Retire early, love every minute

There is a lot of focus on the FIRE movement (Financial Independence, Retire Early). Lots of ink spilled on homemade cleaning supplies, tin foiling windows and clipping coupons whilst whilst living in a nano house. All in an effort to mass up cash, exit the rodent race and find freedom. Does the math add up? And if you get there, is there happiness? And, of course, will you run out of money? I think yes, possibly and done right, your cash keeps growing. Retire early, love every minute. Let’s take the pieces one by one:

How to retire early

Financial wellness isn’t complicated. In fact, it’s dead simple. Forget the get rich schemes, the lottery tickets and the hot stock tip. Find work that meets these criteria:

• Something you love
• A skill you are good at
• An offering the world needs and values

If you add a dash of hard work and innovation, you will be successful. Stay with it for a while. Think twice before you email your boss angry. Smile a lot. Befriend your HR team. Along the way, be sure to squirrel away at least 10% of what you earn, invest it well and you will retire eventually. Up the savings to 20% or 30% and you can retire a lot sooner. How much sooner or wealthier?

Let’s take a look using the example of someone who earns $150,000 for their entire career. A long plateau, granted. Let’s assume they want to retire with an annual budget of $100,000. The usual rule is that they can draw down 4% of their retirement account. This implies a saved stash of $2,500,000. How long does it take to get there if they can earn 6% after inflation?

Assuming they started working at 23, a 15% savings rate would have them retired at 58, while a 30% savings rate would have them on the golf course at just 48. Not bad.

Is it possible to actually save 30%? I think that it is. Simple changes like shopping your car insurance, saving on pharmaceuticals or slashing housing costs can make this a reality. Heck, even buying vodka smarter can help. But it raises a more important question in this race to retirement. Namely, what’s the rush?

How to love every minute of it

I had an interesting conversation with my eldest son a couple of weeks back. Kind of a future-musing session. It was nice. He mentioned that it would be cool to retire early. I asked what he would do if he was retired. He painted a picture of doing some writing and speaking, playing music, doing some biking and skiing and finding ways to help others. We both laughed. A lot like the lifestyle of the old man.

Many people idolize early retirement since they see it as a way of escaping a working life they hate. They are running from their current career. How big is the issue? A Gallup poll indicated that 85% of the full time working population are unhappy with their toil. With 1 Billion people working full time, that is 850,000,000 sad souls dragging their sad butts off to the office, plant or field. No wonder everyone is trying to retire.

But rather than running from something you hate, might it make more sense to run to something you love? A possibility is to change your existing career to something that offers you more meaning. A cause that you can embrace. Could you crunch numbers for a group whose mission inspires you? Or craft code for a company that is solving a massive human issue? Or switch to a new line of work where the work itself is more meaningful?

After retirement, you are still you

It’s just an arbitrary date. A mostly North American concept of a finite end of a career. Followed by an abyss of non-work. Sure we can advance the date, but meaning, joy and fulfillment don’t just arrive. They need you to invite them. Find them while you are still “working in your career” or look them up “after you retire” But they won’t crash your retirement party to save you. There is no “work”, then “post-work”. It’s just a continuum of life along which we all need to craft our personal ribbon of joy.

What brings us joy? Certainly the triumph of learning new things. There is happiness in accomplishments, particularly the more impossible ones. Stretching ourselves in multiple ways adds some intrigue. And nothing unlocks fulfillment more than the key of helping others. And let’s tack on completing whatever bucket list items are left.

Financial wellness opens the possibilities

Perhaps it’s not the surly bonds of our jobs we hate, its the perception of limited choice. Without financial security, it’s harder to take risks. How will we service our debts? Whither our families if we fail? Maybe the real quest is to get to a point of financial freedom, of living below our means, so that our capital rises whether we work or not. The joy of choice.

I joined a retirement session on Zoom recently. The group leader began by saying that we are all in a period of physical and cognitive decline. The curse of the post-50 set. Inspiring! Heck of an opening. I see the opposite. With some financial freedom and advanced years, we have new tools that we didn’t have when we were younger:

• The choice to chase a dream
• Money to invest in ideas and in ourselves
• Kids that are now self sufficient
• More patience to stick with things
• Lots  of connections who can help
• Endless online information to learn anything
• Deep wisdom from years of wins and failures
• The freedom to surround ourselves with those who inspire us

An absent quest is a recipe for a bad movie and a sad retirement. There is no value in winning the financial race to retirement, only to wallow in aimlessness. Craft a life that brings you meaning, challenge, beauty and joy. Start a small business – it doesn’t need to make money. Learn an instrument – no one else needs to hear you. Tackle a challenge that scares you – cheer the win or the attempt. Help a group that really needs you – you’ll matter to them. Bask in fulfillment. Grin at the win. Enjoy.

But will I run out of money while self actualizing?

It’s interesting to actually give up the 8-7 (plus commute) life. No matter how many times you do the math, the fear remains. What if I outlive my capital? If you estimate that you can live on 4% of your savings, most financial models will say you are set. Now that I am actually living it, I notice a few things that should give you calm:

• You will draw down 4% a year, but your investments will likely average more like 8%. That means your money is growing, not shrinking most years. The 4% co era just the worst case. Test this at firecalc. It will run dozens of market scenarios. One will show you exhausting your capital at 90. The rest show it growing two three or four fold. The spray nozzle is crazy wide. A lot depends on Mother Markets.
• If you stay active and connected, most likely some fun opportunities will come your way. Coaching. Consulting. Investing. They can add income and leave your stash to continue growing like hostas.
• You will see some extra income from Social Security
• Your expenses may be much lower than you thought with kids grown, mortgages paid and homes decorated and furnished.

