How I am Able to Retire Early

Few people ever seriously contemplate retiring before age 55. Of those who do, not everyone is able to retire early. So how will I be able to retire around age 35? It has taken planning, good decisions and a healthy dose of luck. Let’s see how it has happened so far.

My wife and I were married while I was still in university. Because she had already graduated, she worked while I continued my studies. Both of us have a real aversion to debt, so we spent very little. It was helpful that I was able to qualify for the local student rate at Laval University, making tuition about 60% of the cost at other universities. We also rented a very small apartment for $350 a month. We ate mostly rice and noodles, and rarely ate out. Looking back, it seems incredible that we lived on about $900 a month for the two of us (including tuition and books). When I finished, we had no debt and some small savings.

I say “finished” because I hadn’t graduated yet. I had four or five Chinese language and culture classes to finish, and we decided to move to Taiwan for a year. I was able to complete my classes while my wife worked at a private pre-school. We enjoyed it and we earned good money, so we decided to stay a second year. Even though the Canadian dollar strengthened while we were there (eroding our savings), we came back with enough money for a small, one year old, used car and a 25% down-payment on our home.

When we moved back to Calgary, I started work as a financial advisor. Our first child would arrive in a couple months, so we decided to buy a home. Since it’s a big commitment and we planned to have more kids, we made a choice to buy as large a home as we would need, so we wouldn’t HAVE to move later. We didn’t qualify for a mortgage, since I was just starting to work, but my parents co-signed the loan for us. In hindsight, buying a home worked out very well. Home prices in Calgary have soared since that time, and our home value increased by about 75%.

Since I work as a financial advisor, I have access to a lot of information about investing. Even though in our office, we focus on financial planning and generally use investment funds, I took an interest in buying individual stocks. We invested our own money and I learned by doing. As in anything, especially when learning, you win some and you lose some. What worked especially well was buying income-paying equities like income trusts and REITs. Having cash distributions deposited to our investment account each month makes up for other mistakes.

Then the market crashed. It wasn’t fun, but after realizing that I had no control over the market, I started to see it as an opportunity. One of the REITs we owned was being given away at little more than a third of its previous price. We bought as much as we could afford, $15,000. That’s when it was useful to have excess equity available in our home. In a couple months, we sold the REIT for a 70% gain, and bought another REIT, which subsequently doubled in price. Our new REIT was worth about $50,000, which I attribute to good timing and a lot of luck.

These days, we almost exclusively buy investments that pay income. In fact, we get so excited about buying shares that when we feel there is a bargain available, we stretch to buy as much as we can. It leaves little money for extravagances, but our investment accounts produce almost as much cash as we spend. Because we took a chance and bought income trusts and REITs while the market was low, we got some yields over 15%. We can no longer find deals like that, and can’t expect all income trusts to maintain their distributions. We’ll spend the next two years paying off our debt and adding to our investments. Our goal is to have enough income to cover our after-tax spending, with some excess, just in case. Because we are focused on income, market fluctuations matter less, and it’s fairly simple to tell how well we are progressing towards our goal.

Through good choices, fortunate timing and a healthy dose of luck, we’re very close to our retirement goal. We spend only a relatively modest amount, and we use our cash to buy investment income. When our income is equal to our spending needs (with some excess for safety) and our debts are paid off, we will be able to retire. This strategy should work for anyone, but the timeline is very dependent on external circumstances. We’ve been “lucky” in that, as the saying goes, luck is when preparation meets opportunity.

What are the events that have moved you toward your goal of early retirement? How much of a role did luck play?

Disclaimer: There is a real risk that companies can go bankrupt and, even if they don’t, cash distributions are never guaranteed. Nothing in the preceding should be taken as investment advice.

10 thoughts on “How I am Able to Retire Early”

  1. Hi, thanks for the article.

    Personally, I found it kind of vague and not painting a very clear picture of how you intend to retire at age 35 – nor your current age.

    Could you clarify your goals with some numbers and maybe give us an idea of how many years out you are from retiring?

    It seems you are using some leverage right now. Can you also clarify how leveraged you are?


