My Plan for Semi-Retirement

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wannasre
Posts: 11
Joined: Tue May 23, 2017 7:48 am

My Plan for Semi-Retirement

Post by wannasre »

Hi all,

I wrote an introduction in that section, but I will lay out all of my specific plans here.

I know I may be going against the grain with not saving 75% of my income, but hear me out and I'd be curious of your thoughts.

Here is my plan in a nutshell
1. After my side business is producing 6 years worth of job income (should be within the next 6 months), leave the corporate world behind, and focus %100 percent on my business.
2. Run my business in all the ways necessary to sell it at a premium including having it run without much (if any) of my involvement
3. Sell the business (at it's peak where it is growing and making a healthy profit before it plateaus or drops slightly)

I am planning to sell the business when it hits at least 1.2M+ per year in EBITDA which I should be able (in my industry) to sell for a 3-4 times multiple. My business is already wildy profitable and can easily support me.

I should be left with a bit over 3M after the sale after paying the broker and Uncle Sam's capital gains tax, which I plan to put directly half of that into a split of 60% S&P 500 index fund and 40% into a good bond fund (to hedge).

The other half I would like to allocate towards an operational (warm weather) small resort (10-15 units only to start). That would include the purchase price and some renovations. I don't have experience in the hospitality industry but I have over 15+ years experience running my own businesses plus corporate management experience so hopefully that will make up for my lack of hospitality experience. I was almost thinking of getting a short term job at a resort when I live in Florida to get a "feel" for the industry and learn more about it.

I'm planning to purchase a house in Florida and live in it for all of the winter, spring, and fall months (thereby eliminating State income tax). I'm literally ready to purchase this summer and am ready to pull the trigger on the purchase very shortly. I cannot take these northeast winters any more!

I plan to keep my current residence (mortgage and all, for the tax breaks until my tax rates are low enough that I can pay all mortgage in full). I have many "roots" such as friends and family in NJ so it makes sense for me to keep it and use it when I come for the summer months, holidays, etc. I underpaid for this house and spent about half of what I could have really afforded. I can easily pay the mortgage off and will have funds to do so, but at a 4% interest rate, this money IMO is better to be invested rather than paying off the mortgage (at my age of 36). Once my tax rate drops I will probably pay off all of my mortgages in full.

The house in Florida will be my primary residence. By the time you subtract State income tax, high auto insurance premiums, lower cost of living etc. it should actually be pretty close to my cost of owning that property.

I am a bit apprehensive and chained to the "golden handcuffs", but I know the business can DO SO MUCH MORE if I had full time to dedicate to it. I want to purchase the house in Florida before leaving my job to make that small mortgage much easier to get.

I recently closed some deals that should result in residual income of just under 100k per MONTH starting in July, but I am a bit apprehensive and chained to the "golden handcuffs", and I know the business can DO SO MUCH MORE if I had full time to dedicate to it.

So to recap, purchase house in Florida this sumer, leave my job in Q1 2018, run the business until it is "saleable" and will provide me with "semi-retirement money" and work (semi-retired) on my resort business.

I think I should be able to live off my investment income and the resort income would just be a nice "bonus".

My intro post can be found here: https://forum.earlyretirementextreme.co ... f=1&t=9011

What are your thoughts? Thank you in advance!

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: My Plan for Semi-Retirement

Post by Dragline »

My thoughts are that you need to slow down and that you really don't know what you want. Certainly don't buy anything in Florida until you go live there. Florida is very large and is like at least five different states if not countries -- and you might not like four or more of them. There is no connection between the Bird Cage in South Beach and the Good Old Boys in Tallahassee. Never mind the old folks in Ft. Myers/Naples and on Sanibel, the time sharers near Orlando and the bikers in Daytona. Then there's Florabama near Pensacola. And we haven't even approached Margaritaville. No reason you can't rent in any of those places either.

Your past history (thread re what happened in 2008) suggests that you tend to put the cart before the horse, equate plans with reality without accounting for uncertainty, and do not value liquidity as much as someone operating a business should. IMO, you did not learn what you should have and still have "shoot the moon" plans, or maybe "shoot the passing comet or satellite." All plans work if they allow for a large injection of capital at point A in the future. It is the future that gets in the way.

