In The Goal: Financial Freedom I noted that my personal financial goal is to invest my assets so they generate enough income to more than pay my living expenses. This way I will never have to spend a penny of the assets themselves — just live on the income they produce. At that point I’ll have total financial freedom, be able to retire, or do whatever I want to do.
I’m shooting for this not because I want to leave my job, make any major changes, or for any other reason other than I want to have total financial freedom. At that point, I can decide what I want to do, whatever that is.
In this post, I’ll give you my thinking behind this plan as well as how I plan to get to this level.
Before I do that, let me say that much of this post sounds like bragging to me. I’ve tried to tone it down to sound as little like that as possible, but it still seems way over the top to me.
I do not mean it that way. I share this information with you so you can see that a simple person like me can put a plan like this together and that you can do the same (or at least something similar). And since I’m doing it, I can help you do it as well. And that’s what I intend to do.
If it sounds too pretentious, please accept my apology in advance.
Traditional Retirement Plan
Let’s start with the fact that years ago I decided I was not going to settle for a barely-getting-by retirement. I haven’t worked all my life to sit and barely make ends meet during my golden years — simply surviving until I die.
I am not going to settle for a retirement where my money may or may not run out when (and if) I’m 85, 90, or 95. That would feel like living with impending doom and a lifestyle I would hate.
No, the traditional retirement isn’t for me.
What is the “traditional” retirement you may ask? Something like this:
- You work a 40+ year career, saving for retirement as you go along.
- When you get to 65 (or older), you retire and live on a combination of Social Security and your savings.
- If you’ve done it “right”, the savings portion allows you to withdraw 4% (the old rule) of your savings every year with a fairly high confidence that your money will last longer than you will.
And this is the retirement plan for those Americans who are pretty advanced in their saving and retirement plans. Most Americans simply have “work longer” as their plan.
Anyway, the above plan is at least decent. That is until something happens:
- What if you outlive your money?
- What happens if some large, unexpected expense comes along?
- What if inflation rears its head and your money only lasts until you are 75?
Too many risks in my opinion.
How I Want My Financial Freedom
No, this “a lot of things could go wrong” retirement isn’t for me. Instead, here’s what I’m planning on:
Accumulating a substantial amount of assets that I can then turn into income generators, churning out enough income that more than covers my annual expenses.
What’s that look like? Something like this:
- $4 million in assets
- Assets generate a minimum of $100k in income per year
- Live on much less than $100k per year (let’s say $70k as an estimate for now)
The benefits of this plan are probably clear, but let me spell them out just in case they aren’t:
- I can retire and completely support my lifestyle on income generated from my assets.
- The assets themselves are never touched. I live only on the income they provide.
- There’s a safety net each year (between earnings and spending) in case something bad happens.
In other words, we have more than enough income generated to cover our needs (and we’re not skimping — we would have $70k a year!) plus HUGE margins of safety.
Yes, this is the sort of retirement I want to have.
It’s Not that Easy
Unfortunately this sort of plan is tough to achieve. It will require me to do several difficult things:
- I have to get $4 million.
- I have to get it to earn $100k per year.
- I have to account for inflation.
- I also need to be through all my life’s major expenses
Let’s tackle these one by one:
- $4 Million — I still have a ways to go to hit this one, but with a good rate of savings plus a decent (8% or so) stock market performance, I should hit my financial goal in five years.
- $100k income — I will detail below how I plan to invest my money so it earns over $100k. It should make for good conversation.
- Inflation — My plan for inflation is to so vastly over-deliver on income, that inflation is never a threat. As you will see below, I have plenty of opportunity to do this.
- Expenses — My last two major expenses are putting my kids through college. Fortunately I have the money set aside for those expenses, so they should be covered. (I have very little debt — and will have none within the next few months. I’ll share details of that in a future post.)
The Plan and the Numbers
Just to note, these plans are in various stages of development and execution. I may change my mind on some of them (we’ll see if your comments lead me to reconsider my options), so consider them a work in progress for now.
I plan to split the $4 million as follows:
- Real Estate — I already have $600k invested in rental real estate. I currently have three properties (14 housing units total) earning a bit over 10% once all expenses are paid.
- Peer-to-Peer Lending (P2P) — I hope to invest $400k in P2P and earn a net return of 7%. I have just started this investing option, so I have a lot to learn, but others are doing far better than this, so I’m optimistic.
