“I retired at 43 after joining the FIRE movement”

Posted: 3 March 2020 9:42 am
News

A family of three with smiles

How one dad brought his net worth to over $1.2 million through a mix of index funds and rental income.

Our new series highlights stories from real people who’ve joined the financial independence, retire early (FIRE) movement. Some have successfully reached FIRE, while others are on track to do so over the next few years. Answers are edited for length and clarity.

  • Name: Jim White, blogger at Route to Retire
  • Age of retirement: 43
  • Time in FIRE movement: 7 years
  • Net worth: $1.28 million
  • Investment strategy: Total stock market index fund (VTI) and rental property

I’ve been part of the FIRE movement for roughly six or seven years and reached FIRE at the end of 2018 at the age of 43. I’d been working in IT as a systems engineer and manager after almost 20 years. We’re a family of three — I have a wife and 9-year-old daughter — and in the summer of 2019, we retired to the country of Panama.

What is your investment strategy?

The majority of our portfolio is focused on buy-and-hold and passive indexing. I believe that low-cost index funds will provide the growth we need to sustain us over the next several decades. The bulk of our portfolio is invested in a total stock market index fund (VTI). [Editor’s note: VTI stands for the Vanguard Total Stock Market ETF.]

To help cover us during market downturns, we’re also utilizing a bucket strategy. We keep about five years of living expenses in a bond-fund ladder and our current year of living expenses in an online savings account.

Every year, we take the money from the bond fund that matures for the year and move it to our online savings account for the upcoming year’s expenses. If the market is good, we sell a year’s worth of living expenses from our stock portfolio and buy another bond-fund ETF for five years out. If not, we’ll leave everything alone so we don’t have to pull from our principal.

We also own a duplex that provides us with an alternative income as a sort of hedge against the stock market. The property is in a good area, and we were very careful to ensure that the numbers worked well.

Rent from one side of the duplex is enough to cover our entire mortgage payment. We also utilize a property manager to handle day-to-day affairs on the property. This is a solid piece of real estate and generates a nice stream of income for us.

When did you begin aggressively saving?

I was about $30,000 in credit card debt by the time I graduated from college in 2000. That didn’t account for student loans, my car payment and other bills. The debt really bothered me, and I put all my focus on getting everything paid off, which I was able to do within a few years.

After that, I was already used to living on less money, so I was able to take the “extra” money I had been throwing at my debt and put it toward investing in my company’s 401(k). By that time, I was dating the lovely lady who later became my wife, and this solid saving strategy put us on the right track. We probably would have had a nice life retiring in our mid-60s at that rate.

But the real push came when my daughter was born in 2010. I took a week off from work for her birth and fell in love with her instantly. When I had to go back to work after that, I was crushed. I wanted to spend all of my time with her — watching her grow, teaching her new things and having fun. In other words, I wanted to be a full-time dad. I spent my days at work wishing there was another way.

When did you hear about the FIRE movement?

A few years later — probably around 2014 — I stumbled across an early retirement blog, Retire by 40. I was flabbergasted. I didn’t realize that early retirement was even a thing without being “rich.” Then along comes this guy who had so many characteristics similar to mine who retired before 40! This opened up a new world for me.

I studied everything I could online and read every book I could get my hands on. I got my wife on board, and we set a course to make early retirement happen. We cut back on the material crap we didn’t care about (new cars, for instance), but still continued to spend in the areas we enjoyed (like vacations). We lowered our grocery costs dramatically (thank you, Aldi!) and started making a little more money through our jobs.

So we just continued to push, and push, and save as much as we could. By the time I retired from my job at the end of 2018, we had a 60% personal savings rate, and that was just from my income. (My wife had already left her job.) And as I continued to learn, I found ways to invest smarter. This, along with a great bull market, accelerated our plans to reach FIRE and make our dream a reality.

We then moved to Panama in 2019 for the adventure, the beautiful weather and to enjoy the lower cost of living. It’s been absolutely wonderful!

7 pieces of advice for others looking to join the FIRE movement

The most important part of saving and investing is the actual saving and investing. This is going to make up the bulk of your portfolio. Do it however you like — earn more or spend less — just do it. Below are a few things I’ve learned along the way.

1. Investing smartly can save you tens of thousands of dollars, easily.

The way to do this? Learn. Educate yourself. You don’t need to be a finance major, but you want to get a somewhat better grasp on where your money is and where it should be.

2. Know how much you’re currently spending and how much you need to retire.

Understand the fees you’re paying, and learn how taxes and types of accounts affect your portfolio. Spend a little time to gain some insight into strategies that can help you reach your goals sooner.

3. Take the time to learn more about personal finance.

With the exception of saving, learning more has got to be the biggest key to financial independence. It’ll push you into action (even small steps) to allow you to get where you want to be.

Starting a FIRE blog was a turning point in my life, unbeknownst to me at the time. Being immersed in the community forced me to understand so many small things related to personal finance. This enabled my portfolio to grow more quickly and in a more strategic way that aligned with our goals.

4. Remember that asset allocation is important.

I actually didn’t realize this until later, but I got lucky and this didn’t hurt me too much along the way. With the anxiety a lot of folks have had in this bull market, understanding your asset allocation is key.

In a nutshell, that’s the percentage of the different assets in your portfolio. To really simplify it, you can think of it as your percentage of stocks versus bonds (and other alternatives).

5. Figure out what your comfort level is between risk and reward.

If you can sleep well at night with more risk, then you’ll want a higher level of stocks. If not, you want to lower that percentage.

For me currently, we want to maintain about 70% stocks and 30% bonds, because I’m OK with more risk and need my portfolio to grow. After all, this will need to support us over possibly the next 40 to 50 years!

6. Rebalance your asset allocation once or twice a year.

One of the best things you can do to help minimize risk is to rebalance periodically — once or twice a year — and make sure your asset allocation falls in line with what you had in mind.

As the stock market continues to go up, suddenly stocks take up a bigger percentage of your portfolio. When you rebalance, you sell what you need to and buy more bonds to get that percentage back in line.

The inverse is also true. This will ensure you don’t set yourself up for more risk than you’re comfortable with.

7. Take action and be willing to make mistakes.

Many of the folks that have reached FIRE or are on track to do so have delved into new ways to make money. Some decided to start a new business or side hustle. Some have ventured into real estate investing.

The key is not to be afraid. Take a little time to learn (advice tip No. 1!), and then go after it. Maybe your side hustle won’t take off, but you won’t know until you try it. If it’s unsuccessful, you either try a different approach or you move on. But if it’s successful, you’ll be glad you went after it!

The same goes for owning rental property. I bought my first house in my late 20s with the intention to rent it out. That house was a train wreck. I didn’t know what I was doing — I didn’t understand the numbers to look for, I bought in a bad neighborhood and the house was old and falling apart.

Eventually, I turned it around and was able to make it work for a while. When we sold it 15 years later, I had made very little money on it overall, but I gained something better: experience and knowledge. I ended up buying a duplex in 2015 and was able to use what I know to get a fantastic property that produces great income and will probably remain in our portfolio for decades to come.

Don’t be too scared to jump in and try something new — it could be the catalyst that helps you reach financial independence!

Photo credit/source: Jim White

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