How did I retire early?

To many people, retiring early is their dream.  It means that, one day they will be able to quit the rat race, and live the life they want.  Some described the retirement life as 3 NOs:  “No clock, no boss, and no worry”.

How to get there?  What should I do in order to retire early?  These are the questions many people ask.  I retired in early 2015, at the age of 49.  Today I like to share my journey with you.

*** Caution:  please read my Disclaimer page located at the top left menu bar.  Anything discussed in this blog is NOT a professional financial advice.  If you need help on investment or finance, please contact your financial advisor.

Started learning investing

In the fall of 1998, I got my second master degree, and found an IT engineer job in northern Virginia (DC metro area).  During the new-hire orientation, the folks were talking about the company benefits like 401K match, insurance, etc.  I had no clue what 401K was about.  At that time, I had lived in US for only 2 years as a graduate student.  Reached out to the colleagues and friends, I got to know the 401K and basics of investment.  Then started contributing 12% of my pay to 401K, and invested in several mutual funds.

Many of my colleagues invested heavily on technology stocks.  That was right before the .com stock crash.  It seemed everyone was making money.  There was one guy on the project, who was trading the stocks daily.  He loved the Chinese buffet downstairs.  But he was very frugal, and bagged his lunch most of the time.  If we saw him sitting there eating the buffet and smiling, it meant he made money that day from selling stocks.

I used all my savings and bought tech stocks (Dell, AT&T, etc.).  That was very aggressive.  Luckily, I sold them all in January 2000 right before the crash.  Nobody knew the storm was coming.  The reason was that, I was relocating to central Ohio, and just bought the first house.  Money was needed for the down payment.  The house purchase shielded me from the crisis.

Looking back, it was very scary.  Lessons learnt.  Since then, I have not owned a single stock.  All of my investments are on mutual funds.  There is an old Chinese saying:  “Bitten by a snake once, you’ll be afraid of hay ropes for 10 years”.  In my case, I was not really bitten, but the scare lasted not just 10 years.

Continued saving and investing

In the following 15 years, I tried to minimize my living expenses, and maximize my saving.

  • Mortgage:

Like many families, mortgage was my biggest expense.  My mortgage rate in early 2000 was 8.25%.  My credit was good, just the time was bad in terms of borrowing money.  After refinancing twice, I got the final rate of 5.25% in the summer of 2003.  It was a decent rate then.  But compared to the current rates, 5.25% is still pretty high.

My stomach is very good for food, but is very bad for debts.  Pushed myself very hard for 10 years, finally my mortgage was paid off in 2010.  I thought the bank was going to mail me something pretty, like an award letter that is gold embossed.  It turned out to be just a plain piece of paper, saying the mortgage was closed, and the lien was released.  I told my coworker about the disappointment.  He gave me a suggestion:  “Helen, just frame that plain paper and hang it on your wall.”

  • College savings:

I saved for my kid’s college, so he didn’t have to get any student loans.  The 529 plan sounds good, but I never used it.  Just for our readers outside of US:  529 is a plan government gives some tax advantages when you save for college.  For the principle put in, tax is already paid.  Just the growth portion is tax free, as long as the money is used for tuition or other “qualified” education-related expenses.

I started late, and not many years were left before my kid going to college.  Saving some tax on the growth is nice in 529.  But I hate those hassles, and limitations what the money can be used for.  That’s my money, and I should be able to use it anytime and anyway I want to, without paying penalty.  So I simply put the money into CDs in the local banks instead.

Another factor was the market volatility.  I didn’t have the luxury of time.  Investing even on the mutual funds could be risky, if you need the money very soon.  The CD rate around 2006 was not that bad, I got around 5% for 12-18 month CD.

  • Retirement savings:

As the time went on, I ramped up my 401K and after-tax savings.

Regarding mutual funds, I’m a big fan of low cost index funds.  S&P 500 index fund is my favorite.  The expense ratios of most of my mutual funds are below 0.1%.  Expense ratio is the admin overhead cost of a mutual fund, and you have to pay no matter the market is up or down.  The lower the rate is, the more you’ll gain from the same fund.

I used to invest 50/50 in US and international markets (mainly developed countries in Europe, Asia and Pacific).  Before 2008, the European market outperformed US for a while.  But it’s not the case anymore after 2008.  I have adjusted accordingly, and focus a little bit more on US market.  But significant portion is still on international.

Health Insurance and cost of living after retiring

It has been 2+ years since leaving the workforce.  I simply love the retirement life.  Job-related stress is gone.  In my cause-of-stress pie chart, job-related stress used to occupy 62% of the pie.  Another 19% of my stress is related to money.  And it won’t go away soon, unless I win the lottery.  The rest 19% is life-related, and I’m sure it will disappear once I leave this world some day.

  • Health insurance:

I got health insurance through the employer while working, and the coverage was not bad.  MediCare won’t kick in until the age of 65.  The truth is:  I didn’t want to get stuck on the job for another 16 years, simply because of the health insurance.  As a result, I decided to take the chance and retire.

Currently I’m on the Obamacare.  The premium went up, the deductible/out-of-pocket amount jumped, and the network shrank.  But I’m still feeling lucky.

This is why:  I’m a person seeing the glass half full.  Having health insurance is much better than no insurance.  Overall, I’m very healthy, and hope to stay this way for a long time.

