Monday, June 13, 2016

When a Million Ain't Enough

When a Million Ain't Enough
We're back home, readers. After three and a half glorious weeks on the circumference of Africa, and a few sweet hours on the edge of Europe in Lisbon, we are finally back with our lovable pups in our cute little house in the god-forsaken heat that is the Arizona summer. While we were away though, I finally got back into writing a bit, and reading your blogs, too. It's been a while.

I recently read something great on Garth Turner's "Greater Fool". Garth featured the young and annoyingly successful Millennial Revolution writers, who had the audacity to retire at 31 in true Mustachian fashion. Thirty freaking one. Nothing like seeing your younger compatriots do better than you to make your own goal of leaving the workforce by forty seem lame.

And just listen to their better half on this video defending the Millennial generation against the Boomers' typical criticisms. She's insufferable. Which clouds the fact that, when it comes to the Boomer's Dream of a single, lifelong stable job, a paid off home, and a pension, she's right. That dream is broken.

Still, she could be less smug about it.

But if I seem bitter, that's nothing compared to the comments these whipper snappers got from Garth's wrinkled readers. Here are some of my favorites:

"Garth, you have to stop talking to those F&%#$% digital nomad dorks. Every second millennial I meet calls themselves a digital nomad. They roam the world writing their self-absorbed blogs and posting lame selfies [my correction], that no one gives a damn about, and they barely squeak by financially, often because their blogs are of limited value."

"But I think it’s pretty foolish to think 2 people can retire at 31 with only a million bucks. Even at Garth’s 6% that’s only $60,000 a year now and 30 years from now with 2% inflation that will be less than $30,000 a year in today’s money. A better goal for a 31 year old is north of 2 million. About 2 million plus a house or additional investments beyond 2 million that can pay the rent.
A million dollars just isn’t a lot of money these days." 

"Good luck with what you think your [sic] doing. Wait until you’re anchored with a kid or two. Then we’ll see how well your plan works. A million bucks is no where near what you need to retire unless you plan on living like you’re on welfare. In that case just skip work and get social assistance at 18. You’ll be free as a bird living with crackheads in the nastiest places in the city. Inflation adjusted may I add."

"A million bucks conservatively throws off $50k per year. That's still kraft dinner level as far as I am concerned. Post something when your investments are spinning out $250k."

"Thanks for responding to one of my posts, but a million isn’t going to do it kid. For sure in 1960, maybe in 1980, but not in 2016.
You need more money than you think. Don’t retire yet."

"This story is nothing new. Derek Foster, Money Moustache, Couch Potato guy all have done this before.
But then they find out they can't live anywhere cool for $30k a year and then end up chopping wood and growing carrots out in some log cabin in the woods. Glamorous!
Garth may have helped you but I bet dollar to donuts he doesn’t advocate trying living off your dividends for the rest of your life. You didn't work long enough to earn any CPP. Did you keep any company pension? You know the life expectancy of the average millennial is well over 90 yrs. No kids ever? And are you going to scratch and save for another decade to pop away another million so you can actually have a respectable first world income?
You two better go back to the lab again and really think this through."

It's rare that you can actually hear the bitterness seeping through your computer screen, but these guys pulled it off. Why all the hate, grandpa?

But despite the shade, these angry boomers bring up a couple interesting questions. One: is their basic premise correct? Might early retirees be underestimating their future needs? I think, in general, we in the recent boom of early retirees and early retirement bloggers are likely underestimating our future expenses by a good amount, as I've written about here.

The new, typical early retiree, who amasses his nest egg rapidly, very well might not have certain expenses ever appear in their budgets in the 10 years that they raced to financial independence (like a new roof, or children's braces). These rare-but-real costs will never make their way into an annual budget, so they're missing from the annual expenses-times-twenty-five quick-and-dirty math that so many of us use to calculate the size of said nest egg.

But more to the point of what, I hope, is at the core of these Boomers' criticisms is that we, the young early retirees, don't yet have the life experience to estimate what our future selves will want or need in our annual budgets. I don't want kids now, but might I later? What do medical costs look like when I'm fifty five? I'm fine rocking a $35k budget now, complete with an awesome Toyota Matrix and two Yamaha scooters, but is that still satisfying twenty years from now?

So I have to say that the Boomers have a point. The youthful arrogance that allows us to defy the idea of a traditional retirement is often paired with the requisite youthful ignorance that doesn't know what it doesn't know. So yes, Uncle Joe, with your weird ponytail and your Neil Young albums, a million really might not be enough if future expenses end up being significantly higher than current expenses.

