance, and so on.

It's also important to mention that even if you keep your regular expenses down, it's important to allow some slack in your budget. Everyone makes the occasional impulse purchase, or goes for a spur-of-the-moment dinner out with friends. (In my case, I tend to buy books and games that catch my eye, and make unplanned visits to brewpubs.) Have a miscellaneous line item in the budget that allows for such things.

Step 3: Investing wisely means setting up a plan for yourself, then avoiding two things: shortcuts and panic. The plan part is pretty easy since it's well-documented by just about every financial institution on the face of the planet. Take full advantage of tax-advantaged and/or employer-supported options such as 401(k) accounts. Create an emergency fund that you can access easily if needed. Split your remaining investments between long-term growth (usually stock index funds) and low-risk (bonds), starting with lots of the former and slowly moving to a more even split over time.

Avoiding the pitfalls isn't necessarily hard, but it does require discipline. By "shortcuts" I mean extremely risky methods like day trading. Sure, you can make a lot of money, but you can also lose a ton, to the point where it's basically gambling. You can also include actively managed funds in this category, which almost always under-perform index funds while charging higher fees. (I'll admit that I've fallen into that trap occasionally myself, but I've since learned my lesson.) By "panic" I mean deviating from the plan due to outside circumstances: a fall in the stock market, political upheaval, dire warnings from talking heads on finance cable shows, etc.

All of the above is what gave me the means to live my current lifestyle indefinitely. It wouldn't work for everyone, but in my case it gets the job done. Nothing is guaranteed, of course. Any number of disasters could poke a hole in my plan, but I have enough safeguards that in the worst case I should have plenty of time to get back into the work force. Hopefully, disaster can be avoided and I can stay with the plan as long as I like.

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