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Retire By 40: Exit Strategy and Financial Goals

goal and exit strategy for early retirement

flickr – nicksarebi

It’s the week between Christmas and New Year and the perfect time for me to recap my Exit Strategy and Financial Goals.

Here is the recap of my early retirement strategy from the About blog page.

    • up to age 40 – Work and build up net worth as much as we can and live a somewhat frugal lifestyle.

See my How to Retire By 40 post to see what I’ve done so far.

  • age 40 to 60s – Joe executes his exit strategy, explores self employment options and finds opportunities that generate some income. Michelle keeps working for now, she seems to like a regular job. Cut expense and maximize passive and residual income. Do not draw on the nest egg investment.
  • age 60s to 100 – Both retire at some point and start to draw on nest egg.

We are still in the first phase above and are both working toward phase two. Below is my swag at the financial goals we will need to meet before we can transition into phase two.

Target Date – April 15th, 2014 or preferably earlier

  1. 1 Million dollars net worth (not counting primary residence)
  2. Additional 100k invested in yield producing portfolio to help with expenses
  3. Additional 50k seed money for when opportunity comes knocking
  4. Even cash flow so we do not have to draw on net worth unless there is a big emergency

Targeted Cash Flow

expense – $5,000/month or less

Michelle income – $3,000 after tax and deduction. Get health insurance through her employer.

rental income – $1,000

yield income – $400

side income – $600. Joe focus on growing side income once he is done with the 9-5.

I’m always looking for feedback and constructive criticism so please leave a comment.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 48 comments… add one }
  • FadedJeans August 14, 2013, 12:08 am

    I’m just curious what your plans are for health insurance when your wife decides to quit her 9-5?

  • Leviathan February 9, 2012, 12:41 pm

    Excellent site. More folks need to look into this sort of thing.

    Speaking as someone a few years ahead of you on a similar plan, you have a good foundation but have missed some basics that will sink you.

    1. Inflationary clawback. Your 1 Million is wort 5-6% less every year. Don’t believe the 3% inflation numbers posted – track your actual cost increases of your basics year to year- you’ll be surprised how much REAL inflation is.

    That means you need to contribute and extra 50-60k to your overall net worth to make the extra income needed to maintain your retirement.

    You must combat this by either investing further in rentals (income and net value adjust with inflation) or heavier investment in hedged-for-inflation investments.

    2. Rental income is earned not made. Counterfieters make money…real people earn it. You have a property manager and handyman to do things that anybody can learn about online. Fire these luxuries. A good defence is better than any offence in this game…you must learn to do your own management and repairs. It is quite easy once you get past the learning curve.

    3. Retirement location. Sometimes there are cheaper options…investigate what you can live happily on in a cheaper location?

    Keep up the savings!!

  • Financial Samurai January 20, 2012, 12:30 am

    What if you wake up one day to find the wife doesn’t want to work?

    • retirebyforty January 20, 2012, 4:26 am

      I doubt that will happen since she is a bit of a workaholic.
      If she really doesn’t want to work, it should still be fine. We’ll cut expense by moving to our old house (now a rental.) We can pay that off right now if needed. That will minimize our expense and we should be able to make the number works. Or we can move to Thailand and live like kings. 😉

  • Financial Independence September 29, 2011, 3:47 am

    Hi there,

    I am just ryinng to understand how do you do now?

    Why are you trying to diversify with the side income? Obviously you are high earner.
    If you would concentrate on your job, you could easily get pay rise 600 a month, given the time you investing in this web site?

  • auri June 29, 2011, 7:42 pm

    Perhaps the number one rule should be – don’t have any children! I am quite sure that the never ending expense of raising kids would surely be the greatest impediment to early retirement.

    • Financial Independence September 29, 2011, 3:50 am

      Well, I calculated our family budget over last four years and published it in my blog. It is at least 30% of all of our expenditures..