Start with the basics: Net worth. Expenses. Savings rate. That's the cake. The rest of this is just frosting and fluff.

If the business is producing six times worth of job income in 6 months, I would save five of that for a few years and then you'll probably be FI. I would not sell it until you stop enjoying that journey or you think it is going to become obsolete in the near future and others don't know it.

I don't see any attraction to running a resort unless you like hiring and firing low-skilled workers and dealing with a lot of cleaning and laundry. But admittedly, that's just a personal preference of mine based on observations of what innkeepers actually do.

Don't do anything solely for tax reasons unless you planned to do it anyway or it makes no difference otherwise.

Scott 2
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Joined: Sun Feb 12, 2012 10:34 pm

Re: My Plan for Semi-Retirement

Post by Scott 2 »

IMO you're not going to find many peers here and are better off at a forum for more affluent retirees or entrepreneurs.

OTCW
Posts: 437
Joined: Thu Mar 31, 2011 12:55 am

Re: My Plan for Semi-Retirement

Post by OTCW »

I'd echo Dragline and caution you to slow down, but I'm wired that way. You sound way different, so that may not work for you.

What is the attractions to running a resort if I may ask?

thrifty++
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Re: My Plan for Semi-Retirement

Post by thrifty++ »

Sounds like you have some really awesome skills and and entrepreneurial bent, giving you the ability to pull together a big income.

Like a couple of other comments I am lost on why you would want to run a resort. That just sounds like more stress and pretty far off retirement. I worked in hospitality part time while at university and it seems like such a BS industry, the profit margin seems so tiny and it seems like an area that people who have little skills and ability to earn much money elsewhere will start to operate in. Seems reliant on high volume which isnt a great thing. Most people I have come across in this industry either go bust or make stuff all money.

wannasre
Posts: 11
Joined: Tue May 23, 2017 7:48 am

Re: My Plan for Semi-Retirement

Post by wannasre »

Dragline wrote:
Sun Jun 04, 2017 5:24 pm
My thoughts are that you need to slow down and that you really don't know what you want. Certainly don't buy anything in Florida until you go live there. Florida is very large and is like at least five different states if not countries -- and you might not like four or more of them. There is no connection between the Bird Cage in South Beach and the Good Old Boys in Tallahassee. Never mind the old folks in Ft. Myers/Naples and on Sanibel, the time sharers near Orlando and the bikers in Daytona. Then there's Florabama near Pensacola. And we haven't even approached Margaritaville. No reason you can't rent in any of those places either.

Your past history (thread re what happened in 2008) suggests that you tend to put the cart before the horse, equate plans with reality without accounting for uncertainty, and do not value liquidity as much as someone operating a business should. IMO, you did not learn what you should have and still have "shoot the moon" plans, or maybe "shoot the passing comet or satellite." All plans work if they allow for a large injection of capital at point A in the future. It is the future that gets in the way.

Start with the basics: Net worth. Expenses. Savings rate. That's the cake. The rest of this is just frosting and fluff.

If the business is producing six times worth of job income in 6 months, I would save five of that for a few years and then you'll probably be FI. I would not sell it until you stop enjoying that journey or you think it is going to become obsolete in the near future and others don't know it.

I don't see any attraction to running a resort unless you like hiring and firing low-skilled workers and dealing with a lot of cleaning and laundry. But admittedly, that's just a personal preference of mine based on observations of what innkeepers actually do.

Don't do anything solely for tax reasons unless you planned to do it anyway or it makes no difference otherwise.
Thank you everyone for your opinions. I realize now that I may have left out some context. This wasn't an idea that I just dreamt up one day. It's been a long term planning process and I've recently surpassed my goals and expectations on timeframes.

I live very well below my means, have no debt (other than one small mortgage), I have never bought or owned a brand new car and usually almost everything second hand. I make about 100k from my job and another 50k-75k from my business the past two years. This year I was on track to do about 100k with my business, but seems like I'm about to do far more than that which will exceed my income at my job. I have a 401k with about 30k in it and an investment account with about 11k. I saved up about 75k for the Florida down payment plus one year of living expenses (completely liquid), but expect to pay about 300k for a house down there. My current mortgage is 180k. In Q1 2018 I will have the money (if not sooner to pay off both the Florida and the NJ mortgages) but at a 4% interest rate and the massive tax deductions I'm getting, it easily beats that 4% by having that invested in an S&P 500 ETF (along with reducing my tax burden - I'm able to deduct both houses).

