Starting Early on Early Retirement

I thought I’d take a few minutes to describe a bit about how I got started on my path to early retirement.  I can actually remember how and when I made the decision.  I was 32, and had just changed jobs.  I had become bored and restless at my previous job and was sure that making the right job move would fix everything.  A couple of months into the new job and I realized I was even more bored, with little to do and not much to look forward to.  I came to the conclusion that I needed a plan to make an early exit from the corporate world, and decided right then and there that I’d start planning.

I knew it would be a big financial jolt - even though I expected to have a small business or part-time job when I left, it would clearly require much planning to be at the right point financially.  I was so naive then, I am almost embarrassed when I think of it now.  One thing I did right, though - I decided that the cornerstone of my plan was to pay the mortgage on my house off.  This was no small feat, as I was recently divorced and had purchased a single-family home on my own.  However, I knew that it would free me up financially to not have that large payment looming every month.

There were so many things I did not think of then.  I forgot that even with the mortgage paid up, I’d have property taxes and homeowner’s insurance forever.  I also forgot that I’d need to provide for my own health insurance.  And perhaps most startling - I forgot to factor inflation into my calculations.  I was oversimplifying the situation, however it did me little or no harm.  My plan was in place and I had a goal.  I thought I could achieve that goal within 10 to 12 years, but in reality it took me 15.  As it got closer the reality of my flawed logic hit me, and I had to do a lot of re-figuring to calculate a better financial goal.

The year I started my plan in motion I re-financed the house to a 15-year mortgage.  I obtained a good rate and financed only what I owed on the mortage, no more.  I still remember the broker being perplexed as to why I wasn’t borrowing all I was eligible for.  I also started paying down that 15-year mortage at an accelerated pace.  It took me about 11 years to pay off that mortgage; I know there is much controversy amongst financial experts and bloggers as to whether it really is the best financial decision to pay off a mortgage or invest the money elsewhere.  I plan to address that question and my personal feelings on the matter another day.

OK, so did I march into the boss’ office the day I made the final mortgage payment?  As dramatic as that might have been, I actually slogged away at the job for four more years, saving and planning for the big break.  I now realized that even without a mortgage, my monthly expenses were somewhat more significant than I’d first thought.  I also knew now that I could not spend all my investment income each year if I wanted my investments to last into retirement, due to inflation. 

In summary, I’d say there were two really important things I did to ready myself for early retirement.  One was to pay the mortgage off, and the other was to start tracking with great detail my monthly expenses.  I set up accounts in Quicken and, for quite a few years, have been tracking where every penny goes.  I could not possibly have known what my financial needs were if I did not know where the money was going.  In the end, leaving the comfort of a good-paying corporate job was a big leap of faith anyway, but I had some knowledge and a safety net that made it a little easier.

Other Articles you might enjoy:

• One Year of Retirement: A Look Back
• Achieving Early Retirement Despite Big Money Mistakes
• Book Review - Green with Envy
• The Tradeoffs we Make to Retire

Tags: debt, money management, mortgages, planning