But the solution to an underfunded nest egg is really not that difficult, either. For someone who would want an extra $10,000 a year, a serious misstep for someone who is supposed to pull just $40,000 a year out of their portfolio per the 4% rule, they still only have to find a way to earn $800 a month to get back on track.

For people who manage to amass a million in less than a decade, earning an extra $800 is not all that difficult. The simple answer is to simply find some activity that throws off $10,000 in income over the year. For techy folks like the writers of the Millennial Revolution, this might be a month or two of consulting work. But then again, it might be turning that artsy hobby into an Etsy store. It might be a shift and a half a week at the local library.

At worst, these formerly successful employees could go back in to the workforce for a year or three and save up a small fortune again. (And before I read them in the comments, please save the notion that a formerly awesome employee that's still in her thirties or forties will be forever blacklisted. That's irrational, and fear based.)

But for someone retiring at the ripe old age of 31 (or, um, 40) earning a little extra money is not any huge problem. I'm sure the retirement police will have a field day with the fact that early retirees might, gasp, earn money after their so-called retirement, but with forty or fifty years of retirement, yeah, some cash might come in.

I've got to wonder if these comments were a not-too-subtle way for Boomers to point out they have larger nest eggs to cover their more typical (read: larger) annual expenses? Is this just a way to brag about, and justify, the fact that some Boomers have saved up two or three million over a lifetime of work, so now they can continue spending six figures every year until they die?

Or, worse yet, are they just angry that a younger person has somehow saved more than he or she did, in way less time, and the Boomers want to doom these kids to failure?

In the end, it doesn't really matter. When you publicly write about money, are somewhat successful with that money, and do something drastic with it, like retire at thirty one, a few people are going to have strong opinions about that. That's what you sign up for when you start an early retirement blog and foolishly set up a comments section.

Do you agree? You know we're currently spending about $35,000 a year -- is a million enough to pull the trigger? Let this old effing fogie hear about it in the comments below.

*Photo is from Tony Fischer Photography at Flickr Creative Commons.


  1. I worry quite a lot about the real inflation rate vs. nominal inflation. I think that food, certain types of utilities, tech gear, etc. will go down in real terms, but healthcare costs which comprise a huge portion of my actual spending are increasing at a rate closer to 5% vs the oft stated 3%. If I were planning to retire, I would build in a worst case scenario for health costs.

    1. That's something hardly anyone ever writes about, right Hannah? The fact that CPI is a bucket of different costs, all mixed together.

      Healthcare has got to be the one tricky cost: the cost of insurance and the care itself are changing all the time, and then change as we age, too. I really would be interested to see how others are calculating their long term healthcare costs...but suspect many just aren't projecting out that far.

    2. Here is a real world example...I recently "retired" at 53, and healthcare cost for husband and wife is just under $2,000 a month for employer retiree 85% coverage and about $5,000 deductible per year. ACA coverage is lower rate of $1,400/mo but covers only 60% with much higher deductible.

    3. Thanks, Maverick. That's way higher than I'd anticipated. But I totally appreciate the real world data point. Thank you!

  2. Hey, I just discovered your blog! My wife and I "retired" last year at age 30 with a $1M portfolio and plan on living on 3% of it ($30,000) per year. All data points seem to indicate that it's quite do-able. In fact, various FIRE tools indicate that a 3.5% withdrawal should be safe, but we're being extra conservative and aiming for 3%.

    Haters love to hate, but if shit hits the fan in the future (major stock market crash), we're okay with bringing in extra income using Airbnb or even doing side jobs to hustle income. We will preserve our nest egg and not recklessly burn it down during years when the markets are bad.

    btw, congrats on all your travels and living on under $35k for the last two years! After quitting our jobs my wife and I drove down to Costa Rica for five months to relax and surf. I like to see what kind of traveling other folks get up to. :)

    1. Congratulations on your very early retirement, Travis! That's great. And I'll be reading some of your blog to steal secrets on how we can do the same.

      3% withdrawal rate is awesome: I think the POPs are doing the same.

      Like you said, if the shit hits the fan bringing in even a little extra income really changes things. That's not something the FIRE calculator can always account for, but when you have such low annual costs it's really a lifesaver. Well done.

      Congrats again -- keep up the good "work". :)

  3. 1 million would be enough for me, but I'm shooting for 2 (the extra would be simply for fun, extra giving, etc...).

