My Strategic Early Retirement Plan

My Strategic Early Retirement Plan began in 1998 when I was age 40. I decided I wanted to retire by age 50 and an early retirement strategy was needed. The wide-world-web was cranking along but I can’t say that there were websites talking about early retirement yet. There were books on the subject and I did read a few of them.

To get my plan started I sought out a financial adviser. I talked to a few CFPs who said it was unrealistic to retire early. I finally settled on one who was on-board with my plans. In fact he had similar plans and actually retired at the age of 56 shortly after I did. He followed his passion for teaching and is now teaching at a High school. He is another retire early and often success story living a passion-driven lifestyle.

First – Financial Assessment

Before starting My Strategic Early Retirement Plan, which was a 10 year plan, I needed to know where I was. I needed to understand what my strengths and weaknesses were.

My Strengths

An engineering job with a $68,000 salary. I was still passionate about it and I have a proven technical and performance record. I was 20 years into a career that still had a 30 year pension benefit. That is if I could hang in there another 10 years.

I was debt free and paying my credit card balance off monthly. We had started living a simple life with spending discipline. I already had a great start saving $100,000 in my 401K plan which was set to automatically max out the yearly contribution limit. I was a homeowner with a modest $137,000 mortgage balance and a manageable monthly payment.

My Weaknesses

I was too conservative with my 401K investments. There was too much of my 401K in my Company’s stock. That was because all the company 401K match was in that stock. I had also purchased some of it early on when there was limited investment choices in the 401K plan.

I was under insured to cover my family’s expenses if something happened to me. It was obvious that I was risk averse and had no investing knowledge. I had no savings outside of my 401K. I wrongly thought that maxing out my 401K yearly contribution and my future pension benefit was enough to retire early.

My Strategic Early Retirement Plan Recommendations
  • Start a 10 year term $250,000 life insurance policy to go with my company provided life insurance of $100,000. I also had another little policy for $100,000.
  • With having a 10 year plan I need to manage my risk aversion. Change my 401K investment direction to a more aggressive 75% US Stock Mutual Fund, 15% US Bond Fund, and 10% International Stock Fund. Also sell all of my purchased company stock and move it to the US Stock Fund. That left only the company 401K match company shares which I couldn’t move.

  • I needed to set up an emergency fund to help support us for 6 months if something happened to my job. We settled on $12,000 as the target. The thought being that it along with unemployment payments would cover us. I began with an automatic payment of $500 a month into a money market account.

  • Once my emergency fund was funded I would then continue with the $500 a month payment to a ROTH IRA.
  • Do as much as I can to stay with the company the next 10 years to secure whatever pension benefit there is left.
  • Continue to max out my 401K contributions and look for opportunities to increase my income to add it to my savings.

My Strategic Early Retirement Plan – Spending Discipline

Growing up low-income and then fighting our way out of our early married and young family year’s debt had us frugal about spending. But there was still room for cutting waste. I had to make some cuts to save the plan-recommended additional $500 a month. We started a NEW budget where I would also track our spending. We were pretty good but we had to do better.

I cut all cable premium channels, I took my lunch to work, we cut way back on eating out, and there were a number of things cut that did add up. None of what I cut had a negative impact on our happiness or family life. I had a lot of practice budgeting but without having a clear goal and Strategic Retire Early Plan I didn’t know I could do better.

We began tracking expenses at a lower level. In 1998 my kids were ages 18, 15, and 13. Our budget was far different back then than it is now. Our budget was sustainable and I was able to save the additional $500 a month and more right up to when I retired 11 years later.

Strategic Retirement Plan Tip

Here is a tip I learned when our finances were not where we wanted them to be in our early family years. Set short, mid and long-term goals to allow yourself the time to achieve financial improvement. If you are tracking your expenses, debt repayment, income, and savings, then set time-frame goals.

Seeing your financial improvement in measurable ways will keep you motivated. Everything you are doing to reach your goals will become a habit and worth every effort to accomplish.

My Budget

Below is my retirement Leisure Freak Budget to see as an example. Do your budget any way that works for you and begin tracking where your money goes.

Updated January 2017

Budget Item                     Year                 Monthly Average


House Property Taxes             $2000                    $167

House Insurance                        $993                       $83

Umbrella Policy                          $327                       $27

Water/Sewer                               $1140                      $95

Power                                             $900                        $75

Natural Gas                                 $672                        $56

Cable                                              $0                             $0

Health/Dental Insurance       $11640                   $970

DSL Internet                                $492                        $41

Auto Insurance                           $1404                       $117

Cash                                               $2080                       $173

Visa                                                 $6000                       $500

Misc.                                               $2820                       $235

Vacation                                        $3500                      $292

Gifts (Christmas)                      $1500                       $125

Fed/State Taxes                        $1670                       $139


(Tommy’s) Subtotal           $37138                     $3095     


(The Bride’s) Grocery, Vitamins

Cleaning Supplies, Cosmetics/

Misc. (gifts/social/etc.) 