- Dividend Investing — My plan is to put $1 million in dividend-producing stocks that give me 3% in dividends plus an opportunity for growth. I have a friend doing close to 4% and may have him do a post on ESI Money. I have lots to learn in this area myself.
- Growth Index Funds — Not really invested for income but for growth, this $1.5 million should still generate 1% in income.
- Non-working Assets — The other $500k in my net worth is non-working — it won’t produce any income. This includes my house, cars, and the like.
So with those plans, here’s what I’d generate annually:
- Rental real estate: $60k
- P2P Lending: $28k
- Dividend investing: $30k
- Growth funds: $15k
- Total: $123k
If I can come anywhere close to delivering these results, I will be well above my goal of $70k needed per year to retire.
I could adjust the mix and earn even more. For instance, what if I could find more real estate that could earn me 10% (or close) or what if I had $1 million in P2P lending? These two alone could drive significant gains.
There are also other income-producing assets to consider including annuities, bonds, and buying a business.
Other Income Sources
Remember, the above assumes no other sources of income. But I do have other opportunities for generating income that could add even more to the bottom line. These include (along with estimated annual income):
- Social Security )for me and my wife) — $25k. This is a plug number and I have no idea if it’s accurate, but it at least seems reasonable. And, of course, I couldn’t get this until I get to retirement age which I believe is 67 for me.
- Part-time Job (for me – consulting, teaching, etc.) — $20k. At my current rate of pay, this would mean working less than one day a week.
- Part-time Job (for my wife) –$20k. She hasn’t worked for years (our kids were homeschooled), but wants to get out and work a bit.
- Side Business (like this website) — $20k. Could I earn $20k a year from ESI Money? If I provide enough value. We’ll see. [Update: As of the end of 2017, I’m at $25k per year.]
- Total extra income: $85k
So income from assets plus income from other sources could be $208k (or higher if we pressed the extra sources of income.)
As you can see, there’s lots of margin for error in this plan — which is something I really like about it.
The Transition Period
That said, there is one teensy weensy problem: I don’t have complete access to all the assets that make up the $4 million.
Roughly half of my assets are tied up in various retirement vehicles (Rollover IRAs or my current 401k) that I can’t get to fully until I’m 59 1/2 (which will still be a few years away in five years). Yes, there is a way I can pull out money in equal chunks if I want to (it’s a process called substantially equal periodic payments), but I’m not keen on that right now.
I’d prefer to have full use of the money, invest it as I’ve detailed above, and simply pull out the earnings. I will of course need to take out principal when I get to 70 1/2, but that gives me a long time of just claiming the earnings.
So, what’s my transition plan?
Well, that’s up for grabs too. My options:
- I could keep working at my career for the next 10 years. I do enjoy what I do (not as much as being completely retired, but I do like it), so sticking with it wouldn’t be a terrible burden.
- I could shift down a bit, take a job that generates less income but requires less time, and start to enjoy a few benefits of being at least partially retired. This could especially work if my wife finds a part-time job once our kids go to college.
- I could do a combination of both — work at my career for five years of so and then shift down in job commitments.
- Take the plunge now and retire fully. After all, I should be able to pay for my living expenses with my rental properties if I add just one more. However, that would be cutting things pretty close without much of a gap between income and expenses.
Lots of options…
Best Guess
So, what will I actually do?
I’m not completely sure, but here’s my best guess for now:
- Keep working at my career. I have a job I love with people I admire, so it’s no problem to keep on working. Besides, I have two good reasons to do so: 1) I need the income to add to my assets to get me to $4 million and 2) our kids are off to college soon, and while we’ve saved for the costs, you never know if some extra will be needed.
- Five years from now, I can then re-evaluate and see if I want to keep working or move to one of the other options listed above. I could keep working, partially retire, or do something else. Five years is a long time and a lot will probably change between now and then, so it’s difficult to forecast what my best option might be.
Oh, and before someone mentions it, I could simply take $4 million and live off $100k per year for 40 years. That would more than last me through the end of my life. But where would the fun be in that? Besides, I’d rather leave something for my family when I pass away. (FYI, being able to withdraw/spend part of my principal is another margin for error advantage for me.)
So that’s it for now. I know, it’s a lot to digest. I am COMPLETELY open to your comments, thoughts, and suggestions, so let me have it! 🙂
JayCeezy says
ESI, am digging your site with both shovels, baby. I like the way you think, and the way you write.
