How to thrive in early retirement

The rare Americans who happily quit working before 50 rely on a mix of frugal living, smart financial planning and the occasional relocation.

  • By Katy McLaughlin,
  • The Wall Street Journal
  • Getting Ready to Retire
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  • Getting Ready to Retire
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When Tom Thoms’s family food distribution company was sold, it was in economic terms, a “liquidity event.” In personal terms, it was a crossroads: The 40-year-old chief executive of the firm suddenly had the money and freedom to retire early.

Today, Mr. Thoms, 56, spends several months a year at the roughly 5,400-square-foot, stone, glass and steel contemporary home he built with his brother in Peninsula Papagayo, Costa Rica. The house sits on a 1,400-acre master plan development overlooking the Pacific Ocean that also houses a Four Seasons resort and a golf club. Since retiring, Mr. Thoms, who lives the rest of the year in Rock Island, Ill., lost 50 pounds, became an avid runner, hiker and bicyclist, and got deeply into nonprofit work.

Early retirees like Mr. Thoms are the rarest of Americans: Fewer than a million Americans retire by the age of 50, said Ken Dychtwald, the founder of Age Wage, an Emeryville, Calif., think tank on aging. The median retirement savings per household headed by someone aged 50 to 55 is just $11,000, according to the Economic Policy Institute, making an early departure from the workforce all but unthinkable for most people.

But while it is unusual to retire early, it has definitely become popular to fantasize about it: A blog called Mr. Money Mustache, by a Colorado-based ex-engineer who retired at 30, attracted nearly 2.5 million page views in the past month, according to Google Analytics data, and has inspired dozens of similar blogs and books. There are now online communities and physical retreats for people in a community called FIRE—an acronym for “financial independence, retire early.”

For the few who find a way to pull it off, the journey from hard-charging careerist to early retiree raises questions about finances, identity and where to make a home.

Here’s a look at how several early retirees figured it all out.

Out of office

The former chief executive of a beer distribution company his parents started, Carlos de la Cruz, Jr., sold the firm at the age of 45. Then he turned his attention to nonprofit work and nature.

“I think today, the greatest luxury of all is nature,” said Mr. de la Cruz, Jr., now 55, who next month will become chairman the Everglades Foundation, which works on restoring Florida’s tropical wetlands.

In 2014, he bought a $1.6 million home on Brays Island Plantation, a 5,500-acre, hunting, golf and boating community in the South Carolina Low Country, about an hour’s drive from both Charleston and Savannah. Mr. de la Cruz, Jr., and his wife Claudia expanded the five-bedroom house, adding two bedrooms.

The couple, who both work on a number of charitable causes, lives in Key Biscayne, Fla. and spends about a week a month on Brays, where Mr. de la Cruz Jr.., bicycles, boats and shoots skeet, he said. The community combines a sense of being in the wilderness with services like an office from which he can print and notarize documents, he said.

In the past year, six homes about the size of the de la Cruzes have sold on Brays for between $1.95 million and $2.15 million, said Hank Gulbrandsen, vice president of real estate for the community, which charges roughly $28,000 in annual dues and assessments.

About 25% of Brays owners are in their 50s or younger, and roughly a third of those are retired from their primary career, said Mr. Gulbrandsen. In the South “many young people aspire to own a farm or a plantation, but simply don’t have the time or inclination to manage it themselves,” he said.

Outdoor activities, fitness and games have replaced golf in the hearts and minds of most retirees, according to a 2018 study by John Burns Real Estate Consulting, which surveyed 24,000 new home shoppers. Only about 10% of all retirees wanted a golf course home; 73% wanted walking trails, 29% craved bike paths and bocce and pickle ball were in high demand. Early retirees also wanted tennis courts and workout courses.

Do the math

Lynn Frair, a 40-year-old nurse in Bothell, Wash., gave notice at the end of August. Her husband Carl, 45, retired two years ago from his job as a school-district cook. Ms. Frair said she has diligently saved about 60% of her family’s after-tax income since 2008, and invested that money into low-cost index funds. After she retires in January, the couple may dabble in work, Ms. Frair said, but they don’t need to.

A big part of the plan depends on the 2,460-square-foot house they bought in Bothell in 2012 for $382,000, which keeps their cost of living low.

Ms. Frair sees herself as “part of the financial independence community.” She attended Camp Mustache, a four-day retreat over Memorial Day weekend outside Seattle for fans of the Mr. Money Mustache blog. She also listens to a podcast by ChooseFI.