As far as the area, I'm far too familiar with the various geography and how different each area can be and over the years have narrowed it down to Sarasota. I'm an avid beach goer and boater so I will love spending the winters there.

I've thought about renting there first to get a "feel" for the various areas before buying, but no one can predict the market and I don't want to be in a situation where I have to wait until I'm in my mid forties or early 50's to buy there (if the market booms and busts again). You probably either don't live in the northeast or are not as averse to cold weather as I am. I am a completely different person in the winter and anything below 70 degrees is cold to me. I have no heat limit and do just fine even when we have heat waves up here that go above 100 degrees.

What I have learned from my first business is:
1. Take your chips off the table and put them in your pocket to invest elsewhere
2. Don't go down with a sinking ship
3. Don't do minimum wage labor jobs when you can just pay someone else to do them. Many small business owners like to micro manage. I'd much prefer to have someone else do the various jobs (probably better than me) and just have me steer the ship at the helm.

As far as the resort idea, it is because I'm only 36 (soon to be 37) so I'm fairly certain that a full retirement will leave my brain spinning and I'll be bored and maybe itching to do something else. It's always been a dream of mine for over a decade to retire to my own resort.

I'm not planning on taking active management of the resort and plan to have a full management team in place (of course they would report to me). Based on my first business (and how much time it took of my life) I intentionally engineered my current business to run without me and I plan to do the same for the resort business. I can take on as much or as little of a role as I choose. I certainly don't want to be fluffing pillows and folding towels. I just happen to enjoy entertaining people (I always have my entire life) and think it's something I would like to do as a resort owner...come up with ideas to keep guests happy and entertained (and have the staff execute those ideas).

If I'm in the wrong forum, please accept my apologies and I will move onto another place.

Thank you for all of the input!

Dragline
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Joined: Wed Aug 24, 2011 1:50 am

Re: My Plan for Semi-Retirement

Post by Dragline »

So what is your net worth and your annual expenses? And what has been your savings rate for the past few years? These go into your 3-5 year plan (or longer depending on the aforementioned factors).

The resort idea seems like just a "someday thing" right now. Which is fine, but you can't put any flesh on those bones until you do some research on specific properties. Personally, I would save to a point of FI or near it, sell the business and then move to the Sarasota and work at a resort or three while you look for the right opportunity.

Sarasota is actually an interesting place demographically, because it was one of the first big retirement communities and those people are dying or dead, leaving a lot of "disfavored" property that families and others are now moving into. (Find the book "Shock of Gray" for this history.) The new retirees (baby boomers) don't want to live in the type of housing favored by the Greatest Generation, so are building their own new sh*t.

Oddly enough, I am going down there this weekend to attend some sporting events at Nathan Benderson park. But I do not favor the Gulf side of Florida in the summertime.

This is the position you want to be in when you pull the trigger on your plans, or very close to it: https://www.youtube.com/watch?v=xdfeXqHFmPI

wannasre
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Joined: Tue May 23, 2017 7:48 am

Re: My Plan for Semi-Retirement

Post by wannasre »

A lot of my net worth is in my house, cars, and a boat (I know - not very ERE of me on the surface, but hear me out). Minus the house, my net worth is probably a bit over 100k. Including the house it's probably about 160k and including the cars and boat probably about 230k (the cars are all holding their value fairly well and one is a "project" which will make money).

My net worth was tied up in my first business and was wiped out by the "great recession" so I essentially started back from zero in 2011. I won't make that mistake again and that's the reason I take every penny out of my current side business (minus operating expenses) and put it into liquid savings or my S&P 500 Vanguard ETF.

I'm fully aware that cars and boats are typically depreciating assets, but I have never purchased any vehicle new (in my ENTIRE LIFE) and usually make money or worst case break even on them after a few years of use (I have literally never in my life lost money on a vehicle). For instance a few years ago I bought a pair of jet skis for $750 fixed them up, rode them for a season and sold them for $2,500. Every car I purchase is used and I always make money or break even after using them for several years (including maintenance costs). I'm a bit of a "gear head", but if you're mechanically inclined (low maintenance costs) and you don't lose money on your "toys" because you know how to how to buy low and sell high (and maintain them yourself) that's okay right?

