Several months ago I wrote Working the ESI Scale to Financial Independence.
In that post I rated my performance in each of the three categories we discuss here — earning, saving, and investing.
A couple weeks ago I had a reader send me an awesome email where he did the same thing.
I just had to share it with you.
Here goes:
I am writing you today in great thanks for your general guidance, help and advice. It was of great help to have someone in a very similar situation to me when making a very tough life decision. I just retired two weeks ago at the age of 51. I took a voluntary layoff package and the rest is history. I have been walking on clouds since and finally had some time to sit down and write this letter.
Our situations are similar and I found your commentary about your retirement decision very comforting and easy to relate.
Overall, I would guess my net worth is a little less than yours, but I have a few other considerations that may make us very similar. I am fortunate to have very good retiree medical that will kick in at 55 and continue coverage until Medicare. My wife has chosen to continue working for another 2-3 years with a modest income for a tax accountant (not sure how many more Mondays she can take going to work while I head out golfing). Also, both of my children have graduated from college this year and will be moving out of the house within a year (I think!).
In true ESI fashion, I thought I would break down each component and give a high level summary with a self-assessed grade of how I got to where I am today.
E – Earning – B+
I graduated college with a Bachelor’s in Mechanical Engineering and got myself the coveted advanced degree. This got me off to a good start and to be honest, I was very blessed to have a very good rational and mathematical mind. Don’t get me wrong, I worked hard, but I saw others with less natural ability work very, very hard. I tip my hat to them.
I worked for one company for 29 ½ years. Again, I was very fortunate that this company was successful over this long time period of time and I always seemed to ride out the down cycles without getting laid off. Over those years I averaged an annual salary increase of 6.8 percent a year. This level of salary increase was above average but not significantly.
Engineers continue to be in demand and the compensation increases reflect that. I did this without any advanced degrees and spent the last third of my career in management. I did not make executive level management and the associated lucrative compensation. My wife, who started with an advanced degree also, chose to leave her CPA job with a big six accounting firm to stay home with our two children for 15 years.
We don’t regret this decision one bit, but had she stayed we would certainly have had more wealth and/or been able to retire much sooner. However, with our lack of income early on it really forced us to focus on being frugal to achieve the S in ESI up next.
S – Saving – B+
My company had a 401K with 50% matching program. I contributed 12%, so my total savings rate was 18%. I did this religiously for 29 ½ years. I also had a define pension benefit program (which is highly underrated) that I will now be cashing out.
I figure to achieve an equivalent amount of savings; I would have had to save an additional 6% annually to reach this total. So, I am going with a total equivalent savings rate of 24%. This is not a spectacular number and it took a much better than average investment returns to get me here today.
My wife and I were frugal but very comfortable with our lifestyle and this refusal to chase wealth and all its various seductions fits perfectly with us, we are very happy. I will return to this point later. Now, on to those great returns…
I – Investing – A
I was very fortunate to have a natural interest in the stock market very early in my life. From a financial perspective, I consider it as the greatest hobby one could possibly have. I think real estate is pretty darn good too, but not for me.
I realized that I seemed to have the right temperament for investing. Unlike some other endeavors, a healthy dose of modesty and rational fear can be a huge benefit in this game.
I quickly found my way to some really great sages including Peter Lynch and Warren Buffet. My greatest move of all was in 2000, when my 401K technology fund had grown to disproportionate size; I withdrew my entire tech fund with a pretty hefty penalty and invested in Buffet’s Berkshire Hathaway stock which I still hold as my number one position today. This was indeed a great investment.
Outside of that, it was pretty much a grind. Early on, I was mostly limited to my 401K’s S&P 500 and technology fund. As I grew older, wiser and more confident I began making my contributions after tax so I could move the funds out of the 401K and into my own IRA while still receiving the company match funds. My approach was to buy good companies and hold for a lifetime. I have probably made less than 50 trades in 30 years while holding 15-20 stocks.
I struggled to keep up with benchmarks early on and then came the great recession in 2008/2009. It’s hard to imagine nine years ago that I would be sitting here today retired, writing this letter. My net worth made up mostly from investments was less than ¼ of what it is today. The year, 2009, seemed to be one of those rare, once in a lifetime opportunities where everyone was running in the other direction in the stock market. Had I doubted myself, I could have easily given up and bemoaned a career of frugal lifestyle for minimal return. I didn’t, I jumped in and found incredible bargains in WFM, GOOG, NFLX, LVLT, LUV, PNRA to name a few stars.
My annual return since March of 2009 sits around 19%. My roughly 30-year career rate of return in the stock market sits at about 11.7% including all friction costs (fees, etc.) which is about 1.6% better than the S&P (10.1%) without friction. I would estimate most people have 1.5-3 percent frictional costs, so I consider my results very fortunate and rare indeed. Needless to say the stock market is pretty high by many standards today and with my decision to retire, I have greatly diversified my holdings. Risk management and portfolio stress testing is my latest hobby :).
So there you have it, a slightly different take on a very common theme of ESI. It wasn’t perfect or quick but I made it.
I want to come back to the point about chasing wealth. You can do ESI, but at some point you have say enough. For me, I could have continued working for another decade and would probably be looking at an interest only annual take home of hundreds of thousands. This would lead to a very luxurious lifestyle but it would cost a decade of my life in a fairly high stress job that I didn’t have much passion about. It was easy for me to choose time over wealth and I am so grateful and fortunate to have this opportunity. I feel truly blessed.
Thanks again for your contributions to me.
First, what a great story, huh? As I said in the original piece, there are many ways to use the ESI Scale. His approach was different than mine, but we both ended up in the same place.