    The key is to live frugally, which you obviously do. I'm also a big believer of paying off all debt before entering retirement. Reduces the risk you have, and reducing risk is key.

    Something most people do not think of...1 million can actually outpace inflation and throw of more than 35k a where does the extra cash go? Re-invest, continue to grow the nest egg, and then your income will continue to grow. I don't know why no one mentions this, but it is possible...

    Also like you mentioned if you want to earn some extra cash for your nest egg then just go grab some part time work.

    Whew. Sorry for the long winded reply and thanks for the great post.

    1. Not long winded at all, and you bring up an excellent point. With early retirement, it's very likely that at the beginning of your withdrawal phase that you'll really be managing costs and you'll potentially end up growing the portfolio early on.

      We focus on downside, even though there's probably more upside.

      I like that you're going for something greater than the exact amount you might technically need. Nothing wrong with that! And the people you give to will appreciate that, too.

  4. What an AWESOME post! My fav one so far! (*Aaaannnd...shameless shelf promotion over*). Yes, the "How much is Enough" debating is an ongoing one, and something we thought about endlessly when we did retirement planning before we left. What we found though is that we actually need a lot LESS than we thought we did. There are so many knobs to turn, like global arbitrage (cost of living in Thailand is only $21,000/year), side gigs (if you retire young, chances are you'll want to work on something you're passionate about), or even just move to a smaller, less expensive town in your own country. Even though the fear of not having enough is ever present as a primal instinct, human beings are very adaptable and creative creatures. After we quit, we found our cost of living dropped (no need for daily transportation, dry cleaning, vacations, etc), and we had tons of knobs to turn.

    1. Hey there, FireCracker.

      Geographic arbitrage is a neat thing, though we do plan on having kids and, at least, want them to go to middle school and high school in the states. But early on in our time as parents, we'd like to spend long chunks of time outside of the US with the future family.

      Concept of knobs is a good one, too. Lots of choices, if things go somewhat unaccording to plan.

    2. I'm a road warrior, but traveling with kids can be rough depending on the child. Also, in the US, the lower the cost of living, the more likely you are to run into troubles with the local schools. Heaven forbid your child has disabilities. This all from someone who has definitely not retired, but also doesn't have to pay for child care costs thanks to close proximity of family.

  5. You make a great point. While I'm sure most early retirees take it into account, many times they throw out the general rule about 20x your spending or something. However, that doesn't take into account future needs, especially kids. Kids don't have to cost as much as most consumer-types make it out to be, but they DO cost a good amount of money. My main obstacle is the high cost of living area where I intend to stay...if you could apply geographic arbitrage, I think a million is fine. Surprisingly many of my co-workers with great pensions still don't think they have enough to retire because they live paycheck to paycheck and can't fathom living on any less.

    1. Right! Kids are an expense that we won't have a handle on for another year or four, right before we're thinking of pulling the trigger. And even then, we don't know what middle school, high school, or college year spending impacts the little buggers will have.

      Long story short: we personal finance bloggers are good at taking our present and projecting it out to the future under a set of assumptions. But because we went so quickly, and because we are generally all young, there are serious potential gaps in our understanding of future costs. Very few early retirement bloggers are writing about how this plan works when you're 10 or 20 years in.

  6. I take an entirely different perspective on it. I think everyone should just do what they do, but not tell people they need to do THEIR way. We all have different, unique DNA that makes our wants and needs in life totally different. So if a millennial wants to quit working at 25 or 30 and think a million is enough, maybe it is, maybe it isn't. Probably not enough for me, but that's me. And the worse thing that can happen is they, OMG, might have to get another J-O-B someday. As far as the bitter comments, I think there might be some truth to what they say, coupled with some jealousy. I think people just need to keep their side of the street clean!

    1. Love that phrase, from the twelve-steppers, I think.

      I agree, Tonya, that we would be better off just worrying about our own situation. But we're in a community, too, and there's a part of me that likes having others tell me when they think I'm on the wrong path, and of course feels the urge to do the same for others (for better or worse).

  7. In characterizing this as Boomer vs. Millennial, it misses the all important Generation X. That also happens to be the generation currently in 40's and early 50's deciding if they need to go all the way to 65 or 70, or stop soon. In short, retiring early is still on the table, but obviously not to the extent of "Donebyforty". I of course am in this Generation X category.

