My Thoughts On Early Retirement
This is a continuation of my previous post regarding email conversations I had with a reader of my blog. The reader wanted to know if they can retire early given that they have already achieved financial independence. I am republishing our conversation in the hopes that it will help some of you. It is not about my replies which are probably not as useful, but more about the reader’s dilemma and may be others have better advice which you can leave in the comments below. So without much ado, here is the conversation with some information redacted to protect the privacy of the reader.
Email conversation #2
Reader: Thanks for getting back. It was great to see you taking the time to respond in detail which was really helpful for me.
Reader: I understood about FIRE with the 4% rule mentioned by MMM and ERE blogs then. I took some time to understand and go through the trinity study as well. Knowing the inflation in India vs US I figured 4% is very risky for us here and also given we do not have any social security!
Reader: When I designed my calculators/excel I concentrated on tracking my spending for the first year and started investing as much of my and my spouse’s income as we can. The goal to be FI was if we can withdraw 1% or less of our corpus and still have as much needed for our expenses so it has a good buffer built in. It meant the corpus needed was a larger but that was how we started with. Now, I am of the opinion to have fixed income assets generating my expenses every year while bulk of the corpus grows for later - kind of bucket strategy but not entirely. Happy to learn more on this as inputs/changes from your side too.
reynd: The thing about the 4% rule is that it is not just dependent on inflation. It actually depends on investment returns and inflation. So if you have 2% inflation and 8% returns in the US, the same can work in India with an inflation of 6% and 12% returns. Or at least that is my thought process. You can run some numbers in a spreadsheet with different inflation and return numbers and verify for yourself. But I agree 4% may be risky for some if they don’t want too much invested in equity. Bucket strategy is fine. There is no one good strategy :), one has to follow what they are comfortable with. So I don’t have any suggestions from my side. As long as your corpus is growing as per your projections in the long term, you will do fine.
reynd: Sorry, but I prefer email over phone (an introvert thing), so let’s continue like this unless we need to be on a call :). Hope I was of some help and all the best in your search for answers.
Reader: This is perfect. I prefer email as well and fully onboard with this response. Would be great to chat over the phone someday but email works very well for now! I had not seen that link before but I can surely use it for some instances myself 🙂
Reader: Will look at understanding how best I can spend my time and sabbatical is an option as well. Will dig into that part. Thanks for the helpful details on the RE question.
Reader: More Questions - How did you discuss this with your parents so they are on board with this? My parents do listen but say that I am too young to retire. I do stress that I am not retiring but just stopping my IT career🙂 Curious how your conversation went there!
reynd: Again this is probably different for different people. When I first moved back to India I told my parents that I don’t like to work for much longer and wish to do a startup in a few years. So they already knew I was not job material. Eventually I decided to just retire instead of working on a startup. The thing is that my parents feel a bit guilty that I moved to India for them (which I did, otherwise I would have settled in the US), so they did not want to object more about my decisions in life. Moreover they actually feel good that I am happier staying at home than when I was busy with work. They also enjoy the time I spend with them. They are too attached to me. The topic of “too young” never came up.
Reader: How do you see the 4% rule and any concern with market/corpus falling or you are confident on your buffer so it will work out anyway - I did see this post but it was in 2021 so wanted to check.
reynd: I have full faith in the 4% rule given my lifestyle. My expenses so far have been below my expected numbers, so although my corpus is not growing according to my projections I am not worried especially given the buffer. I will probably post another article soon with my current standing. Maybe that will help you understand.
Reader: Thanks again and looking forward to learning more from you.
reynd: My pleasure! Now a question for you :). Would you be ok if I converted our conversation into a blog post? I will redact the name and any other details that you don’t want to disclose publicly. And I completely understand too if you don’t want it to be published. All the best!
Email conversation #3
Reader: Thanks again for the responses Chandan.
Reader: As for the question on the blog - I am ok with that. As you mentioned, do redact my name and I think I have sent my link - please do remove that as well.
Reader: No other questions for today but looking forward to talking to you soon and hope it’s fine if I do mail you again soon!
Email conversation #4
Reader: Forgot to ask the below questions last time.
Reader: Similar to parents how did you answer or respond to questions from your friends? Not colleagues but close friends who you may know from long time regarding RE.
reynd: It is strange but most of my close friends actually appreciated and celebrated my retirement. Some said it was a gutsy move, most felt it was the right decision at the right age, some said they wanted to do the same in the near future, some said they can never do it because they wouldn’t know what to do if they retired early. Only one close friend felt that I could have done more instead of retiring so early because they felt I had more potential to share with the world. All I could tell them was that it was a personal decision and I was not the kind of fellow who is good at sharing my time for the betterment of the world. I am a person who prefers the company of close friends and family rather than going after fame or altruism. In fact, I am more of an objectivist. Again, none of my close friends felt that I retired too young :), so can’t help you much there :(.
Reader: Given this recessionary period do you think there is any timing needed to RE - like is it good to RE when market is on an upward trend and do you see any issues doing it in this situation.
reynd: There is never a good time to RE. The right time really is when you are prepared and confident. There are always a million silly reasons (arising mainly because of fear) to not RE, but very very few strong reasons to actually retire. There are no good or bad times to retire really. Actually we are not in recession, but if you feel that is a possibility you can wait it out. But do you know how long it will take for the recession to arrive and leave? What would be the disadvantages of retiring during a recession? Your money will notionally look less, but if you believe the markets will come back up then there is no problem retiring now vs later. If you are worried that there will be a prolonged recession then perhaps it is not a good time to retire. If it helps, I did not decide to retire depending on market conditions, I just decided when I had enough in the bank :).
For those who are interested in knowing more about objectivism, here are some videos with increasing duration of the video. Start with the first one it is short and simple. If you want to understand a bit more then go for the next one. Although I mentioned I am an objectivist, I am not 100% subscribed to the philosophy, but I do agree with metaphysics (reality), epistemology (knowledge and reasoning) and ethics.