A successful financial independence blogger, 41-year-old Sam Dogen retired from investment banking at 34. Throughout his brief career, he saved 50% to 80% of his after-tax income, he said, enabling him to build a portfolio of income-producing stocks, bonds and real estate. His wife also retired young, at 34, from a career in fund administration.

Mr. Dogen bought a family home in San Francisco for $1.24 million, and a condo near Lake Tahoe for $718,000, which he both uses and rents out. Mr. Dogen’s blog, Financial Samurai, which provides details on how he finances his early retirement, has become a big moneymaker though advertising: “It surpasses what I used to earn in banking,” he said.

Stay home

Early retirees are more likely to stay close to where they have lived than older retirees, according to the John Burns study: 43% said they planned to buy in their same ZIP Code, compared with 29% of older retirees. Early retirees are more likely to have children, which is why they often remain in the same area, said consultant Mikaela Sharp.

Lynn Friar (see “Do the Math”) can relate. She could sell the family home for big gains and play “geographic arbitrage,” a popular concept in FIRE circles in which the nest egg is stretched in another state or foreign country with a low cost of living. However, “we’ve cultivated a life we love,” with great neighbors and a strong public school system for their 3- and 5-year-old daughters.

Mr. Dogen, now a decade into his retirement from investment banking, is also thinking about community. When his toddler son hits preschool age, he plans to move from San Francisco to where his parents live.

Fortunately for Mr. Dogen, the family plan shouldn’t dampen the fun he’s having too much: His parents live in Honolulu.

Redefining self

After the sale of his company, Mr. Thoms’s first thought was, “I’m only 40. I’m too young to retire,” he said. So he took a job as the chief executive of a robotics company.

Although his career was fulfilling in some ways, “I didn’t relish all the pressure,” and after two years, he left that role. For a while, he hedged when people asked him what he did, telling them he was “selectively employable.” After a few years, he accepted—and admitted—that he was retired, he said.

Identity can take a hard knock in retirement. In a 2013 Age Wave survey of nearly 1,500 retirees over the age of 45, 34% said they miss “social connections,” more than they missed reliable income and health insurance. Replacing work with other meaningful activities, including volunteer work and cherished hobbies, can be key to making a successful transition, said Mr. Dychtwald.

Today, Mr. Thoms said he spends “80% of my day” raising money for a child-abuse organization, a group that supports teen girls and a local community foundation. In 2011, he and his brother competed the design and building of their Costa Rica house, which Lisa Farrell, an agent with Re/Max Los Tres Amigos said would likely sell for about $4 million today.

They take turns using the house for visits and vacations; when they are not using the house, the brothers rent it out for a $2,500 a night off-season and $6,000 in peak season.

Leif Dahleen, a 42-year-old anesthesiologist in Brainerd, Minn., plans to retire by August. Though it took 12 years of higher learning to enter his profession, he didn’t build his identity on it, he said. Once he became aware that he was in a financial position to retire, he realized the job carried significant stress.

Instead, he plans to base a new life on family, adventure and travel. Two months ago, he bought 7 acres on Grand Lake in Michigan for $170,000, and is planning to spend about $350,000 building a 2,400-square-foot house. When he moves with his wife and two young sons, they may home-school the children and spend time traveling in Central and South America as well as Asia.

“I could end up with $10 million if I kept working for 20 years,” said Dr. Dahleen. “But I haven’t built my ego around that.”

How to end the rat race

Just 1% more can make a difference

Increasing your savings by just 1% now could mean a lot in retirement.

A growing number of “financial independence” gurus and blogs, including Mr. Money Mustache, Mr. Dogen’s Financial Samurai and Dr. Dahleen’s blog Physician on FIRE, promote the idea that anyone can retire if they have a small enough budget and a big enough nest egg. Though the advice varies in the details, these are the broad strokes that fire the FIRE movement.

STEP 1: Reduce living expenses to a bare minimum.

STEP 2: Save all income not required for basic living.

STEP 3: Invest in a portfolio that will grow at a yearly average of at least 7%.

STEP 4: Once savings is equal to at least 25 times annual expenses, retirement is an option.

STEP 5: Pull no more than 4% annually from the portfolio, indexing the first year figure for inflation each year.

Rob Williams, vice president of financial planning at Charles Schwab, sees the approach as generally sound. The longer the retirement, however, the lower the withdrawal rate should be, and as with any investing, there are risks, he cautioned.

The model assumes annual living expenses won’t rise beyond inflation, and that it is possible to generate consistent returns averaging at least 7% annually.

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