    For me, the "retire early" wannabes I talk to come in two types. Those who want to do it WITHOUT kids and those WITH kids. The differences between these two groups are significant. As a "with kids" potential retiree, I find the differences to be so significant that I find it is not even worth listening to the "no kids" crowd at all. Maybe that's a bit condescending, but I honestly find they have very little insight to offer me.

    For me, success is not only retiring comfortably, but ALSO setting my kids up for success as well. That requires a greater time and money commitment that I'm comfortable making.

    1. In true pop culture fashion, I've somehow forgotten about Gen X.

      Your distinction of with kids/without kids is a good one. It's a whole nother ball of wax when you consider the ongoing and variable costs that children come with.

      We plan to be in the "with kids" group fairly soon. As far as setting them up going forward, we have two big priorities that are both education based: one, we plan on moving to a neighborhood with especially good public schools. This will likely happen in a year or less, before we actually have the kids, and has massive impacts on costs since we currently have no mortgage.

      Two, we plan on saving a decent chunk for each kid's college education, but probably somewhere short of a full ride altogether. Either way, it's a lot.

    2. I think Tin makes an excellent point about the kids question. I'm a fellow Gen X'er, and my early retirement equation would have been completely different if kids had been part of the picture. While financial freedom is certainly not the primary reason I chose to remain child-free, it may have been the thing that pushed me over the edge from 95% sure I didn't want kids to 100.

      I would never presume to offer advice to anyone on such a personal decision as to whether to have kids or not. But I do think that many people wander into parenthood without a clear idea of the all-encompassing nature of what they're signing up for. I was fortunate in that I got a chance to "test drive" parenthood as a step-mom for a few years with my Ex's daughter.

      And I don't mean to imply that being a step-mom was a bad experience for me, because in many ways it was a wonderful time in my life. But it did erase any ideas that having children would be in any way "incidental" - once you have kids, your life is about kids, and that's how it should be. I just wish more people knew that going into it.

    3. I didn't want to muddy my original post by calling out a third dimension, but my wife and I stopped after only one kid. Sort of by circumstance at first but then gradually it became a conscious decision as our son got a bit older and we realized how much more financial capacity we had at our disposal to put into just one (super smart, of course!) kid.

      Also, with a few exceptions, we don't really care where we live. So part of our retirement plan has become "let's just move wherever our son is, to help with future grandkids". With two or more kids, we'd probably feel a bit trapped into staying where we are (a super high tax state). So not only would we pay higher taxes, but our son wouldn't get the benefit of the HUGE financial advantage of having free childcare and taxi service.

      BTW, yes I believe buying a house in the best public school district, even if you don't use the public schools, is a solid move in just about every circumstance.

    4. I like that the conversation's shifted toward kids.

      I hear what EcoCatLady's saying: that a lot of parents probably don't have a full idea of what they're getting into. It's probably a lot more time and energy and thought consuming than I can really comprehend now.

      And while we're planning on having two, there's a part of me that's wondering if just having one might be better. Certainly cheaper and maybe a bit easier, too. But I love having a sister, as does my wife -- we can see both sides.

    5. I don't think there are any right answers to that question, I think you've just got to go with what feels right to the two of you.

  8. Haters gonna hate.

    I love this post. I'm gonna come right out and call a spade a spade - those are some jealous boomers. Heck, I'm 30 and I'm super jealous.

    I've got two kids and our expenses are currently $50K per year - pretty high for us because we are traveling a lot and I've taken up pretty much every expensive hobby there is. Vanguard's nest egg calculator suggests I could retire for 40 years at that spending rate with just $1.75M in the bank, so who knows?

    I definitely have a LONG way to go to get anywhere close to that, so perhaps one day 20 years from now, I can lose it over some 30-something showing me up :)

    1. $50k a year with two kids is pretty awesome, in my opinion. For what it's worth, I'm not entirely sure that you'd need $1.75M to throw off $50k annually, maybe just $1.25M...but hey, I'm not a CFP. :)

      It's hard not to feel some jealousy for people who've done things so well and, at least in my case, a good deal faster than I ever will. I try to keep it on the "they inspire me" tip and avoid jealousy, but I'm not really in control of my emotions most of the time. :/

  9. I'm not sure how much we would need and I can definitely understand the logic of not knowing for sure your future spending habits. I think one way to help this would be to focus on building a substantial amount of passive income before early retirement...that's about all I could think of instead of focusing on a set dollar amount. I'm interested in knowing more thoughts and this definitely gives me and others something to ponder...

