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| Friday, November 20, 2009 |
| How to Escape the Rat Race |
The Wall Street Journal article: How to Escape the Rat Race provides a few tips and suggestions to prepare for a career change (assumes new career will pay less than old or at least take time to ramp up to old salary is starting own business), early retirement, or semi-retirement.
The experts are quick to point out that health insurance is a huge stumbling block for most considering a rat race escape. But assuming you get beyond that obstacle: "What's the cash in your pocket that you need to check out of the rat race?" Mr. Thompson asks. "I decided I had to have two years' worth of (living) costs...in very liquid, easily accessible assets." He figured he had to cover a lot of transition costs. That included moving expenses, legacy costs (like the remainder of his lease in his old home), and enough money to support his expenses while he changed careers and ramped up his new business. Saving up to two years' worth of costs may sound daunting. But here's the good news: If you are making this kind of move, you are probably moving from a high-cost part of the country, like San Francisco or New York, to one of the cheaper ones. And your money will go a lot further there.
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How far will your savings get you over the long term? Someone investing their savings conservatively should certainly be able to earn about 3% a year over inflation. If you want to withdraw $10,000 a year and make it last for, say, thirty years, you will probably need to have about $200,000, or twenty times as much, saved up now.
[...]
You might not want to go as far as Mr. Zelinski–"I don't own a cellphone, I drive a '95 Camry, and for two years I lived without a sofa," he says–but the principles he espouses aren't crazy. "You're financially independent if you have $15,000 coming in and $14,900 going out," he says.
How much do you need to be free? Maybe you should ask instead: How much do you really want to be free? Ugh! The amount of money needed just to generate $10,000 in income a year from savings/investments is depressing. If I ever manage to retire early it will have to be from a combination of income from the rentals, interest from savings, profits from stock investments, and being mortgage-free, debt-free, and living as low-cost/no-cost as I can.
What about you? |
| posted by Boston Gal @ 11:52 AM *
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| 8 Comments: |
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Forgot to mention in the post. The WSJ article makes a big deal of high salary earners from big cities on the coast moving to low-cost areas to make their escape.
Unfortunately, I have no desire to leave my high cost east coast city, so that advice does not help me. Also, I am not a high earner or part of a dual-earner household (both types have an easier time banking lots of cash).
I do have the benefit of being childless and having had steady employment for most of my adult years. Those two factors have so far enabled me to slowly retire debt, build assets, and generally get ahead financially.
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In MA, I found health insurance a relative non-issue when I decided to strike out on my own. If your income is over the threshold for subsidized insurance, it will cost you a few hundred dollars per month, but it shouldn't keep you chained to your job any more than housing costs would.
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It is depressing, you're right. But it should make a lot of difference for you to retire debt-free (no mortgage) and with an income stream (rentals). With your lifestyle, even social security should go a long way.
That's what I'm counting on myself: our house is paid off, and when the four kids are out of the nest a) expenses will go down drastically b) the "nest" can be much smaller, i.e., we can sell this paid-off 3000 sq ft house and buy a much smaller one, hopefully with significant cash left over.
But many a slip 'twixt cup and lip; who knows if SS will be around?
Anne
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Gee ... I lived without a couch for several years when I was just starting out ;)
BG, I'm guessing you'll be fine. Time (and compounding) is a big help in savings/investments. And you're young enough that you'll be able to benefit from an economic upswing (which will come along eventually.)
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Hey Boston Gal, great post. From experience, the hardest thing I found in the whole process was just making the decision.
I kept putting it off until it was 'just right', but eventually realized that I'd be stuck in the 9-5 forever if I didn't just take a leap of faith.
I haven't looked back since 2003!
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I don't know...I haven't looked back after making my own escape from a high-cost East Coast city and my money goes a lot farther. ;)
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Hi Moneyapolis,
True - the escape worked for you, but as a single, my pulling up stakes and relocating to the Midwest would make me miserable. I spent four years of my life (college years) in that part of the country, and it just was not for me. Plus, I am close to my family and most of them live in Massachusetts - so staying in a high cost coastal area is a non-negotiable for me.
That is not to say a move does not make sense for others.
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Living anywhere in the US on just $10,000 a year gross is almost impossible in 2009. That is $833.33 gross per month. From that you have to subtract your portfolio tax (different from earned income or passive income). Not sure what your net would then be - but assume less than $800.00 per month. From that you will need to pay your rent (or property taxes/insurance if a mortgage free homeowner). In my area of the US, the cheapest apartment possible will run you at least $500 per month. Then add utilities and - oh, now you are out of money. Forget things like eating, paying for health care, transportation (even a bus pass is out of your budget), etc.
Now, if you had other income coming in - say a modest pension after serving 20 years in the armed forces or something like that - then fine, the $10,000 extra per year might make exiting the rat race more feasible.
But without some sort of indexed for future inflation income stream, relying solely on interest/dividend income from savings/investments is not going to cut it for most.
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Forgot to mention in the post. The WSJ article makes a big deal of high salary earners from big cities on the coast moving to low-cost areas to make their escape.
Unfortunately, I have no desire to leave my high cost east coast city, so that advice does not help me. Also, I am not a high earner or part of a dual-earner household (both types have an easier time banking lots of cash).
I do have the benefit of being childless and having had steady employment for most of my adult years. Those two factors have so far enabled me to slowly retire debt, build assets, and generally get ahead financially.