  • Steve March 4, 2011, 8:45 am

    I had this same goal when I was 29, retire by 40. I just passed my 40th b-day and I’m at a loss as to what to do. When I was 29, in year 2000, I thought having $1.5m in investable assets with my primary house being paid off would be good enough to retire. I met this goal plus some and I’m still at a point where I don’t know if this is enough to retire. Inflation, savings rate and value of the dollar eats you up faster than you can save. Not to mention kid’s college funds.

    One advise I would provide is up your targeted saving $ by at least 50%. Although not my preference but I’ll have to end up working another 5-10 years to grow my nest egg so that I can have a comfortable buffer for rest of my retirement.

    • retirebyforty March 4, 2011, 4:45 pm

      Thanks for your advice. Are you planning to retire completely and not work at all? My vision is a bit different since I will still work on several side businesses. My nest egg won’t be touched until I’m in my 60s. That’s the plan in any case.
      How is your expenditure?

      • Steve March 4, 2011, 5:08 pm

        My plan was to retire and do what I like. Personal freedom is my goal. I had planned to do something but not for money.

        My plan for extra income are: Rental: I have 3 houses. I was hoping to rent would outpace my fix mortgages but haven’t done so. These are breakeven cashflow. Investments: I got into options and dividend investing and paying off pretty well. I just got into futures about 2 years ago and that is outpacing inflation for sure. Business: I’m now looking into franchises and businesses to purchase. It is very difficult to find a good income generating business so no dice here.

        As far as my expenditure, Me and my wife can do with less but when you have kids, and college now costs $50k per year, that’s hard to keep pace. At this pace when my kids need to go to college, I’d expect $100k per year which I’d need $400k per child to just complete college. I have 3 kids.

        This makes it almost impossible to retire early. Although I’m hoping to get there next few years with my investments. But who knows what the market will do.

        Best of luck.

        • retirebyforty March 4, 2011, 8:29 pm

          It’s going to be tough with 3 kids. Good luck to you too. We just had a baby and we’re pretty done with one. We’ll contribute to 529, but I think we probably will sell one rental when his college bill come due.
          We have 2 rentals and they are around break even as well. I’m working to acquire a 4plex and that should have positive cash flow from day 1. From my calculation, it’s a pretty small positive though.

    • Richard Chew September 3, 2011, 9:11 am

      I am 62 and over the last two years I bought 5 rental homes giving me a 11 to 14% percent return, costing about 330k. If you do the same you can have a much better total return vs $1.5 mill at 2%? And I find actual expenses will be much less than thought after 62. The only trick is that I had to spend a lot of time on initial research and acquistion. I can actually at 62 just live on our S.S. income and a small pension. And the rental income of 5k/month is a bonus.
      Interest and dividends is not going to cut it going forward. Good Luck!

  • Melyssa January 30, 2011, 6:19 pm

    I just found your blog. Very cool. I am hitting my mid 30’s and will hopefully be a landlord this year. I have always wanted to own a duplex, but a house is a start. As with you, I do want to semi-retire early as well. I feel like I’m starting a bit late, so my goal is either 45 or 50.

    • retirebyforty January 31, 2011, 9:15 am

      Thanks for stopping by! I think rental income is really the way to go. So many people have bad experience with tenants though. Hopefully we won’t have nightmare tenants too often. Good luck! I’ll drop by your blog.

  • Jim January 2, 2011, 3:00 pm

    I like how you have thought the major steps in advance. Do you have any contingencies built into it (ie kids, major illness, etc)?
    And WOW – living to 100! You must lead a much healthier lifestyle that I do. 🙂

    • retirebyforty January 2, 2011, 10:02 pm

      We will be on Michelle’s health insurance so we should be covered there for a while. You’ll never know what emergency will come up.

  • First Gen American December 30, 2010, 2:17 pm

    I’m 37 and I like the idea of taking on a career change when I”m 40, hopefully in an entrepreneurial fashion. I’m impressed by your net worth. Great job. I’m routing for you for sure.

    • retirebyforty December 30, 2010, 4:29 pm

      Thanks! Wow, we have quite a few 37 years old bloggers here. 🙂

  • Invest It Wisely December 28, 2010, 7:14 pm

    Also thinking that $600 is definitely achievable. Good luck on your plans!