I think you're spot on with that video :D I got a kick out of that!

Thanks for the insight!

wannasre
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Joined: Tue May 23, 2017 7:48 am

Re: My Plan for Semi-Retirement

Post by wannasre »

Sorry I forgot to include my expenses. Currently all in at $2750 per month (including mortgage payments plus small additional principle payments every month)

Dragline
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Re: My Plan for Semi-Retirement

Post by Dragline »

Ah, now you have ventured into that age old question of "what should be counted as an asset?" for FI purposes.

An accountant would count everything. But the most commonly accepted approach in FI world these days (which I attribute origination to Robert Kiyosaki) is to only include those assets that generate income or are otherwise liquid. The theory behind this is that expenses have to be paid on time, so the money needs to be there in terms of cash flow, and can't be tied up in things that cannot be accessed to pay said expenses when due. So many items that an accountant would include are only considered "assets in waiting" for FI purposes, and may generate their own expenses (particularly the house one lives in).

Under this approach, you would need to look at your buying and selling of vehicles as a business and see what kind of cash flow and expenses are being generated.

Regarding the implication of your current expenses, under the 4% rule (which many do not consider safe enough for "early" retirement but is still a useful benchmark/standard), $2750 per month is $33K per year and implies that you need to have $825,000 in assets (33 x 25), of which at least 4% per year ($33K) are in cash or immediately convertible to cash, to be in a position where you would not have to work for money. This of course assumes you no other income sources and cannot reduce expenses. So consider it just a ballpark figure.

You can also see how to modify this or adjust it for other income. For instance, if you are generating $3K per year in other activities, you only need $30K supported by financial assets and thus the bogey is $750K (25 x $30K).

In terms of an immediate strategy, this implies you should probably work your business until you tire of it, sell it when you can net in the neighborhood of $800K from it and then become as liquid as possible and go on your merry way to Florida or otherwise. You may need to accumulate more if you need capital for the resort business or otherwise expect expenses to increase.

In terms of structuring your business for tax and sale purposes, you might want to consult the "Wealthy Accountant" website and the recent "Choose FI" podcast that he appeared on recently. That stuff is beyond me.

wannasre
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Joined: Tue May 23, 2017 7:48 am

Re: My Plan for Semi-Retirement

Post by wannasre »

Thank you so much for all of this info and I find it extremely encouraging and helpful. I was aware of the 4% thing, but was planning to be conservative and base my goal off a 3% withdrawal rate.

It also occurred to me that I failed to mention a few key elements of why I would like to purchase the FL property now as opposed to later. My plan was to rent the property out for the first 1-2 years until my fiance finishes the school she is attending. She went back to get a different degree and for some odd reason she said she can't take some of her necessary classes online. Obviously no one can predict the future, but the prices down there are still fairly reasonable (nowhere near the bargain basement prices of immediately after the real estate crash, but not yet at "bubble" levels). Who knows what prices will be like in 1, 2, or 3 years?

I want completely OUT of my current job ASAP, but I don't have enough to pay cash for the property. Getting even a small mortgage will be extremely difficult being self employed (even with my proof of income), but will be a breeze while still employed and interest rates are still near historical low rates. I know this because I worked at a few mortgage companies from when I was 15 until I started my first business. They really don't like people to be self employed :s AND that was WAY BEFORE the meltdown...they are even more stringent now!

I've run the numbers and can even make a few hundred dollars a month while I rent it out before I move into it. My NJ property can also be easily rented for a profit if need be, but I plan to keep it vacant during the winter months anyway because the mortgage is so small and I can afford both properties with my business income.

I realize this increases my monthly expenses, but that will only be extremely short term because I will have the money to pay the NJ mortgage in full by Q1 2018. I would also plan to have at least a year of living expenses by then, leave my job and dedicate myself f/t to the business.

I'd be curious on your thoughts with this additional context. I'm also curious what the consensus is on investing vs. paying off a 4% interest rate mortgage. I know it comes down to an individuals level of comfort, but I'm still on the fence about which way to go with that.

Riggerjack
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Re: My Plan for Semi-Retirement

Post by Riggerjack »

So, your business currently makes over twice your expenses, with a huge upside possibility.