You probably know all about this, but in case others reading want to tighten up their Social Security estimates (and run various ‘what-if’ scenarios), you could do worse than to get your actual history-to-date and plug in the rest here… https://secure.ssa.gov/acu/ACU_KBA/main.jsp?URL=/apps8z/ARPI/main.jsp?locale=en&LVL=4
Saw you mention your reluctance to hit the 72(t) Rule elsewhere, and here, but you haven’t pointed out “why” you feel so strongly. Not questioning your judgment, just interested in your objections. For myself and my wife, we have reduced current income low enough where some of that tax-deferred money will now be taxed at the lowest rate over more years. Social Security is not taxed at the State level. And for those fortunate enough to live in a no-income tax State, that 72(t) withdrawal is tax-free. Just sayin’…
Click my handle, and you will find a very conservative approach to the first $1 million of your $4 million, to give you a bullet-proof minimum standard of living. Once your home is paid for, it is quite easy to live inexpensively ($40K/yr). Your goal of $70K/$100K spending/income is both conservative and you can probably do it right now.
Thanks for introducing your new site, continued success to you!
ESI says
Thanks! I appreciate the thoughts.
My understanding with 72(t) is that once you begin it, there’s no changing it. You will receive the amount you receive no matter what. Is that correct? If so, I’d rather have the flexibility with my money. I don’t want to get out of one inflexible system (401k and IRAs) and into another 72(t).
I like your article and thinking. I’m up for a guest post here if you are. 😉
You are right on where I am — I could probably retire now. But I like my work and have always played it conservatively, so why change now?
JayCeezy says
Commitment to Rule 72(t) is five years, consecutive. If you are 53 and do it today, you need to do it through age 58. 59.5 is when eligibility begins, anyway. And using ‘joint life expectancy’ with you and your wife will allow the younger age of you both to determine the remaining life expectancy as a divisor. You don’t have to do it for your entire IRA/401(k) amount, you can just do it for one (or more) at a time.
Try a few scenarios, you will be surprised if you let it grow tax-free until RMD age of 70.5 it may seem like a large number (especially with your 8% growth assumption), but between the lower divisor and higher tax rate you will pay a big chunk to Uncle Sugar. Your decision will be the right one for you.
ESI says
Ahhhhh, that’s quite interesting…
Thanks!
muriel says
why don’t you start a roth IRA…ALL GROWTH AND DIVIDENDS will be TAX FREE upon withdrawal AND there is no minimum distribution required AT ALL. NONE!!!!! everything grows and stays until YOU DECIDE what to do with it……you can spend it or leave it for your heirs…..I never believed in the traditional ira, (too many years to wait)…. when they came up with the ROTH and I was a few years older, I liked the idea……so after 911, (when I was forced to retire, a I worked in that area), I converted my 401k to a roth ira…..IT MUST BE DONE IN TWO STEPS……
1) FIRST YOU HAVE TO CONVERT ThE 401K To A TRADITIONAL IRA AND (if I remember correctly then you need t wait 6 months) and
2) THEN YOU COVERT THE TRADITIONAL IRA TO A ROTH……I USED MY ONLINE BROKERAGE TO DO THIS BACK IN 2002 …..JUST KNOW THAT YOU MUST ROLL IT OVER……
you will take a tax hit….what I did was wait till the market crashed really bad, so the amount was much lower and taxes owed were less….you can also convert to the roth in increments so you pay taxes a little at a time, ex. convert $10,000.00 per year, (or whatever amount your comfortable with). if you do convert a 401k to a traditional roth just remember to NEVER, NEVER, NEVER, EVER HAVE THE MONIES TAKEN OUT IN ANY FORM…. IF YOU DO THAT, YOU WILL PAY PENALTIES AND POSSIBLY TAXES ON WHATEVER AMOUNT THAT WAS SENT TO YOU….have it rolled over completely from the 401k to the traditional roth…. since doing this with my own account back in 2002, I have grown the account tremendously……
good luck to all and enjoy your reaped rewards.
m
Coopersmith says
The future is cloudy and the rules of the game evolve and so must plans.
I like your goal as you plan for a high goal.
My plan is to save and invest as much as I can, for as long as I can and evaluate when I am 59 1/2 which is 6 years away for me and I am on track for now. But those 6 years can be great or they can be OK. You can only wait to see.