    1. Hey, Latoya. We have a couple very small income streams from our rentals, and I suppose once we move into our next house, our current house will be a third rental stream. Nowhere near enough to fund our full retirement, but enough to throw off some decent change on a regular basis.

      I know for some people, that's really the name of the game: multiple passive income streams. We thought that would be us, too, when we started buying rentals. But I think three is the most we can handle.

  10. Supremely jealous of those retiring in their 30s - I didn't even have my head screwed on straight until I was 32 or 33 to even know that I *wanted* to retire early. For us, a million isn't enough, we're actually shooting for 2.7 million before pulling the trigger. It covers our current expenses at a 3% withdrawal rate, then for "unexpected expenses", I added 10% to that number. I also know that our current expenses will be decreasing: no more daycare, and no more mortgage, I'm also assuming those will be taken up by other expenses that I may not know about yet, like healthcare.

    Could we live on less? - probably. Would we enjoy live as much as we do now? - who knows, but since I feel we're pretty good now, why not shoot for that number?

    1. Love that you're shooting for a big number and extra safe withdrawal rate of 3%. Like you said, nothing wrong with knowing where your annual spending should be at for your own situation, and shooting for that number. I think it's rad.

  11. Gosh... so many thoughts here, I'm not sure where to begin.

    First of all, I didn't really think the girl in the video sounded smug, what I got from her was anger. I found the fact that she's directing that anger at "the boomers" to be a bit bizarre, but I guess in her case "boomers" is most likely code for "parents" so I suppose it sorta makes sense. And it's hard to blame young people for feeling like society has sold them out.

    I do agree that the old dream is broken - affordable higher education, pensions, 40 hour work weeks, companies that are loyal to their employees - those are all pretty much things of the past, so I think it's fantastic that so many young people are embracing an alternative path. I'm not totally sure that I agree with her "program" though.

    Mostly it's the rent rather than own thing that concerns me. I suppose my views on that are somewhat colored by my own experience. I bought a very small home in the cheapest section of town just before the housing boom hit in the mid-1990's - and it's turned out to be the best financial decision of my life. Even at the time, buying was cheaper than renting, but now my very small mortgage is paid off, and my home is worth more than 4 times what I paid for it. To me, that is financial freedom.

    If I was still renting, I'd be paying over $1500/month for a studio apartment, not to mention all the money I would have flushed down the toilet over the past 20 years. Of course, that equation would be much different if I had bought at the peak of the market, or if I had purchased a big house in a fancy neighborhood. So while I can understand that millennials would have a somewhat jaded attitude toward home ownership, I have to say that the devil's in the details on that one.

    As to the question: Is a million dollars enough? Well, when I "retired" 10 years ago at the age of 39, I didn't have anything close to a million dollars saved up. What I did have though, was a passive income stream that was earning as much as my salary at the time. In the first few years after I quit my job, my income actually doubled because I discovered that if I put the same sort of effort into my own finances as I had put into my job, I could make a lot of money. My income has gone down now, but that's mostly because I feel pretty secure financially, and I decided that I didn't want to devote so much time to making money.

    Anyhow, I'm rambling here, but essentially I think that part of the disagreement over how much money one needs to "retire" is because people have radically different ideas about what "retirement" means. I think the traditional idea of retirement is that you sit back and live off of your pension and investments. That would not describe my life at all.

    Perhaps a better description of this "new dream" would be "leisurely self-employed."

    Sorry for the long blathering comment, but those are my thoughts!

    1. I like that. "Leisurely self-employed". Right now I'm just "work like crazy self-employed", but I did tell me wife that this is my last "regular" job and that next I'm going to work with and maybe expand our real estate investments (passive rental income) as landlord.

    2. So many good thoughts there, as always, EcoCatLady.

      -I go back and forth on the renting vs. owning thing. In my mind, I can totally appreciate how renting is better in certain circumstances: if you end up moving frequently due to work or a growing/shrinking family, if your home requires a lot of maintenance, etc. But then, we personally buy homes, so what to make of that? And hey, we are mortgage free...on some levels, we're doing just fine owning.

      -I watched the video again and you're right: she's not being smug, but angry at the broken dream/narrative.

      -How we define retirement really is the key. I personally like the idea of not needing to work at all, so then I can do things that maybe don't earn anything (like this blog) without necessarily changing them to being commercial enterprises. But if I were more okay with continuing to work in some fashion, that would allow me to retire with a whole lot less.