Personal Care supplies.   $9000                           $750


Total                                     $46138                           $3845

The reason I have a subtotal- We have a split budget funded from our early retirement portfolios. The subtotal amount is what I fund through my retirement. The items below the subtotal are paid for from my wife’s budget.

Non-Fixed Budget Items

You may notice that I have some vague (non-fixed cost) budget items: Cash, Visa, and Misc. Since I have tracked my spending for many years I know what these items cover. But I still track monthly to the item cost for the Visa and Misc. items. That is so any cost over-runs can be explained and can be marked as an anomaly or considered for next year’s budget.

  • Cash – I give myself $40 cash a week. It is like my personal petty cash. It covers going out for a cup of coffee or a beer with a friend. Things like buying the grand-kids a treat and just about any small thing I might do during the week come out of this. Sometimes I spend it all and other times I don’t. I add $40 to my wallet each week.
  • Visa – This is for all the costs of non-fixed living expense that we pay for each month. All of my gas, Medical co-pays, pharmacy, house and auto maintenance, dinner out, etc. Just about anything that comes up during the month that I would use a credit card to pay. This also includes our Cell Phones of which mine is $100 a year and my wife’s is $20 every 3 months. I do end up with 1% to 3% reward dollars back on this. I always try to come in lower and beat this $500 budgeted amount. For many months out of the year I do. By setting this at $500 I don’t sweat it when I spend that much.
  • Misc. – This is for all the costs of non-monthly fixed (annual/bi-annual) and non- fixed living cost that we pay for over the year with a check. This includes the annual newspaper subscription and auto licensing, our bi-annual HOA, any billed medical deductible amounts, donations, etc. Some months it’s near zero and others its hundreds. Life happens.
Vacation and Gifts

My Vacation or Gift costs that are paid for with Cash and Visa are subtracted out from the Cash and Visa budget. That way it is tracked correctly under their own line-item. Our Vacation budget is modest and we usually take 3 or 4 vacations yearly. We are able to keep cost down by staying with relatives on a couple of them. I always look for the best Hotel deals on our other trips.

We do have planned vacations that will cause us to exceed our Vacation budget. I consider them a budget anomaly and have set aside money separately for them. Here is another tip. Always have a “cushion” account for the extras that you plan for in your future.

I expect to add 3% a year to my yearly budget to account for inflation. Not everything goes up but some line-items go up far more than 3%. Like medical insurance or my home owners insurance. Sometimes I adjust my budget up to account for them. But I always try to find where I can make smart cuts to counter the increase.

My Budget- Areas I made cuts through my Seven Years of early retirement to save money and counter high inflation items.

When I first retired early I had a term life insurance policy that I kept to pay off the mortgage for my wife if something happened to me. But since I have paid off the mortgage I decided to drop the insurance. That and the premium at the 20 year term renewal went from $50 a month to $150 a month due to my older age. I dropped this coverage and consider myself Self Insured.

When my home owner’s insurance rate jumped from $1600 a year to $2400 over the past few years I had enough. I got competing rates and now a new insurance company. Savings = $1407 a year.

I cut the cord to be rid of the cable bill. We spent around $150 for a recommended roof antenna for my area and a Roku streaming box. We dropped the extended basic cable. Savings = $1116 a year.

Health – Medical and Dental Insurance

Medical/Dental insurance is my largest budget item. It is a retirement benefit from my career company that keeps going up. When I retired in 2009 my Medical/Dental insurance cost $470. In 2014 it rose to $786.

For 2015 The health insurance plan was changed. They slightly reduced the monthly rate by $46 but changed how they pay for medical services. The policy went from a co-pay type arrangement to an H.S.A account and 80% / 20% payment arrangement. The HSA comes every year loaded with $1500 to help offset the 20% of all costs we incur. It goes fast.

For 2017 we now pay $970 a month.

In the 7 years of my retirement our medical insurance rate has nearly doubled. It is a use-it or lose-it benefit and it is still a great policy.

I always thought that once it hits $1000 a month I am done and will have to consider going to the Insurance exchange. Our lower taxable income will limit what we will have to pay. However with that under heavy work to end it I will have to see what happens next.