  • Buck December 28, 2010, 7:42 am

    Yo Joe! Nice plan. Way to put it out there. I should really do the same, at least a high level one. I should add that to my resolutions! 🙂

  • Barb Friedberg December 28, 2010, 4:56 am

    Joe, I must admit, when I first started reading your blog, I was a bit sceptical. Now that I see your plan, it seems quite viable. The one part to evaluate is what if Michelle looses her job? I think it’s a great plan and your financial goals seem to be reasonable. Ask yourself if Michelle is in a field that is in demand where she can replace her income if a layoff comes.

    • retirebyforty December 28, 2010, 9:07 am

      Thank you for your feedback. I’ll write a post about the back up plan this week as well. Michelle’s job is probably one of the most secure job around. I don’t think she will lose her job anytime soon, but these days you never know. We’ll see in the next few years. She is really great at her job and I’m sure she will keep advancing in the years to come.

  • LifeAndMyFinances December 28, 2010, 3:51 am

    I love the exit strategy. We have yet to invision our millions…. it just seems so distant! But, since my wife and I are still in our 20s, I figure we have time. Soon, we’ll be out of debt and start developing some residual income! 🙂 I love the way our life is headed!

    • retirebyforty December 28, 2010, 9:02 am

      Starting early is absolutely essential. We didn’t have any long range goals when we started out so you guys are already well on your way. Keep working at it! 🙂

  • youngandthrifty December 27, 2010, 9:55 pm

    Very impressive Retireby40! (And inspirational). At 10 years younger than you I am nowhere near being able to retire by 40, but here’s hoping!

    I think it is very reasonable to be able to draw side blogging income of $600 a month.

    What if you live past 100? 🙂 What will you plan on doing then?

    • retirebyforty December 28, 2010, 8:53 am

      I guess you are around 25 and you have 15 years left until 40. If you start now, I have no doubt you will be able to meet your goal at 40.
      If I live to a 100, I’ll blog about “How to live to 100!.” 🙂

  • Money Reasons December 27, 2010, 4:58 pm

    Very impressive plan, and a target date of 2014 no less!

    I’m sure you’ll make it just fine 🙂

  • BeatingTheIndex December 27, 2010, 4:34 pm

    It helps when you have a plan as you can measure your progress. I have guidelines, no plan yet as there are a lot of variables that come in. First thing’s first, pay off the mortgage by 2013, I’ll reevaluate the situation by then.

    • retirebyforty December 27, 2010, 10:02 pm

      We are not planning to have the mortgage paid off. As long as the Mrs. keeps working, the mortgage is not a huge problem. We can always fall back to our rental home if we really need to.

  • Colleen Friesen December 27, 2010, 4:25 pm

    Hey Joe,
    Your plans look good though it really depends what you want to do after the jobs are over. When we were working out our retirement plan, my husband and I sort of worked it backwards…trying to envision our lives ‘after work’ and how much we would need to sustain those lifestyles. This enabled us to quit a lot sooner when we realized we didn’t nearly as much money as we’d thought (or been led to believe) from all those financial gurus out there 🙂
    We’ve invested fairly conservatively and actually switched over some of our investments into rental properties (Vancouver, BC apartments) which has turned out to be a good move. I make some money with my writing but we really just live off our investments.
    We do not mirco-manage our money. Neither of us has much interest in the stock market. Instead,we’ve pretty much parked it with an investment bank that has shown some steady returns over these last 14 years.
    I’m assuming you’ve read Your Money or Your Life? It’s one of those great books that helps you realize you need way less than you might imagine. I’m pretty sure you could do this sooner than you might currently think…
    It’s wonderful how you’re sharing the process. It’s so great for people to know there are other possibilities.
    Take care,

    • retirebyforty December 27, 2010, 10:00 pm

      Thanks Colleen for stopping by. We’re invested pretty aggressively in stocks and more conservatively in properties. I am planning to move some money into more rental property in 2011. Wow, 14 years ago Vancouver BC apartment? That would be a great great investment. 🙂
      I haven’t read Your Money or Your Life yet. I’ll put it on my reading list.
      The difference here is the Mrs. like working and that’s great for me. As long as she like it, we can live a pretty comfortable lifestyle. When she is ready to quit work, then we’ll need to figure out other options. Hopefully by then our side income and investment income will be enough to live on.
      Thanks again! I linked to your blog and story from the about page, very inspirational to me.