  2. Adam, thanks for your questions. I’m 33 right now, so two years from my goal. As far as leverage, its purpose is mostly to reduce taxation. I pay down my mortgage regularly, then, when I find a bargain, I buy shares using a line of credit. The total debt doesn’t increase, but the interest on the investment loan is tax deductible (whereas the mortgage isn’t).

    To be clear, I’m not Tim. My personal finances aren’t public knowledge. Suffice it to say, with about another $4k per year income, I could “retire” at my current level of spending. However, I’ll probably want to spend more as the kids grow and I don’t plan to quit working.

    My point wasn’t to brag that my financial picture is clear and beautiful. My point was that it takes good choices to retire; it takes luck to retire early.

  3. (1) No kids. I knew since I was 20 that I never wanted them.

    (2) No debts. Paid off my mortgage when I was 35, 12 years ago. No credit card debt, either. Paid off my student loans 2 years after I graduated college.

    (3) No vices. They are money pits.

    (4) LBYM, of course. No desire to “look” rich.

    (5) Worked for a company which began an ESOP 12 years after I started working there. Its value exploded in 11 years and I was able to cash it out before the market crashed.

    (6) Found a bond fund to invest the ESOP proceeds, a fund I bought into when its price was dirt-cheap in late 2008 when the markets crashed. My dividend income is about 20% higher because of that.

  4. Health care is the only reason I keep working. I’m not able to get reasonable premiums until I retire at 65. If I quit before then I don’t get to continue my employer’s group rate for the rest of my life.

  5. Thanks for the answer.

    So with another 4K a year income, you would be able to retire – is that including all the debt\leverage that needs to be serviced? Do rising interest rates become a concern for you?

    Is this both you and your wife retiring?

    Given that you’re 33 now, you have 2 years to retire at 35. When you did you actively start saving for retirement given you years in school and over seas?

  6. Adam, we saved money from our wedding, we weren’t able to save while at school, and we saved a lot while working overseas. We have also consistently saved while I’ve been working at my current job (now almost six years). Early on, I earned very little and we only saved a little. As my salary grew, so did our savings.

    In our case, all debt will be paid off when we sell our house and move to Hong Kong, where we will rent. In the meantime, rising interest rates could become a concern. If interest rates go higher than expected stock market returns, we’ll sell investments and pay off debt. But I don’t expect to see that in the next 3-4 years.

    If you have more specific questions, or if you want to share specifics about your situation, feel free to send me an email at robert (at) hurdman (dot) com

  7. Robert, this is a very good post. I am 27 and just graduated from university 2 years ago. I have started thinking about retirement about a year ago.

    My parents think I’m weird. They think that I just finished school and started working like 2 years ago and I am already planning for retirement?! Well, the reason why most people can’t retire until 55 or 60 or even 65 is due to the fact that they just don’t think about it until they are like 45 or so.

    Even though I just started my work life, I am glad that I’ve the mentality of achieving financial freedom.

    I agree with you post that with careful planning, good money management skills and regular saving habit, it is not impossible to retire early; my goal is to retire at 40.

    Buying stocks with high dividend yield that’s on sale is a very good strategy. I lost a lot of money during the sub prime market crash but I was fortunate to make it all back as I had enough cash to buy cheap stock at that time.

    Thanks for sharing your strategy with us. I am using similar strategy as well. =)

  8. This was interesting, but I agree with Adam: it’s less useful without actual numbers.

    Also, it seems you’re basing your projections on overly optimistic returns from dividends and income trusts, rather than the more widely-accepted 4% Safe Withdrawal Rate. Why do you feel confident basing your future on an expectation that is more aggressive and optimistic than conventional wisdom recommends?

  9. Kevin,

    I feel confident being more aggressive because I’m “cheating”. I plan to retire at age 35, so if anything goes wrong, I will still be able to return to work. A 70 year old in poor health doesn’t have that same luxury. In fact, I plan to work, although as a teacher in an international school, so I’ll only be living off my “retirement” income while I go back to university. After that, my investments should continue to grow while I have another source of income.

    On a separate note, I am vary cautious of “conventional wisdom” in the financial industry. Much of it is based on flawed models and the inappropriate application of Gaussian statistics to a system (ie the financial system) that is in reality characterised by “wild” uncertainty.

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