Why not quit your job, or take a sabbatical, run up the business potential, and hire/train a manager? Keep the business as a cash cow, and something to keep you busy when you want to keep busy, and let it buy your resort?

Why worry about a mortgage on the Florida property? If the business is doing as good as you say, just pull your chips, and buy a house. Or, if you need to finance the house, do it with a business line of credit.

My point is you seem to want to leverage too far. Let success build success. You are young, with lots going on. There's no need to add to the chaos, just focus on what you know, and what you want.

Keeping a house in Jersey seems damned silly. I don't care how little you owe, houses have upkeep, empty houses have more, and are extra vulnerable. Leaving it vacant for more than 6 months is likely to void your insurance.

If you want to be able to check back at will, rent when you are in Jersey, or get a condo. Neither of which need to be tieing up your capital during your transition.

Dragline
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Re: My Plan for Semi-Retirement

Post by Dragline »

Yeah, I don't see any point in keeping a house in New Jersey if you are going to live in Florida. What a pain that would be. I'd actually consider putting that on the market ASAP, get the cash out of it to finance whatever you will buy in Florida and just rent until you leave for good.

As for what housing will cost in 1-3 years, nobody knows, but the property in New Jersey could appreciate just as much or more than any target property in Florida, or prices could go down. There is certainly nothing special about buying or not buying now, especially if you don't know what you are buying yet anyway.

The fact that you have another person in the picture and are about to get married just makes everything even more complicated and augers for doing as RJ suggests and finding ways to become more liquid and free from property concerns, not more leveraged and tied down to them.

Riggerjack
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Re: My Plan for Semi-Retirement

Post by Riggerjack »

I don't care if you keep your house, your job, your business, your fiance, cars and boats, then add a business, house... hell, add another job if you want.

It's your life, and you clearly have a great talent for acquisition of financial resources. What seems to be missing is prioritization and maybe some moderation. Focus.

You have a job you are done with, and replacement income. This seems like a no brainer.

You have equity in a house in a state you don't want to live in. And a business in the same state. I'm assuming you need to be present to run the business. You should fix that. Building and selling the business is one way. Training a manager is another. You know your talents, business, and goals. You can work this out.

Housing prices will continue to climb, so long as mortgage rates stay low and the economy holds. This is a problem for you if you decide to double your house holdings. It is fairly neutral if you are selling and buying. It helps if you are selling for more in Jersey than you are buying in FL.

The general advice I give is to upgrade houses in down markets, and downgrade in up markets.

It is easy to add more to your life. And fun. But, the are diminishing returns to adding. Eventually, adding more truly becomes less. You can add more stuff, and more things to do, but you can't add more you. So the ratio of obligations to you rises until it is unsustainable.

It is easy to leverage up, if you have the resources, and it has clearly worked for you. But before continuing to add more leverage, I would recommend taking a step back, and making sure that what you are doing will get you to where you want to be.

Good luck.

wannasre
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Joined: Tue May 23, 2017 7:48 am

Re: My Plan for Semi-Retirement

Post by wannasre »

Update...

I went ahead and found a really great house in Bradenton Florida for 381K and I'm putting 20% down. I should be able to rent my NJ property for approximately $1,950 and my PITI is just a bit under $1,600 per month. That should produce a small income, but I'm not relying on that and I can easily carry vacancies, repairs, etc. with my cash cushion.

We changed our minds about doing the "snow bird" thing and we will just live in Florida all year round. The house is more suitable for starting a family, if we decide to, and also provides me with a more productive home office space.

I think I might keep my job for a bit longer than I initially expected for security and a stable income stream, but will pull back a bit and focus on a better work/life balance. In addition, knowing that I have F.U. income from my business makes me feel less stressed about the current working conditions knowing I can walk away at any time.

After renting the NJ house, my expenses should be approximately the same, but with a few hundred extra income per month.

wannasre
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Re: My Plan for Semi-Retirement

Post by wannasre »

Riggerjack wrote:
Wed Jun 07, 2017 8:13 am
I don't care if you keep your house, your job, your business, your fiance, cars and boats, then add a business, house... hell, add another job if you want.

It's your life, and you clearly have a great talent for acquisition of financial resources. What seems to be missing is prioritization and maybe some moderation. Focus.

You have a job you are done with, and replacement income. This seems like a no brainer.