Looking forward to seeing your plan for income stream and withdraw from the 401k discussions and stratagies.
Ramzi says
Interesting Goal but achievable. There is a ton of “ifs” and “buts”. Major stock market snafus like last week and real estate performance prior to 2014 could make one anxious. But, life is a bitter-sweet chocolate!
Noah says
Very interested to see which of the P2P companies you are going with. Obtaining 7% should be very easy and 10% and above are definitely obtainable. I have over $8K in P2P and getting about 10.25% after adjusting for defaulted notes.
The hardest part is getting large deposits divided out among notes that fit your criteria. I added in $1K earlier this year and it still hasn’t been fulling divided out.
ESI says
Imagine how long $50k is taking…
I just put that amount in with LC at the end of December. Almost funded now (in $25 pieces).
I’ll give more details when I have a few months under my belt.
Jonathan says
I’ve never looked into P2P lending, other than reading articles about it on sites like Financial Samurai. The main reason is because it just looks like way too much work for the often tiny amounts you are loaning out. Why the heck would I want to loan out money in $25 chunks at a time? If you do 100 of those, and get 10%, you’re looking at a $250 annual return (and is it annual, or are most of those notes so short term that you’d have to find new notes each year?). I can’t imagine that’d be worth much more than its entertainment/diversionary value.
ESI, did you really fund 2,000 loans at $25 a piece? Wow…
ESI says
I’m still a learner, but here’s the “why”:
1. You can earn 8-12% back on your money. Sure, it’s not worth it if you invest $25. But if you invest $10k it adds up!
2. You invest in $25 amounts because it diversifies your risk over so many different loans. There’s some stat that says something like no one has lost money investing in $25 pieces with a minimum of $10k invested.
3. It’s automated, so it takes almost no time at all. You select your risk tolerance and the site invests for you automatically.
Yes, I have 2,000 loans. That’s what will make this a great story, right? 🙂
Noah says
I agree on all 3 points.
For anyone interested in the hard numbers, http://www.lendstats.com/ allows you to looking at 7-10 years of past data on what people are earning. You can also configure filters to see what different risk tolerances would have earned you. This is how I set up my own personal filter and am achieving an average of 10.5% over the last 6 years 🙂
By the way, before they had automated assignment, I had to manually select loans. Talk about a time-consuming process!
Coopersmith says
The last time I looked at P2P lending it was unavailable for residents of Michigan… Is this still true? Anyone know of an alternative?
ESI says
It looks like it’s ok in Michigan now:
http://blog.lendingclub.com/is-lending-club-available-in-my-state/
Mike H says
Hi ESI,
I think your plan is quite robust. Another option is you could try and reduce your expenses below $70K for a year or two and use the surplus to increase your savings & investing rate. You have basically built a perpetual money machine and have come a long way since your work on FMF just a mere 10 years back (yes I followed you back then as well!).
-Mike
JimL says
My plan is similar to your plan, except I just don’t have the interest to get Ito rental properties. Just like you, I don’t add social security into my mix at this point and also have a few back up options, like part time work (consulting, board positions, etc).
I just started looking at annuities as another option, but am not in a hurry to go down that path.
K D says
I guess I’ll have to take another look at P2P lending. I haven’t looked at it since it was a new thing. It sounds like there is a lot more information/research available now.I look forward to your post on it.
I love that you are back to blogging. I learn so much from you, you are a real inspiration.
MG says
Hi ESI, it is wonderful to have you back.
Your plan seems great, if only not a bit ‘too’ safe. Just wondering, how old are you, exactly? 50, I believe?
I am younger, and my plan is safe and sensible and sound (just a bit more agressive) like yours, being the only major difference is that I have no interest on real estate at this point. Just not my thing, may change in the future, though.
All my best wishes for success with your plan.
P.S. I would appreciate a few posts on P2P lending, return rates seem pretty interesting.
ESI says
Thanks!
Yes, I’m always a bit conservative when it comes to managing money.
I never thought I would be a RE owner either…
Yes, I’m just over 50.
I will certainly write on P2P lending in the future, though it probably won’t be for a few months (so I have some learnings).
AJ says
I’m not a huge proponent of the 4% rule.. I’m 40, out of a full time job for 2 years, heavy into real estate, don’t like spending principle. I own properties, notes, syndications; Income is in the range of 6-12% on value of those assets (ignoring taxes).