Second, if there are others out there who would like to do a similar write-up, I’d love to publish what you have to say. It will need to be detailed (like above, not simply a handful of sentences — I can’t make a post of that) but doesn’t have to be a book. Using what’s above as a guide will result in an awesome piece that will inform and inspire many others.
The Grounded Engineer says
Thanks for sharing this great story, ESI! For a long time, I’ve wanted to hear a story about someone who has invested in the stock market over the “long-haul”. It is great to see how this strategy can pay off and it inspires me to continue investing in the stock market.
Ken Williams says
I agree it’s a great story, and I like how he articulates his decision to retire when he did (obvious trade-off between more net worth and more time away from a stressful job). I’m more on his side (equities investments), but my story is still being played out (another 3 or 4 years until I hang up the cleats). If I could change one thing, I would have signed onto the automated dividend reinvestments (DRIPs) earlier on. Better late than never, though.
Ember @ An Intentional Lifestyle says
This is awesome! Seeing the growth and the perseverance of sticking with the stock market through it all is a great thing to see. As a one income family ourselves, working towards FI, this is a very encouraging story! I’m definitely thinking his wife will have a hard time going to work while he’s golfing after a few weeks of that! Thanks for sharing!
Turning Point Money says
What a great example of buying and holding individual stocks they were comfortable with over the long haul. The returns speak for themselves. Congrats on your successful investing track record.
Curious, what are his plans to generate income since most of the companies he holds are non dividend types. Is he considering a strategy change when his wife retires or will he just sell off shares every year to fund his lifestyle?
Lance @ My Strategic Dollar says
Awesome story! Sounds like you followed the path that many FI bloggers are working towards. Truly shows that weathering the storm and not getting scared out of investing due to the rest of the public running away. Continuing to invest and stay steady with your holdings.
Thank you for sharing!
Dave says
I honestly enjoy reading these success stories. You did a great job with E, S, and I. The common theme with these stories is to stay the course and focus on the long term process. It always pays off nicely. Enjoy your retirement.
Dads Dollars Debts says
That is a great story and congrats to this person. Awesomely done. I wonder if he has ever gone to the annual Berkshire meetings. 51 is a great age to retire. With the way humans are living he will have at least 30 + years to enjoy.
Jeff B. says
We have been to the BH shareholder meeting and while it is entertaining, there isn’t much stuff to learn from Warren.
Mrs. Adventure Rich says
Wow, what a great note to receive! This is inspiring, amazing what hard work plus a little ESI can do for you 🙂
Kevin says
I liked hearing that he basically had a number, although he didnt exactly say that, but he took time at this point in his life as more valuable than continuing to build even more safety. An attorney friend of mine (I am not an attorney btw) had a friend from a large firm in the area. They worked together. Anyways he kept saying he was going to retire and finally did. He and his wife bought an RV and were going to travel the states and really see the country…but sadly less than a month after retirement he was diagnosed with a terminal illness and passed within a year, never getting to experience the dream of seeing the country. At some point enough is enough.
I am battling with this, but I dont have a fallback of medical if I quit and other than that I could retire, especially if reduced my housing expense (live in high-rise in metropolitan area). Thinking I will retire around 55. Will be 54 shortly.
Snowdog says
Very impressive that after making a great call to get out in 2000, he apparently did not confuse this “luck” with wisdom and begin a path of market timing. The worst thing that happens to many people is making a lucky move, then thinking they are smarter than the market, and then proceeding on a path of many ill timed moves that leave their returns well behind.
Working Optional says
Not sure I’d have the b*lls to pay the hefty penalty to withdraw from my 401(k) but glad it worked out!
Brilliant idea to get the company match with after-tax contributions and then rollover to the IRA – best of both worlds. I didn’t realize that was possible – learn something new on ESIMoney every day.
As they say, there are many roads to Dublin…
Stefan Ciancio says
Great Tips! Such a great information.
I agree with you that “ESI Money is about helping you grow your net worth.” I have always been facing problems with Making Extra Money and was trying to hire someone to help me.
I will tweet your post. Thanks a lot for sharing.
Stefan
ME too says
Holy cow I must know you, our stories are so similar! Such a great article; thanks for posting.
I’m a Mechanical Engineer as well, no advanced degree but a PE certification. I’m 48 and I recently asked for and received a severance package. Feels weird writing that. I too was blessed with a good mind for the work but I saw the writing on the wall for highly paid individuals who were crowding 50.
My grades using your scale:
Earnings: A+
I did really well here. I chased the money early on. I was able to do this by delaying home ownership for many years. I think I cracked $100k maybe 3 years after I graduated in 1991. I cracked $200k after 4 and have never dropped below that. I ended up around $300k but one glorious year I made $700k. My wife was a trooper during all of this and put up with the moves. She made a modest income as an accountant until our child was born 15 years ago.
Saving: B+
We saved SO much money for maybe 12 years by living very frugal but then we got the house…all the crap you have to buy, Lord. I crave my old 1200 ft^2 apartment with the pool. Now I live in CA where “starter” houses are $600k. I will fix that problem promptly though.
Investing A-
I screwed up the 90’s with dumb investments but I got it together after 2000 or so. I was a millionaire long before 2008 but wow, that knocked me down a lot. I mean, I lost a whole house easily. I walked around in a haze for months after that. Like you I stuck with it and am about 4x now.
And I love the comment on the lack of passion towards the end. For me I didn’t so much lose it as it lost me. Engineering has become so outsourced that it’s more like engineering PM. I’m so done with that.
Lastly I too realized that more money wouldn’t do me any good. Our lifestyle already went through its bloat phase and we’re now finally contracting again. If someone gave me a check for $100M not much would change.
Thanks so much for the post. It made my day.