My Co-Worker fulfilled a 15 Year Plan and Semi-Retired. A lesson on Motivation, Luck & Frugal Saving
My co-worker told me he is leaving our office shortly in the next 2 weeks.
Let’s call my co-worker J.
A person leaving our office is not something new. Working in a place where most of us are deployed from different companies to work in different projects for the same organization, we see turnover a fair bit.
Some of the projects were short. Some found better employment opportunities. Some don’t like to be attached out and be away from the main office because this reduces their visibility, and hence career progression. Some work in scope that they do not like. Some do not like being in a contract role.
So I asked J where he was going next, while I rummaging through my cabinet, looking for that hard disk I was suppose to bring on site to replace but not sure if its still there (lucky it was!).
J told me he is not joining any company. He is not going to work.
I froze there for 2 sec, looked up and ask: “What do you mean by you are not going to work?”
He replied,”There is only so long you can spend your time earning money. I have earned enough so I am taking a break.”
Most people might just leave this at that.
However, J didn’t realize his co-worker writes a small blog, sometimes talking about the topic of wealth, financial independence and stock investing.
I just realize someone beat me to it! This is so fascinating!
On another day, I decide to ask J “how much is enough to retire?”. This lead down on 2 conversations how it was all possible.
J Really Cannot Stand Working
J told me that if you have a goal of not wanting to work, you have to plan for it.
It won’t take place immediately for you.
He had this idea 15 years ago. That was back in 2003.
He was single then, he is still living alone now.
J is around 45 years old now, so this idea was seeded when he was 30 years old.
He have been working in a roughly different field back then, and got really frustrated about working.
So I asked what pushed him over the edge.
J said he has a friend who asked him “how long do you want to keep working?”. J said he doesn’t want to work forever.
His friend asked him “so what are you going to do once you stop working?”.
Like a lot of people, J said he would start his own business.
His friend ask him what kind of business would he do and what kind of competency does he have.
J realize that turned out to be not a really good plan.
Back then, J probably have worked for 8 years and he was drinking pretty heavily.
His friend told him that if he continue his drinking ways, he would not only develop more health issues and also he would spend the rest of his life working.
That was the main motivation trigger.
The thought of not liking work, but to be forced to work indefinitely is a scary image in his mind.
So he asked his friend what could he do?
How much Wealth does he need to Retire?
So J’s friend introduce him to some of the ways he could build up his wealth.
Particularly, he made J understand that how much wealth he needs is a function of his annual expenses.
When J gets a feel of his annual expenses, he will have an idea how much wealth that he needs to retire. (I didn’t probe much about the exact amount that is required, if that is what you are interested in. Sometimes, I think what people needs might not be a concrete number but a rough target that they conjured up)
I could sense that J has a grasp on his annual expense. He explains later on some of the break down of how much cash flow he needs in his retirement. In order to do that, you have to have certain awareness of how much you been spending for the past few years.
You realize that whether its from Investment Moats, or another place, the equation of how much is needed is not too different from what I wrote about.
So how did he build up his wealth.
Prior to 2007 or the first 13 years of his career, he has been rather frugal.
So in that span, he has saved up $100,000 at least.
It is during this point that his friend (the same friend who introduce all these to him) ask him for capital to invest. This friend does not have capital, and he knew J was rather good at saving.
This is based on a 50%/50% profit sharing.
So J seeded him with $100,000 in 2007.
His friend grew that sum to $300,000 in 1 year. (I suppose the time line might be a little messed up. That was during the start of the financial crisis. Either he did such a good job shorting the market during the market draw down, or that the money was made from 2009 to 2010).
So his friend kept $100,000 and J have $200,000 now.
So I asked J did he continue to put the $200,000 with his friend.
J said that, since he didn’t have capital initially, now that he has capital, he does not need J’s money any more.
So I asked J, what happens next?
So since his friend could not do it for him, he had to go back to diligently saving.
So in the next 8-9 years, he saved another $100,000.
In total, his sum is around $300,000.
Why would $300,000 be enough?
If you have a lump sum of money, how useful is it to you, whether it is functional for you, depends on what you need it for.
So I asked J why does he think $300,000 is adequate.
J told me: “You have to know your ideal living condition in retirement. This means the type of lifestyle that you can accept.”
For him, his monthly expenses is $500/mth. This worked out to be $6,000/yr.
“If I am careful with my money, this amount could last me 50 years. Of course this does not factor in inflation, so the amount that it could last is probably less. Given my age of 45-46, it will be when I am rather old before it runs out”.
“With more time on my hand, I can look to invest in blue chip dividend stocks that pay me 4-8%/yr”.