Anyway, 4% of 4M is $160k, just thought I would point out the obvious!
Financial Samurai says
Sounds like a good plan! It’ll be interesting to see if you actually invest that much in P2P. I’ve been an investor for a while getting ~7.4%, but I haven’t committed to investing huge money yet. I keep pushing myself to do so, but I’m investing in dribbles.
The biggest X factor might very well be this site! It has been for mine.
I’m looking forward to some SS money. I never remember that such money could one day come.
Sam
Crystal says
I think you value playing it super safe, so it’s worth it to you to keep working for sure. I’m mid-range on the safe scale…I’d probably consider myself financially free if I were exactly where you are already and only continue working for the enjoyment. Since that’s not what I really enjoy, I’d probably continue with my side hustle of blogging, keep the regular pet sitting clients that I enjoy, and volunteer the remaining free time that isn’t spent traveling. 🙂
John B says
This is my 1st visit to ESI and it made me remember your old site and how much i missed the valuable lessons i learned there. I’m appreciative that you have brought back many of the thoughts and lessons to reinforce many of the habits i’ve started. Fortunately i’ve reached virtually all the goals you’ve set for yourself but then i’m 10 years older than you and am completely free of touching my principal and comfortably living off of my earnings.
Something i read the other day…We buy things we DON’T NEED with money we DON’T HAVE to IMPRESS people we DON’T EVEN LIKE!
ESI says
Thank you for those kind comments.
I am impressed by what you have accomplished. I’m sure ESI readers would love to hear your story. I’ll reach out to you and see if you’re interested in telling it.
Love that quote! I’ve heard it before but don’t know where. Maybe Dave Ramsey?
John B says
The kind comments came from many years of visiting your other site and reading what to me seemed as very old fashioned wisdom (that’s a compliment as its time tested) or biblical wisdom (again, a compliment). I tend to think in old fashioned terms as do most of my investor’s that i finance.
The quote i first heard from Jon Courson who is a Christian pastor that i listen to on KWVE which is done by Calvary Chapel. Another of his quotes is…The happy man is NOT the one who OWNS the most… but the one who NEEDS the least (Jon Courson).
Thanks partially to your wisdom i have arrived at where you want to be. I never touch principal and the interest more than funds my expenses and allows me to continue to invest in my private money lending business in win/win transactions. I also live a lifestyle in which i always spend less than i make.
You have helped or reinforced me in so many ways and thats why i wanted to express my thanks to you.
Can you tell me how you might be planning on earning extra funds from this site by monetizing it? To me its a valuable resource worth paying for an i don’t say or do that often. 🙂
ESI says
Thank you again. You are kind.
Currently I am running ads on the site. Eventually I will have ebooks as well. You may not be a candidate for any of these, but you could still help by:
1. Reading and commenting regularly (I hope there will eventually be as much value in the comments as there is in the content)
2. Telling others about the site, especially those who want to grow their wealth but have no idea how to
FYI, I sent you an email. A guest post would be great too. 🙂
JohnB says
I did receive your e-mail and i’ve been pondering it. Since i rarely even comment but just kinda “lurk” and learn it would be very different to do as you ask. I also don’t consider myself a very good writer. Would the “guest post” that you are referring to be one that posts in some way what you referred to in the e-mail. Since i’m not at all into social media a lot of these types of things are pretty foreign to me.
I’ll tell you one thing i’ve been spending a lot of time on recently is how to protect your assets you work so hard to acquire from the writers of malware and especially ransomeware. Ransomeware scares the living daylights out of me but i think i’ve found some workable configurations which grant me both privacy and protection of my passwords and money movements. It’d be a shame to give away your hard earned assets to many of the thieves of this world that seem to be increasing in numbers. At least for now i feel safer from that risk. 🙂
ESI says
Basically you would just write down your story and send it to me. I would polish it up and format it, but not change any content.
But if you feel uncomfortable doing that, I understand…
John B says
I was viewing your monetizing reply and i can definitely break my pattern and begin to comment on a more regular basis. Also, it’s easy to recommend your site and i i did that on a very regular basis both at work and among friends. Whether they will admit it or not most people would definitely benefit from your site in so many ways. It’s easy to spread the word when you see such valuable information that you regularly put out. If that will help i will do 🙂
Finally, thank you for your invitation on the story and i’m still pondering it. Hopefully its not something you needed a quick response to. As i’m mentioned i’m a private money lender and have had incredibly good fortune from doing it since 3/09 but it’s done my way which may not be too applicable to others trying to learn how to do it from my story.