Biannual Budget Reviews

I usually check my budget at least twice a year. Sometimes more if something has changed. Always keep in mind that the less your lifestyle costs, the less you need to have saved and invested to fund it in retirement.

Something to understand is that while I was budgeting and saving our way to financial independence, our financial discipline became habits. The budget doesn’t need to be scrutinized with every purchase. I just live my life without even considering what the budget says. That’s because my budget and lifestyle are aligned or in sync with how we want to live. Checking it twice a year allows me to see if things are still on track or have gone out of sync for some reason.

I hope I have given you an example of a budget process to use in your strategic early retirement plan. The plan is to live a smart-frugal and balanced life within your own frugal threshold. A budget that is sustainable as you pursue early retirement and after you retire.

My Strategic Early Retirement Plan – Saving and Investing

When I was saving to retire early I had to challenge my weakness of risk aversion and try to grow my savings as much as possible. The goal in 1998 was to grow my retirement savings from $100,000 to $250,000. At that time my projected retirement pension lump sum buy-out was also $250,000. My Strategic Early Retirement Plan was to retire with $500,000 to fund my new early retirement.

In 1998 the financial advice was you could safely withdraw up to 8%. Some said 10% was a safe withdrawal rate from your retirement accounts and not run out of money. WOW! Of course today the advice is withdraw up to 4% from your retirement accounts. Some even caution that is too much. That is why you need to re-evaluate your plan as time goes on. Things change and change in a big way. Fortunately I was able to retire with more than that first recommended $500,000 figure.

Now that I am retired my investment portfolio concentrates on income. I have a number of funds within my SEPP IRA which makes monthly 72t payments (IRS rule 72t) to me. My 72t allows me to avoid paying any early distribution penalty (pre age 59 ½). See my page “How I Fund My Retirement for more details. I also have other IRAs and ROTH IRAs as part of my portfolio that are not part of my SEPP 72t IRA.

Our portfolios consists of various stock and bond funds aligned with our financial goals and within our risk tolerance. There are some REIT and other non-market based investments for diversification and income.

Why I Use a CFP

The rules around having a SEPP IRA making monthly 72t payments are very strict.

Running afoul of the IRS results in a 10% penalty going back to day one. That is why I have a financial company handle things. My cost for all the handling of these accounts is a 1% wrap fee.

Would I rather keep most of that fee to myself? Yes I would. But I really don’t have the desire or knowledge to investigate companies and funds at this time. It’s worth it to me to let the experts take care of things. So far I feel that they have done a great job and I don’t sweat market volatility.

I do manage a couple of funds outside of these as a test. A test to see if once I turn age 59 ½ I can feel comfortable going the self-managed route. I still struggle with investment risk aversion. However simply investing in some low-cost index funds or ETFs is a direction I will consider.

The Power of Compounding and Dollar Cost Averaging.

You want to get investing as soon as possible. Making monthly contributions spreads your purchases out over different share buy cost. Whether the Market is up or down your monthly averaging smooths things out.

As an example of money compounding I have 2 ROTH IRAs that I started contributing $250 a month to each in the year 2000. I bought shares through the first Tech Bubble Market Crash, through the market highs in 2007, and through the Market Crash of 2008 and 2009. This means I was buying at various share prices both up and down. I stopped contributing to them when I retired the first time in 2009 and have let them ride.

On January 1, 2010 my NMSAX Investment was $26,157 and my basis (what I contributed) was $27,000 so I was at a -$843 loss. Without adding another penny on June 30, 2014 it has grown to $54,586. It is now a +$27,586 gain above my basis.

On January 1, 2010 my AQEAX Investment was $19,525 and my basis (what I contributed) was also $27,000 so I was at a -$7,475 loss. On June 30, 2014 it has grown to $39,737. It is now a +$12,737 gain above my basis.

These examples also illustrates the need for financial discipline. These have been moved to other index funds and continue to grow.

In Closing

Everyone thought the world was ending in 2009 and withdrew their money. Turning a paper loss into a real financial loss. On my advisor’s advice I stayed the course. Keeping my eye on the long-term goal and the markets did rebound. It was a definite challenge to my risk aversion.

Hopefully seeing my Strategic Retire Early Plan helps you understand what you can do to retire early.

  • It’s not that complicated to make the plan.
  • Create a sustainable plan.
  • Try to keep it simple.

“Disclaimer: This content is not provided or commissioned by any investment company or financial advisor firm. Opinions expressed here are author’s alone and are there as examples for readers to research and investigate their own best investment strategy. As the author is not a financial advisor, there is no implied recommendation being made on a professional level and readers shall invest at their own risk. There are never guarantees in investing”.

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