  • Cost of living:

I live in central Ohio (Columbus).  The cost of living is low.  CNBC lately listed the 5 cities as the best places to retire.  Pittsburgh is one of them.  I feel that Columbus is very similar to Pittsburgh, in terms of the low cost of living, weather (gloomy in the winter), good health care networks, etc.  Columbus does not have Steelers or Pirates, but we’re proud of the OSU Buckeye football team.

School district is not a factor anymore, when my husband and I bought the house several years ago.  The kids are all grown up.  In Columbus, there are still some neighborhoods which are decent, and the house price is low.  Yeah, the property tax keeps going up, but is still not too bad.  Plus my lifestyle has been very simple for years.  A good book and a cup of tea would make me smile.

Well enough said about my journey to early retirement.  What stage are you at on the way to retirement?  Do you enjoy your journey so far?

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17 Responses

  1. GYM says:

    Interesting approach and congrats on early retirement- I hope to be done in my 40’s as well. Do you have to withdraw a certain amount per year (like the safe withdrawal rate) from your nest egg, or are you not going to touch your principal? Do you have dividend income from investing in the S&P500 index?

    I love that you say 62% of the pie of work related stress is gone. Work can be so stressful!

    I am on mat leave now and it feels like retirement (but a baby is a lot of work) but I don’t miss work at all!

    • Retire Early Helen says:

      Mat leave is cool, so you can spend more time with your baby. I don’t blame you for not missing the work.

      I have enough cash reserved for years to come, and don’t have to touch my mutual fund investment. Try to let it grow for longer. In terms of dividends, yes, the S&P 500 index funds have some dividends, and I just keep it re-invested. Many of our blogging community hold stocks with solid dividends. That’s nice. I have not bought individual stocks for years.

  2. Hi Helen,

    Do you think that early retirement is necessary for true happiness? I am in the camp that I do not want to wait till the day I can retire to be happy. I think that thinking is wrong. I do not think that we necessary “find a job we like and never work a day” either. Yet I do think there is a balance. I know myself and I think I would be bored really fast being fully retired. Originally my goal was FIRE but now I just want FI. Knowing that I have a income to support me if I don’t want to do something would be great. I plan on getting to that point by 40 or earlier. However, I hope I find something that gives me purpose in terms of work as I think it is a bigger piece to people then we realize. Great post.

    • Retire Early Helen says:

      Great question. I guess it depends on each individual. Early retirement may not bring true happiness to some folks, if they really enjoy what they do and feel the fulfillment from work. Some may be well connected to their colleagues, clients, and would feel a loss if leaving the job. One example: I doubt if Warren Buffett will ever retire. I agree with you: FI is a great goal to achieve. FI empowers people, and gives people a choice to do anything they want to. I hope you get to the FI point soon, and pursue your dream.

  3. Caroline says:

    Congrats on retiring early Helen, what an accomplishment. What percentage of your pay were you saving when you were still working? Is your husband retired too?

    • Retire Early Helen says:

      Thank you, Caroline. Good question, I never thought about those percentages. Now looking back, right before my retirement, here are the ballpark numbers for my before-tax pay:
      – 30%: for taxes
      – 20%: for my expenses
      – 50%: saved for my future
      Yeah, my husband is retired, too. Now the alarm clock in my house only alarms once a while.

  4. Caroline says:

    That is an impressive number based on after tax pay. Great job!

    • Retire Early Helen says:

      Thanks, Caroline. I didn’t feel much lifestyle downgrade after retiring, as my spending has been flat for years, no matter of my income.

  5. Joe says:

    Thanks for sharing. I’m always interested in how early retirees deal with health insurance.
    It sounds like you’re in a really spot right now in life. Enjoy it because you’ve earned it. Great job with college savings too.
    You should add a social media plugin so it’ll be easy to share your posts. Do you have a Twitter account?

    • Retire Early Helen says:

      Thanks a lot. I just created a Twitter account, and try to figure out the details. Thanks for tweeting my new post.
      Yeah, health insurance is a biggie. Not sure where it’s going to. Will wait and see.

  6. We all have different paths to FI, and its interesting to see how other people got there 🙂

    That was some great timing on buying a house right before the dot-com bubble burst! I was just graduating as a computer engineer at the time. The crash changed my career path quite a bit, but things worked out well in the end 🙂

    So far I’m thoroughly enjoying being free from work. I’m not a morning person, and I relish getting out of bed whenever I choose 🙂

    • Retire Early Helen says:

      Right, the path could be different for each one, but the goal is similar. I’m so glad to hear that, you enjoy being free from work. Freedom is cool.
      The .com bubble affected a lot of people. Yes, I’m lucky I bought a house then, and it forced me to get out of the stock market. Thanks for sharing your thought.

  7. 49 is a good age to retire. How do you spend your time? Or does blogging take up most of it?

    99to1percent recently posted: What Do You Do For A Living?

    • Retire Early Helen says:

      Thanks. A lot of reading, writing, enjoying music, visiting parks, etc. Blogging did take a lot of time, and I decided to take a break from it.

  8. Josie says:

    Hi Helen,
    I just stumbled upon your blog while reading Frugal Woods. I too retired early. I retired 2 years ago at age 45. I am looking forward to working my way through your posts. I can really relate!

    • Retire Early Helen says:

      I’m very glad you stopped by. Congratulations on your early retirement! That is a big milestone. My current retirement life is the best I even had, though it’s not perfect. Enjoy your retirement. You earned it.
      – Helen

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