One more thought: one of my goals has been to increase my permanent income by $100 a month for the rest of my life. Because of the benefits of compounding interest i’ve very easily accomplished that without any unpredicability of the stock market or any sleepless nights from higher risk asset classes.
Dang, i was pretty wordy tonight, lol.
Joe says
I’m not sure if you were lowballing you Social Security estimate on purpose but remember that if your wife did not work (or worked very few years) her benefit will still be half your benefit. That would be another $12,500 a year.
JBalloonist says
Regarding the money you have “tied up” in retirement accounts, have you looked at transferring some of the funds to a self-directed IRA? You could use this type of account to purchase real estate, private mortgages, etc. I believe some of the P2P sites also allow you to use self-directed accounts.
Just an idea if you wanted to move some of the retirement money out of the traditional type of holdings.
One last item I’ll mention – just be sure to shop around for those accounts. The fees can be rather high depending on who you use.
ESI says
I’m sorry. I was vague with my description.
I do have most of my retirement money in a self-directed IRA, rolled over from a few 401ks.
It’s not that I can’t invest it in various ways (though there are extra fees for investing some ways with IRAs), but even if I wanted to, that money is not really accessible to me until I’m 59 1/2. That’s the major issue that makes the money “tied up.”
JBalloonist says
Ah understood. Thanks for clarifying.
LMH says
Reading back through this today. I’m curious, where did you actually end up $$ wise by asset since you moved up your retirement date? I’d love to better understand the split. Thank you!
ESI says
The best sources for what I think you’re looking for are these three posts:
https://esimoney.com/the-first-million-is-the-hardest/
https://esimoney.com/my-current-asset-allocation/
https://esimoney.com/%EF%BB%BFmy-retirement-budget-income-allocation-and-how-i-plan-to-diversify/
Jef says
I can see that this one has generated a lot of comments! 🙂
What I can say is kudos to you man, love the ambition although it’s something that motivates and inspires me as well
Looking forward to watching your journey along the way!
Cheers for the content
Toocold says
I’ve read your other posts, but it’s the first time reading this post. I’m surprised how similar our goals are. My plan is to accumulate a similar split between investments and real estate. I have an after tax dividend fund that is generate 4%. I also have a 60/40 pre-tax investment for future growth. I am in the process of buying real estate.
If real estate is generating such good returns, why wouldn’t you shift some of the growth funds to real estate, once you retire?
Also on your comment about being wary of bragging, I find that there are few high income bloggers that are willing to share I suspect for this very reason, so thanks for sharing.
ESI says
The issue on investing in real estate now is that the markets I’m interested in are too high (i.e. the prices are too high to buy).
The most likely candidates are:
1. Where I live now — Housing prices are very high, too high to make the returns I want
2. Where I have my other properties — Prices up big there too. That’s why my places have appreciated so much. See this post for details:
https://esimoney.com/my-properties-have-appreciated-over-a-quarter-of-a-million-dollars-over-45/
What fund do you invest in that gets 4%? I’d love to know!
BlackSamurai摩天楼 says
i’ve realized my own goal for investing is the same as yours – just to have money to live off of but continue to work because i enjoy it. that’s it 🙂 i havent got a mortgage yet (still saving up for a deposit with my wife) and i havent started investing yet, but i have an idea of how much from my gross income i will invest 7% for now and how long – as long as possible lol. 🙂
26 years old – not a bad time to start right? 🙂
BlackSamurai摩天楼 says
your plan is definitely something i want to emulate – and scale it down to meet my needs 🙂 thanks for this
Matt Miller says
I really like your plan ESI money. The allocation you have to different asset classes is great! I’m a huge proponent of getting some money into alternative investments like P2P, crowdsourced RE, etc.
Have you ever thought about focusing on cap gains for your website instead of focusing on net income? My thought is that $20K in blog net income is great but the tax rate on self-employed earned income is ridiculous. If you built this blog up (which it seems like you’re doing an awesome job at) you could sell it for $1MM or more and it would be tax-favored. Blog income is directly correlated to the valuation but I say focus on blog revenue instead of income. What are your thoughts on this?
