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Discussion Starter · #1 ·
Hi everyone,

I'm a 36 year old with a 35 year old spouse and two young children (ages 4 and 2). I've amassed a respectable amount in savings and business equity over the course of my career thus far and am now suspecting that my wife and I may be on the threshold to a comfortable early retirement, sometime in the next few years. This is my first real foray into this potential option.

I am seeking opinions on this matter from the members of our esteemed forum. I've tried speaking with financial planners in the past, but found them to be ineffective and behind on the ball, so thought I'd ask for opinions here as well. If anyone has any suggestions for websites or other resources that I can access myself to gain additional insights, that would also be appreciated.

Financial breakdown assets/liabilities:

My current working income: self-employed, earning about $200-250K/year if working F/T. I'm presently working P/T, so earning maybe $150K/year. My wife would bring in $100K/year if working F/T, but she has stepped back and is working casual, so probably ~40K/year as a rough estimate. We would likely be working casually upon "retirement", to stave off boredom.

Primary residence ($750K value, about $400K left on mortgage)

AirBnB rental home ($450K value, about $300K left on mortgage - rental income breaks even/puts us slightly ahead of all expenses incurred, including mortgage, so this is a wash in terms of an income source. We expect it to eventually provide a positive revenue stream once the mortgage is paid off).

Investment portfolio: $1.65 million split between my wife, myself and our business accounts. About half of the portfolio value is held in the business account, and these funds have only been subject to the lighter small business tax rate of 11% (so we'd incur more tax if selling the funds and transferring to ourselves personally).

Business equity: my stake in my company is worth about $2.5 million (but we have a bank loan with 6 years left on it. My share of the loan is about $1.1 million). At present, I am able to draw about $150K/year in dividends from the company (pre-tax figure - the company having only paid the 11% SBD tax rate on this income). Once our bank loan is paid off in 6 years and we can divert those bank payments back to us, I expect this dividend figure to double, to about $300K/year in dividends payable to myself. This business income would be the mainstay of our retirement cash flow, with the portfolio acting as a secondary option which I'll continue to add to.

Spending habits: fairly frugal, although we do enjoy traveling. Our annual expenses personally run around $50-60K, excluding travel. I am expecting that our expenses will increase upon retirement, as more free time translates to spending more $$. Unfortunately, due to our relative youth, it's difficult to predict a post-retirement spending level. This uncertainty is compounded by our two small kids, who are sure to be costly to raise over the next two decades.

Thanks for putting up with the long-winded breakdown - any advice/insight/recommendations would be appreciated!

Franko
 

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You are well on your way but I won't say whether you can, or cannot, in the next 5 years. My view would be to acknowledge that you will be able to retire early but I'd also say it is inappropriate to target a specific date just yet. Enjoy the journey and you will 'know' much better in 3-5 years. I'd target getting rid of at least the mortgage on your principal residence before retirement, and more travel upon retirement will be compromised by children in school for some time. Continuing to work at least part time until the children are of legal age and can be escorted out of the house is likely the other compromise for the interim.
 

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Discussion Starter · #4 ·
You are well on your way but I won't say whether you can, or cannot, in the next 5 years. My view would be to acknowledge that you will be able to retire early but I'd also say it is inappropriate to target a specific date just yet. Enjoy the journey and you will 'know' much better in 3-5 years. I'd target getting rid of at least the mortgage on your principal residence before retirement, and more travel upon retirement will be compromised by children in school for some time. Continuing to work at least part time until the children are of legal age and can be escorted out of the house is likely the other compromise for the interim.
Thanks for the input. Can I ask what you feel will be significantly different for me in 3-5 years that will allow me to have a better grasp of my financial situation, versus at present?

Is your view that it's inappropriate to be targeting a specific retirement date right now based on the fact that there are still so many financial variables up in there air in my situation (business prosperity, cost of raising kids, etc), or is there another rationale behind this?

Thanks again
 

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My thoughts are similar to AltaRed's. You have a solid plan in place to achieve your goals, but don't get fixated on setting a definitive date this early on. You have a fair number of variables, especially young children, that can alter your plan. Continue to monitor your goals closely and adjust accordingly as you go forward.

If I was in your position, I would work more now and take care of your mortgage, funding for children's education, etc. That being said, you are doing extremely well.

Don't forget to enjoy the journey. Good luck.
 

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Per Gator13, there are far too many variables to get fixated on a date. Financial markets, a change in the business environment, parenting curve balls, etc. It is good to have an objective such as 'retire early' but an overly prescriptive approach as to when will almost certainly need to be revised at least a few times
 

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Per Gator13, there are far too many variables to get fixated on a date. Financial markets, a change in the business environment, parenting curve balls, etc. - - - - - - - -
There are also super-major other factors which cannot be anticipated and certainly not included in any calculation. Two come to mind - (i) long range inflation, which can vary tremendously on unexpected events and on where one lives (see below) and (ii) non-monetary events - like the huge number of unmarried women in UK and Europe after WW1 because of the number of young men killed.

