When Can I Retire And Live Off My Investments?

Most Important Thing To Start The Plan

A young, forward-thinking man wrote to me and asked this simple question:

Right now, I’m twenty years old. I am willing to take a large percentage off the top of my salary for the rest of my working life in order to be able to retire very young and live off of the proceeds of my investments and do volunteer work. How many years would I have to work if I saved 20% of my income?

He went on to name a number of other specifics about his situation, but they’re really not important. If you were to take 20% of your annual income starting at age 20 and put it in a S&P 500 index fund, that index fund continues to grow at the long-term historical rate (12%), and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary, or quit at 43 and be able to give yourself a 4% “raise” each year from the interest, which is probably the better plan because it combats inflation. Raise the amount to 25% and you’re done at age 38 and able to live in perpetuity at age 40.

Obviously, some people are going to balk at this and state that it “can’t” be done. The truth is that it can be done if you have the willingness to live below your means and authentically behave as if 20% of your total salary doesn’t exist.

It is challenging, don’t get me wrong. Let’s take the case of Roger, who makes about $60,000 a year. He brings home a paycheck every month in the amount of $3,200. In order to save 20% of his whole annual salary ($12,000), Roger would have to be willing to immediately take $1,000 of that take-home paycheck and put it straight into an investment and not touch it at all. This takes an amount of financial fortitude and willpower that, quite honestly, most Americans don’t have the courage to do.

My advice to this young man is that if this is truly your goal, then it is achievable, and I offer the following points of advice:

Make that saving automatic. Figure out what exact dollar amount you need to remove from each paycheck to equal 20% of your total salary, then set things up so that amount is withdrawn automatically. Since you’re planning on retiring so young, it will have to be placed into a non-tax sheltered investment account, which is fine if you invest it right…

Buy and hold. Buy into a very broad-based investment, like the Vanguard 500, and just keep adding money to it and don’t move it around. This will set you up to pay only long-term capital gains tax when you withdraw it, meaning that your tax time in the future when you start liquidating it to live will actually be quite pleasant (just long-term capital gains tax, if that even exists then).

Learn to appreciate frugal living. With an email like that, I’m already sure that you are more likely to buy a sturdy late model used car than a new Lexus, but it’s important to state just the same: you can easily save that 20% you’re wanting to save by making good lifestyle choices. You’ll find that if you’ve made the investments automatic, you’ll easily learn to live on whatever’s left over.

Good luck, and I hope to hear from you when you’re 40 and retired! [thesimpledollar]

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Investors Should Dump HMO Stocks

People don't need a middleman between the doctor and the patient

Filmmaker Michael Moore, whose movie "Sicko" opens Friday, told CNBC that he's urging investors to dump shares of health insurers and health maintenance organizations because "people don't need a middleman between the doctor and the patient."

Moore, whose movie takes on the U.S. health care industry, told Maria Bartiromo outside of the New York Stock Exchange that he opposes the current system, in which he claims "doctors have to call an insurance company and talk to a guy in a cubicle 1,000 miles away, to get permission to treat the patient."

“I’m hoping the (presidential) candidates running for office will come up with a universal health plan that’s free for everyone – one that’s not controlled by the private health-insurance companies.”

Moore appeared at Federal Hall in lower Manhattan, which is next to the NYSE, along with representatives of nurses' unions from California, Massachusetts and New York, to publicly call on "individuals, pension funds, the government and other investors" to yank their holdings from publicly traded health insurers.

“We fix [health care] by taking the one thing they do right in Canada, the one thing they do right in Britain, the one thing they do right in France, put it all together and call it ‘the American system.’ We’re good at doing that in this country: it’s called the melting pot.” [cnbc]

Study of incomes for men in 30s: Dad had it better - But don't confuse owning "stuff" with "happiness"

By Seattle Times news services

American men in their 30s today are worse off than their fathers' generation, a reversal from a decade ago, when sons generally were better off than their fathers, a new study finds.

The study also says the typical American family's income has lagged far behind productivity growth since 2000, a departure from most of the post-World War II period.

The findings suggest "the up escalator that has historically ensured that each generation would do better than the last may not be working very well," says the study, released Friday.

Family incomes of 30-something men have continued to rise in recent decades, but mostly because more of their wives are working, the study's authors said. Yet even with the addition of women's paychecks, the rate of family-income growth has slowed.