You have equity in a house in a state you don't want to live in. And a business in the same state. I'm assuming you need to be present to run the business. You should fix that. Building and selling the business is one way. Training a manager is another. You know your talents, business, and goals. You can work this out.

Good luck.
It is an online business that can be run literally anywhere in the world and I have various employees, contractors, service providers, etc. that run about 95% of the business. My involvement is intentionally minimal because I plan to sell it one day and no one wants to buy a business that is dependent on the owner.

wannasre
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Re: My Plan for Semi-Retirement

Post by wannasre »

Augustus wrote:
Wed Jul 12, 2017 9:10 pm
Don't have your first baby AND start a new venture at the same time, you'll likely divorce. Trust me, most of my peers started families around the same time I did and talk of divorce was very common until you get the hang of it a year or two in.
Can you elaborate on this a bit? What do you mean by "new venture"? My current business has been well established for several years and the resort idea is pretty far into the future...it's just something I'd like to start "one day" once I've reach FI and am looking for something to occupy my time.

Before that happens, I would have (hopefully sold my business) and have a sizeable enough portfolio to support my living expenses.

wannasre
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Re: My Plan for Semi-Retirement

Post by wannasre »

It seems the consensus here is that I should sell my property in NJ rather than rent it out so let's run through a few scenarios:

If I SELL: I can sell for approximately for between 235k and 250k minus 5% for or so for Realtor's commission (let's also not forget about seller's closing costs) and a 189k mortgage would leave me with 34250 on the low side and 48500 on the high side. I can do a 1031 exchange so that would reduce my immediate capital gains burden to 0 (which is good), but investing that into the "markets" would give me an income of about between 1,370 yr to 1,940 in ANNUAL income (using the 4% rule).

If I RENT: I can easily rent it virtually in one day for $1,950 per month, possibly as high as 2200-2300 considering its a 3 bed 2.5 bath SFR in NJ where a 1 bedroom APARTMENT typically rents for 1200 to 1400 per month! That means minus my PITI service of 1587, I'm left with 363 to 713 PER MONTH in income (4356 to 8556 annually respectively). Let's deduct 25% for vacancies for the heck of it even though it's a SFR and most likely a long term family will rent it, but let's also not forget about all of the massive tax breaks as a real estate investor. I am not even considering appreciation because I wouldn't rely upon that whatsoever in terms of a real estate investment.

Can someone explain to me what I'm missing? I understand being an absentee owner is not desireable, but considering I have so many friends, family and handy men (and GOOD LAWYERS!) in NJ I'm pretty sure I can handle what life brings with an out of state rental (I know...famous last words).

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Seppia
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Location: South Florida

Re: My Plan for Semi-Retirement

Post by Seppia »

wannasre wrote:
Mon Jun 05, 2017 9:47 am
I live very well below my means, have no debt (other than one small mortgage), I have never bought or owned a brand new car and usually almost everything second hand. I make about 100k from my job and another 50k-75k from my business the past two years. This year I was on track to do about 100k with my business, but seems like I'm about to do far more than that which will exceed my income at my job. I have a 401k with about 30k in it and an investment account with about 11k. I saved up about 75k for the Florida down payment plus one year of living expenses (completely liquid), but expect to pay about 300k for a house down there. My current mortgage is 180k.
You live very well below your means
Income of 150-175k per year in Jersey.

You have a 401k with 30k + investment account with 11k + an estimate of 150k max liquid (75 for down payment + "one year expenses") + approx 60k in equity in your house
You're 37

I don't know, these numbers have something strange

Did you discover ERE just lately?

wannasre
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Re: My Plan for Semi-Retirement

Post by wannasre »

Seppia wrote:
Fri Jul 14, 2017 6:07 am

You live very well below your means
Income of 150-175k per year in Jersey.

You have a 401k with 30k + investment account with 11k + an estimate of 150k max liquid (75 for down payment + "one year expenses") + approx 60k in equity in your house
You're 37

I don't know, these numbers have something strange

Did you discover ERE just lately?
Sadly, I had to start over from absolute zero in 2012 after getting wiped out from keeping all of my eggs in one basket: https://forum.earlyretirementextreme.co ... f=1&t=9011

My business also didn't start producing a sizeable profit until 2015 so most of my income from 2012 -2015 was all from my job. Does that make more sense?

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