  • Squirrelers December 27, 2010, 4:03 pm

    I like your approach of working toward these goals, oriented around financial independence. That’s the idea, right? It’s where I hope to be….or should I say PLAN to be.

    Also – to follow up on Everyday Tips comment, you’ll get that $600 easy, I suspect. You’re probably building the foundation for that right here. Not only with your own blog, but with what you might be learning from other bloggers who focus on monetization, and – bigger picture – cash flow from secondary sources.

    • retirebyforty December 27, 2010, 9:51 pm

      Wow, all the established bloggers agree on $600 being easy. That’s great to hear. I’m really learning so much from all the Yakezie members, it’s priceless.

  • Suba @ Wealth Informatics December 27, 2010, 3:55 pm

    Well thought out plan. I think you can easily make $600 on the side – by teaching us how you retired by 40 🙂 And I should appreciate your wife for all her support to you. I wish you guys all the very best! I will follow along and try to learn a lesson or two on how we can do it too.

  • Everyday Tips December 27, 2010, 3:42 pm

    I think you can EASILY attain that 600 dollar goal of side income. Did I say easily already? You are well on your way just with this blog. You may be more comfortable than you think one day!!!

    Like your plan.

  • Aloysa December 27, 2010, 10:06 am

    I am 37 and there is no way Jose I can leave my job. Not unless my blog makes me famous, rich and powerful. I don’t see that happening any time soon. But I do love your exit strategy, my friend. I should take some lessons from you. 🙂

    • retirebyforty December 27, 2010, 10:52 am

      Hey, you never know right? Your blog is doing really well and you are all over the internet with guest posts and a bunch of other things.

    • Sustainable PF December 27, 2010, 5:15 pm

      Same here Aloysa. I’m in my mid 30s, Mrs. SPF in her mid 20s. I’d love to be done by 40 but I just don’t see it happening. It doesn’t help that each year I put into my employment, keeping my pension @ age 58 becomes that much more enticing (and I have a good government pension). We’ll see how this blog thing turns out, but i’m not counting on it! (much like i’m not going to count on expected inheritance)

      • retirebyforty December 27, 2010, 10:03 pm

        Pension sounds great! My employment does not offer any pension so I don’t have to stay until 58. 🙂
        The Mrs. is working toward a pension though, we’ll see if she can keep working that long.

  • The Passive Income Earner December 27, 2010, 7:35 am

    Looks like a good plan. I am also 36 but not in situation to leave he 9-to-5 job at 40 but I am working on it… Hopefully by the time the mortgage is paid I will beclose.

    My goal would be to never have to touch the nest egg during retirement. We’ll see if that works …

    • retirebyforty December 27, 2010, 10:49 am

      Never have to touch the nest egg would be great. You mean not drawing down correct? Just take yield for living cost.

      • Dividend Growth Investor July 17, 2011, 10:14 am

        My goal is to never touch my nest egg in retirement, but to live solely from the dividend and interest income that my investments generate.

        I have a question – if you plan to have a $1 million in net worth in 3 years, you should be able to generate at least 3K in monthly cashflow easily. I am sure that with the right real estate deals, you could probably increase your cashflow easily.

        • retirebyforty July 17, 2011, 4:43 pm

          That’s great if you can generate enough passive income to fund your retirement.
          It’s tough to find the right real estate deal locally, but I’m working on it. I’m too nervous to invest out of state at the moment.
          A lot of my net worth is in retirement funds so I can’t use the income from those funds. I’m working on converting my other investments to income generating investment over the next few years.
          Thanks for commenting.

  • MoneyCone December 27, 2010, 7:04 am

    I’m sure you guys will come out smiling! My best wishes and may I add, your blog has me hooked!

    Keep updating your progress!

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