Matt
ESI says
Have I got a deal for you! I’m willing to sell the blog for only HALF a million! 😉
Seriously, I have a few thoughts:
1. Years ago a few big money blogs were sold for a ga-zillion dollars. It looks like those sales haven’t panned out for the purchasers and big-money buy-outs have been scarce lately.
2. That said, I’d be open to selling for the right price, of course. But as you note selling price is tied to earnings so I’m going to have to earn some income before I sell or the price won’t be high. (I think buyers look at income over revenue, but I could be mistaken.)
3. Right now I am spending most of my income just to build the site, so in part I’m doing what you suggest.
4. Due to my early retirement, my taxes are going down big-time, so income isn’t as much of a problem as it once was. Details can be seen here: https://esimoney.com/big-tax-savings-due-early-retirement/
Matt says
Thanks for sharing your thoughts! I think I have a new idea for a post on lower tax rates in retirement. There’s a lot of good information in that post – specific and detailed information that many people would find helpful.
I’ll keep my checkbook handy 🙂
Carter says
OK, so I am not American. But I clearly think like you. As at June 2017, my wife and I will have $1.9m in invested assets. We are just the wrong side of 50. We have one other major non-income producing asset (not our home – which we own) worth approximately $500,000 (after tax). At some point in the next decade this will be added to our income producing assets – but I don’t factor this in to my planning. Our stock market generates approximately 4.6% income annually (dividend yield) and should deliver at least 3% annual capital growth. So I assume 7.5% annual returns reinvested. Excluding the value of the non-income producing asset, such a return would mean an invested asset base by our 6oth birthday of approximately $3.5m. With zero debt, stock market fluctuations do not bother me.
I actually assume I continue working until I am 65, though will clearly re-assess this at 55 and then at 60 years of age.
$3.5m at 4% annual income equates to $140,000 annually, which seems plenty for a couple with adult children and no debt at all and who are still young 60 year olds.
Thoughts on this?
ESI says
The 4% rule would say you can withdraw 4% of your assets and it should last you the rest of your life with a reasonable certainty.
Of course the “rule” is more of a guideline and I always prefer a margin of safety.
You can read about the rule here and come up with your own conclusions:
http://www.investopedia.com/terms/f/four-percent-rule.asp
biggreydog says
ESI – great site and great journey congratulations. I suspect the poster above you’ve responded to is perhaps Canadian, earning typical Canadian dividend returns on blue chip stocks which are tax favoured as well (as they are in the US). He doesn’t have to “withdraw” anything. Just like you, he is going to base his retirement income on a perpetual money machine created by 4% dividend streams on $3.5M in stock with no impact on his capital base. My plan too. We would all have a lot in common.
I’m going to read the site regularly and am through quite a few of your historical posts. Very well done all around!!
Froogal Stoodent says
You were worried that this post would come off like bragging, but I, for one, didn’t take it that way! I would like to commend you on your ambition! It’s wise to plan for unexpected events that could eat into your ‘nest egg,’ so this strategy (living off of your dividends/interest without withdrawing the principal) is a smart approach.
Chris Oglesby says
Dear ESI,
Keep up the good postings. I think we are very similar in net worth and attitude, however I live overseas in Thailand. I was let go, along with 45 other expats, in 2015 when oil prices crashed and since then I’ve lost 20’lbs, ride 200 km per week on mtn bikes in the rice fields, trekked 75 days in the Himalaya’s last year and planning more this year. I could not feel better and don’t miss working.
I’ve moved most of our assets to REIT’s and Energy MLP’s ( yes, I know they are a tax pain) and we have lowered our spending dramatically. I find our daily expenses, sans travel, are much lower; no clothing, work lunches, transportation costs, so all is good. Plus no breathing bad air on the 1+ hour commute each day.
We have two children in university in the US but we had saved for those costs (OUCH!,,). Since we are 61 and 59, we don’t qualify for Medicare. Our very comprehensive medical insurance in Thailand costs approximately $3,000 /year for the two of us but outpatient costs are not paid. A typical Doctor visit costs about $20. The quality of care here is excellent.
I’ve found the financial transition from accumulating to harvesting the most challenging but after lots of recent reading, we are transitioning our portfolio to do just that. Social Security will be just a bonus but I do debate when to take it.
Thanks for your wisdom and insights. You are on a good path.
Best regards,
Chris