I was surprised to learn recently the difference in monetary inflation between 1955 and today -
- Germany 500% - US 900% - UK 2800%.
Maybe someone has better knowledge than I do on this.
 

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In order to determine if you can retire in the time frame you would like you really have to set some more detailed assumptions and run the numbers. Best to have a fee for services financial planner or CPA do this using a assumptions. Then you can decide the best course of action for you and your family.
 

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Unfortunately, due to our relative youth, it's difficult to predict a post-retirement spending level. This uncertainty is compounded by our two small kids, who are sure to be costly to raise over the next two decades.
No chance you can figure out when it's safe to retire if you can't project your expenses. You're obviously in a great spot but I agree with the general thought that you have too many variables to pick a date now. I think let it ride for a while longer and especially either clear out some of that debt or be very confident in passive income being sufficient to carry it.
 

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We would likely be working casually upon "retirement", to stave off boredom.
I used to think this way. I still do.

The place I used to work gets ridiculously busy in March/April/May when they are trying to slam in projects before their fiscal year end. When I left, I thought the chance was very high I would pick up a 6~12 week contract to knock out a project or two over the summer.

I am no longer able to work in that environment. If I had stayed, I could still be there now but once I had a chance to taste what life was like without BS, it no longer made sense to swim in the shark tank.
 

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Discussion Starter · #11 ·
Thanks for the input, everyone. It seems like the general consensus wisdom is to ride it out a few more years, to see how the chips fall while we continue pay off debt/accumulate the nest egg.

I agree that setting a firm date now would be an imperfect forecast at best. While I'm fairly confident on my income streams and the margin of safety in my current calculations, it absolutely makes sense to overshoot the target a bit more, for further certainty.

I will likely reach out to a fee-only retirement/financial planner as well.

Again, I appreciate all of your input! It's great to get some informed advice on such an important topic.
 

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Discussion Starter · #12 ·
Upon re-reading my initial post, I realize that I left out a couple of details which may modify responses a bit (apologies for the omission):

1. My current household expenditure is about $80K annually for all expenses (including mortgage) except travel. I estimated a total of $120K in expenses post-retirement to allow a cushion for travel and to add a margin for error.

2. My definition of retirement is not selling my stake in the business, but just stepping back from the front-end, scheduled shift work and transitioning to a purely back-end role as an owner (I am currently doing both front-end work as well as back-end owner work). The back-end work takes maybe 10-12 hours a week on average and is generally much less stressful.
 

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It does provide a better perspective of the transition to part time work by backing off the work hours to work back-end office only. The bonus is being able to spend more quality family time with children especially in their preteen years, albeit when they are teens, they will have their own opinions of when and where and how much time they will really want Mom and Dad hanging around.

However, it doesn't change my broad opinion to have early retirement as an objective, but to avoid hard wiring a date to it at this time. Your crystal ball will become more clear in a few years, especially with the current turmoil about rampant inflation and a possible recession on its way IOW, it is good to have a spreadsheet plan but real life doesn't give a damn about your spreadsheet. Remain flexible in your overall plan.
 

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Discussion Starter · #14 ·
It does provide a better perspective of the transition to part time work by backing off the work hours to work back-end office only. The bonus is being able to spend more quality family time with children especially in their preteen years, albeit when they are teens, they will have their own opinions of when and where and how much time they will really want Mom and Dad hanging around.

However, it doesn't change my broad opinion to have early retirement as an objective, but to avoid hard wiring a date to it at this time. Your crystal ball will become more clear in a few years, especially with the current turmoil about rampant inflation and a possible recession on its way IOW, it is good to have a spreadsheet plan but real life doesn't give a damn about your spreadsheet. Remain flexible in your overall plan.
Valid points - thanks for the post. Regarding waiting until the current market turmoil subsides - a counterpoint to this is that there will always be some market turmoil projected, whether real or imagined. 2-3 years ago, "inflation and Russia" would have been replaced with "COVID-19". Who knows what the next rung on the wall of worry is?

Regarding remaining flexible - good advice, and my wife and I both definitely plan to keep our healthcare practice licenses active, even into our "retirement". We want to keep the option open to work as much/as little as desired. Going back to full-time work is always a fail-safe option, if our financial projections and retirement plans run wildly off course. Having an ownership stake in the business where I work also helps in this sense, as I'll always have working shifts available to me, if desired.
 

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My point was you were not going to retire in the next ~2 years anyway, so by then inflation and/or recession may be over as well. It is true there will always be curve balls thrown one's way and one has to have flexibility to deal with those as they come. I've been through 2 curve balls so far.... the 2008 financial crisis and 2020 since I retired 16 years ago. This is probably #3.
 
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