I helped him do some of the math, and realize with $300,000, he could generate between $12,000 to $24,000/yr.
That looks to be enough if his current first year retirement expenses is $6,000/yr.
But how the hell do you survive on $500/mth??
People will be incredulous how they can do it, even for those who tracked their expenses. Kyith is also surprised. I seen some crazy budget from acquaintance.
The lowest that makes the most sense is that of my friend Daniel Tay, who has been the news for his Freegan exploits (you can read Freegan, Dumpster Diving and Financial Security)
Daniel was able to spend less because all his cost are the fixed costs of life such as adequate insurance, fees for housing and conservancy, utilities. He doesn’t spend on food since he gets his food sources for free.
I asked J how its done. It is only then that I realize that the $500/mth are for the fixed expenses.
What he would do is to find unstructured work, part time work to cover his food expenses.
In my dictionary, that is not “retiring” but somewhat of “semi-retirement” but I don’t want to spend time talking about these semantics with him.
How tough was it to put away money?
Working backwards, to save $100,000 over 8-9 years would require putting away $925 to $1040/mth.
I assess the earnings power of the folks in my office.
The folks older than me probably earns close to middle income. Those younger slightly less. Its not an environment where you will see the envious earnings power of financial bloggers.
If you earn more, have less commitments, $100,000 is not hard. Given, what most in our group come to terms with, putting away this much is remarkable.
J tells me its not that difficult, you just got to make life simpler.
Securing the Dwelling
The three biggest expenses for most people are the cost of dwelling, transportation and food.
I do consider in Singapore dwelling and food is a large part but if you take public transportation, this is much manageable. If its for the family, it could add up.
To retire, J would have to secure a place.
Usually, a single would live in his/her parents place but at some point they would have to be independent and get their own place.
For my co-worker, he manage to get a 2 room BTO somewhere in my neighborhood.
I knew this some time ago while one of our short conversation veered towards that direction.
The balloting for 2 room BTO is a bit crazy so its a good thing he manage to secure it. He also shared with me a trick to increase the chances, which I will not say, not because its some deep secret, but that I do not know how true it is.
A two room BTO with grant, or without grant should be affordable for a single who have worked 20 years in their career.
With a possibly paid off flat with a long lease, all the stars are aligned.
Some of My Thoughts
Its debatable whether this is a foolproof plan.
For most people, they will be worried about:
- the future rising costs
- other unexpected things that comes a long that adds to what they need
- if you return to work, you will not command the same level of salary, or become unemployable
We have to make sure we understand how to think about our concerns, and how do we find out if there is a real concern there. I think there is definitely some things to think about, and as I did not wish to reveal too much, I didn’t probe him through these common questions.
All the above would affect how much wealth assets you need to prepare for retirement, or semi-retirement.
Through his experience, one of the aspect that I find it worth emphasizing again is the need to:
- understand how wealth is built (can take a look at my building a wealth foundation segment here)
- learn about some different financial assets, their returns, their risks, their characteristics
- equip with competencies to build wealth in a sustainable manner or find the right people to delegate to
When J’s friend made his capital, suddenly the great growth wealth machine was cut off.
This is very similar to why many think the concept of having wealth machines that distribute cash flow is not a possible concept.
When you do not know much other ways of building wealth other than owning properties and fixed deposits, you may never got far enough to explore the potential of wealth assets.
If you have some overall understanding of bonds, bond unit trust, equity unit trust, stocks, exchange traded funds, REITs, insurance savings plans, you would then be able to relate so if I am able to generate 5% return, I can grow my money to XXX in Y years. This may be enough for my retirement.
In my observation, people only start having that intent to build wealth only when they are triggered emotionally, or when they really needed it. The problem is that you cannot squeeze battle experiences, technical competency in 1 year.
If you have never invest, could you immediately know how to create a portfolio that yields 4% a year? How much diversification do you need to reduce the non-systematic risk?
I thought this is challenging for those that have invested for 4-5 years, its even more challenging if you need the wealth assets to be functional immediately.
Given all this, I think its remarkable for J to pull the trigger.
I think it will be remarkable if any of the people in my office is able to do it within 15 years, so this is something to be impressed about.
Some never got round it because they know too much, considered too much and never got round this. Perhaps due to my many years in projects, I belong to the school that you can try to find out all and plan as much as you can, but plans will go crazy and its up to you to make the best of the situation.
The thing that I was most impressed with is that it is one thing to listen to someone giving you advice on how to do it, and another to really carry it out. And its pretty challenging staying the course, quit drinking and working towards that vision when your salary is not that high and volatile.
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