Now is your time. Whether you are 20 or 60, working or “retired”. Go live your best life. Scare and challenge yourself, appreciate all that you have. Help others. You got this.

What are your thoughts on retirement? Let me know in the comments.

Photo credit: the author. Taken mid day on a Tuesday as a cow crossing paused a kayak trip with a buddy. Blissful!

Looking for a way to reduce loan interest?

In a perfect world, we would just pay cash for everything. But sometimes you just need a loan. Maybe you need cash for your business, or Elon wants you to invest on the ground floor of his new company. Perhaps you just need funds for a car or other asset. The compounding effect of borrowed loot is nasty, so it makes sense to look for a way to reduce loan interest.

One obvious approach is to do a bit of haggling. On a mortgage or a car loan you might be able to shave off a quarter or a half a percent of interest. Worth a try. Or you could try shopping the loan between some different lenders, banks or credit unions. For mortgages, working with a licensed mortgage broker can get you a better deal than your own shopping. Sometimes attractive financing can be had from the people trying to sell you the asset – like the Ford dealer at month end, in a blizzard, in January, during a recession. All of these are worthwhile, but for the really big savings, you’ll want to dig into another approach. And it’s one that I didn’t really understand until just recently, even after buying 9 houses and about a dozen cars over the last 40 years or so. How much did I overpay on those loans and mortgages? Ugh.

The power of your credit rating

Sure, we’ve all heard of credit ratings – those numbers that tell lenders how likely we aren’t to pay things back. They run on a scale from 500 to 850. But how much do you really know about them? I don’t think I ever knew my number or what it meant until my recent move to the USA. Back in the old country, I had lots of credit cards and an awesome limit. In other words, a great opportunity to collect points for fabulous cash and prizes. But when I tried to open a Best Buy credit card here in Ohio, my application was rejected. Whoa! What! Bit of a blow to the ego. Turns out credit records don’t cross borders. I was starting from scratch like a new graduate, but with grey locks, wrinkles and a middle aged body. The worst of both worlds. So I was forced to begin with a bank credit card of $300. Wait for it…secured by $300 that I had to keep on deposit! And those cards don’t earn points. Humbling!

After a few months of carefully paying off my junior card, my credit rating went from 520 to 750. Not bad. Soon I will be able to remove my card training wheels and liberate my $300. Now, new credit card offerings arrive almost daily. And now some of them have points. I’m back!

Good to have credit cards with normal limits, but I got curious and started to learn more about credit ratings.

Credit ratings to the rescue to reduce loan interest

Turns out that your credit rating makes a difference on your loan interest rate. Like a very large and massive difference. Over at myFICO they have a nifty calculator to show just how big a difference your credit score makes on your loan interest.

As an example, considering someone buying a new F150 pickup truck for $50,000 on a 60 month loan. How much would the payments be? It depends. Looking at the myFICO calculator, they could be as high as $1,209 a month or as low as $909 a month. The total interest cost over the 60 months could be $22,552. Or as little as $4,567. Hard to believe. But true! It all depends on your credit score. Turns out having a great credit score is a key way to reduce loan interest.

The high payment and interest figures are for a borrower with a credit score of 500-589. Could be someone new to the country (been there), or someone who missed some payments or is carrying a lot of debt. The low payment and interest numbers would be experienced by someone with a strong credit score of 720-850.

Sounds like it is worthwhile to learn about credit scores.

Credit scores are set by the 3 major reporting agencies: TransUnion, Experian and Equifax. Each of them receive information from lenders about your payment history and credit limits as well as public information about you, such as bankruptcies. They then score your file and make that information available to other lenders and/or sell it to companies who want to present you with things you don’t need (like all of those pre-approved credit card offers that line your iguana’s cage.)

You can get your credit score for free at annual credit report or sometimes from the credit companies themselves. Experian, as an example provides your score if you set up an account with them. Each of them offers more advanced services which they enthusiastically sell you at every chance they get. Your bank may also be willing to provide your score as well. To reduce loan interest you’ll want to find ways to improve your credit score.

My credit score isn’t great. How do I improve it?

There are several factors that the credit companies use to evaluate your score including:

• Your payment history
• Credit use
• How long you’ve had your credit
• Credit mix (do you have different kinds of credit such as credit cards, mortgage and car loans)
• Application for new credit (new cards, mortgages, car loans etc)

To improve your credit rating, you need to improve some or all of these factors. Pay the balances in full when they are due, stay under 30% of your total credit limit, cancel cards that you aren’t using, and don’t apply for new credit unless you actually need to. Also check your credit report for errors and get them fixed. Sometimes they will show you as having cards that are long gone, as an example.

Summary

Credit scores are easy to ignore. According to a recent GoBankingRates survey, about 40% of Americans don’t know their credit score. It follows that many people don’t realize the effect that it can have on an opportunity to reduce loan interest. Take the time to learn your score and improve it. This is important if you are thinking about a loan, but even important when you aren’t. Good to be ready should you need access to some extra cash for an emergency or a worthy cause.

I should also mention that rushing out to buy a brand new truck with a loan isn’t likely to be the best financial decision. Especially if you’ll only be using it to carry your lunch and not heavy gear like the dudes in the picture. Buy the vehicle that you need for 90% of your driving. Rent something else for the rest. And a 2 year old used vehicle can represent great value. Learn more about how to buy the perfect car.

And of course, the $17,985 in reduced interest could be put to very good use. Over 40 years, invested at 7% it could grow to a tidy $287,760. Not a bad addition to your retirement account. For $13,000 of monthly savings ideas, check out the book.

What tricks do you have to reduce loan costs? Let me know in the comments.

Photo credit Said Al-Olayan