Why do I want to retire early?

The first thought that comes to my mind when I think of retirement is "early".  How do I retire early, and get out of this rat race?  I have been in the corporate world for several years now, and lately I find myself increasing dis-illusioned by the whole corporate atmosphere.  There has got to be more to life than dragging oneself to work everyday, doing ones best to claw your way up the corporate ladder, put in the mind boggling long hours and late night meetings, soak up the pressure of increasingly tight deadlines, and worry oneself about meeting mindless targets quarter after quarter, and sometimes day after day.  When I started my career, I never dreamt that there would come a day when I would feel like this.  Today I know that I am burnt-out, and I want out.  I figured the best way to keep myself honest to my goal, is to first acknowledge how I feel, and share my feelings out here.  Going forward, I intend to chart out a course of exit, and blog my journey to early retirement in this journal.  Lets hope this story has a happy ending.

An Analogy to Help Deal with Market Volatility

A financial planner whom I respect, Michael Zhuang of Washington DC, had a great analogy regarding market volatility in a recent post to his blog:

Imagine your house has a ticker symbol, and it scrolls along the bottom of CNBC together with other ticker symbols. The price of your house, like a stock price, is set by a bunch of people you’ve never met making apparently random bets based on a combination of intuition, general economic statistics, output of an automatic-trading program, and, a couple of times a year, the real price achieved by one of your neighbors actually selling a house.

Minute by minute, the price of your home would gyrate wildly. If you are a nervous type, you might lie awake at night wondering if its value would cover your mortgage in the morning.

Of course, no one frantically checks their home value every day, wondering if he should sell.  But if we had minute-by-minute reporting of real estate values, your house would be every bit as volatile as your stocks.

Granted, your house is not just an investment, it is your home which has more than financial value.  But the same principle applies if the real estate in question was a rental duplex or an office building.  Thinking of your investment balances as something to update on a year by year - or even over multiple year - basis, like your real estate, will help keep your emotions on par with your plan.

A Holistic View on Stock Market Volatility

The last few weeks have certainly been an interesting time in the markets.  But despite what the general media would have you believe, investors who didn't panic and bail out on their investment plan are doing ok. For evidence of that, consider in generic terms a hypothetical $500,000 portfolio invested half in Vanguard 500 Index Fund (VFINX) and half in Vanguard Total Bond Market Index Fund (VBMFX) as of the recent stock market peak of of July 22.  VFINX was at 124.01 on 7/22 and closed at 108.72 last Friday - a drop of about 12%. (ugh!)

Seeing $250k drop almost $31,000 down to $219,175 is gut-wrenching for sure.

But remember that is only part of the overall holdings.  The other half of the money was in the Total Bond Market Index Fund, which moved from 10.77 and to 10.99 over that same period - an increase of about 2%.  Which left the entire portfolio sitting at just over $474,000 on a combined basis - down about 5%.

Not great, but hardly tragic.

Obviously this is not a statistically accurate analysis of any specific portfolio and is certainly no prediction of any future performance.  And a properly diversified portfolio doesn't just hold U.S. large cap and U.S. bonds; real diversification means owning both large and small companies, domestic and international stocks, U.S. and foreign bonds.  But the concept is spot-on and critical:  the only sane way to look at your investments is to look at your investments as a whole.

And that reality is rarely as bad as we feel after watching the news.

college education - is it for everybody?

So I just read an article that I really liked in the Nation called "Should All Kids Go To College?".

I've been mulling over this idea that everybody needs to go to college for some time now and I was not seeing the sustainability. I have mentioned it in my blog in the past. You may remember my complaints about recent grads taking up receptionist jobs. Well you can check out my crazy outburst of emotion under the comments page =) I won't repeat it here!

Giving Financial Advice - how do you make people listen?

So right now I'm all about encouraging people to save. At work I have this new advocacy project through my Equal Voices Fellowship in which I will be focusing on the goal of increasing the amount of money Marin county residents save.

Erupting Mind

Now as a side note, at our office we are always preaching about the importance of savings! There is this phenomenon called the cascade effect. It pretty much suggests that when you don't have a little bit of savings in the bank (and are living paycheck to paycheck) your life can easily take a downfall.  Say you have an unexpected car mechanic bill to pay. You don't have the savings for it, so you take it out on credit. Then you realize you can't pay your credit card. Then all of a sudden you can't cover basic expenses...and before you know it you're being evicted. - Cascade Effect - starts all because you couldn't cover that initial expense!

I wish I could say this argument was convincing enough to make people open savings accounts...but the 1st reaction you get is ... yea saving money is hard.... I need it!

So anyways, back to my project. My first action item is to start a Summer Savings Challenge. I have hashed out the details with my boss and made a flyer. Now all I have to do is advertise it!

What is the Summer Savings Challenge you may ask? Well it is a raffle designed to encourage people to save.  You get one raffle ticket/entry every time you make a deposit of a minimum of $5 (limit: one entry per day).

This goes on throughout the summer until August 31st. On September 6th we will hold the raffle! You can win up to $100!! There are actually 3 prizes to win: $25, $50, and $100.

What we are trying to do here is build people's "savings muscle" (so nicely worded by my colleague Ramona).  It is not the amount you save, but the commitment to save! Even if you can only commit to $1 now; you're still building your savings! It's just like when you start building real muscle. You may start with 1 pound, but after time your arm will get stronger and stronger and you may be able to increase the weight you lift.

women's handle on money ...

So I've signed up to this new newsletter called the Daily Worth and it is quite interesting/awesome!

Women coming together to take control of their finances and become smarter financial planners and investors = awesome!

Check out their website:

Their most recent newsletter was quite "eye raising". Planning for divorce. Talk about things you don't want to talk about! But their tips were really interesting and if I were married I would look into this. Even better, check credit scores BEFORE you get married!!! Get it all on the table before hand!
and when it comes to divorce, make sure you know all the finances beforehand - don't get screwed!

Considerations in Deciding When to Take Social Security

Recently I responded to a post from a blogger I respect, The Oblivious Investor, about decision making regarding whether to take early Social Security benefits for retirement or not.  It contains enough food for thought regarding this decision that my comment is presented below in its entirety.

There are obviously too many variables to consider regarding taking social security to be able to give one-size-fits-all guidelines, but I want to point out one non-financial consideration: with the break-even point of taking benefits at 62 vs 70 generally falling somewhere around age 80, for people who have ample resources they need to consider the USEFULNESS of the income between ages 62 and 80 versus ages 80 and say 98.

Each person has to make their own decision, but my experience is that generally people are as healthy and active as they can in those earlier years of retirement, and then at some point they’ve “been there, done that, got the t-shirt” and the extra income is less useful.

I googled ‘social security break even’ to find a quick verification of the break even point being somewhere around age 80, and found a good article from BusinessWeek . Coincidentally a colleague of mine in the fee-only Alliance of Cambridge Advisors, Bert Whitehead, was quoted in the article and he made a good point that if one invests the social security income they receive between ages 62 and 70 then the breakeven point gets pushed out to somewhere into age 92+.

I didn’t realize he was in that article, but at the risk of being biased in that I know he’s a great financial planner I think it’s a worthwhile read.