Along with data showing more workers are earning less in comparison with the incomes of top earners, the report suggests a growing number of Americans "believe that the rules of the game are no longer fair," said John Morton, director of the Economic Mobility Project at the Pew Charitable Trusts and one of the study's lead authors.

Median income down

In 2004, the median income for a man in his 30s was $35,010, the study says, 12 percent less than for men in their 30s in 1974 — their fathers' generation — adjusted for inflation. In 1994, median income for men in their 30s was $32,901, 5 percent higher than 30 years earlier.

The median is the midpoint: half of men earn more, half earn less.

Researchers focused on that age group because income in one's 30s is a good predictor of lifetime income, according to the report.

Outsourcing and the demise of higher-paying manufacturing jobs have contributed to the stagnation in men's incomes, Morton said. The influx of well-educated women into the work force since the 1970s also might have exerted downward pressure on men's wages, he said.

Freelance television editor Chapen Hayslett, 31, of Los Angeles, said he earns between $48,000 and $50,000 when he works steadily, a figure he says is probably less than his father made at the same age as an Air Force officer.

Hayslett said the $80,000 in student loans he accumulated earning his film degree at the University of Southern California might have limited his earning potential, at least in the short run. "I didn't have the ability to take as many risks in taking jobs or being more decisive," he said. "It was ... oh my God, I need a job."

Across political spectrum

The Pew report is the first in a planned series of studies on economic mobility drawing together researchers representing think tanks from across the political spectrum, including the American Enterprise Institute and Heritage Foundation on the right and the Brookings Institution and Urban Institute on the left.

The generational income gap highlights troubling questions, Morton said, including what happens if an increasing percentage of Americans believe the American dream "is off-limits to them."

The report also found that between 1947 and 1974, productivity, or output per hour, and median family income, adjusted for inflation, roughly doubled. Between 1974 and 2000, however, productivity rose 56 percent while income rose 29 percent. Between 2000 and 2005, productivity rose 16 percent while median income fell 2 percent, challenging "the notion that a rising tide will lift all boats," the report says.

Isabel Sawhill, of the Brookings Institution, another lead author of the report, said several factors could explain the divergence: a growing share of income going to the highest-paid workers, or to profits; an increased share of labor compensation going toward benefits such as health care; or a decline in the number of wage earners, or hours worked, in the typical family.

Bill Beach, of the Heritage Foundation, said increased immigration could have pulled down median wages, since most immigrants at first earn less than native-born workers. But he said their incomes may also move up more rapidly in subsequent years.

Careerist baby boomers

Diehard careerist baby boomers also might partly explain the inability of 30-something men to move up the income ladder as quickly as their fathers. From the moment Generation Xers entered the workplace, boomers have been the "ceiling" blocking their way up the income ladder, said Peter Rose, a partner with marketing-research company Yankelovich in Los Angeles.

"The boomers stand out in defining themselves in terms of their work and have shown a disinclination to get out of the way," he said.

Freelancer Hayslett said he thinks there's another factor: "Honestly, it seems that women are more together," he said. They're more stable and focused, he said, compared with "a lot of guys who feel so frustrated that they tend to move around and leave."

Material from The Wall Street Journal and the Los Angeles Times is included in this report. [nwsource]

11 Tips on How to Handle Women Employees

FTA "Husky girls are more even tempered than their underweight sisters"

The following is an excerpt from the July 1943 issue of Transportation Magazine. This was quite serious at its time and written for male supervisors of women in the work force during World War II - a mere 58 years ago! Obviously, the intent was not to be "funny," but by today's standards, this is hilarious!

For those of you with efficiency issues, pay attention to #8.

There is no longer any question whether transit companies should hire women for jobs formerly held by men. The draft and manpower shortage has settled that point. The important things now are to select the most efficient women available and how to use them to the best advantage.

Here are eleven helpful tips on the subject:

1. Pick young married women. They usually have more of a sense of responsibility than their unmarried sisters. They are less likely to be flirtatious. They need the work, or they would not be doing it. They still have the pep and interest to work hard and to deal with the public efficiently.

2. When you have to use older women, try to get ones who have worked outside the home at some time in their lives. Older women who have never contacted the public have a hard time adapting themselves and are inclined to be cantankerous and fussy. It is always well to impress upon older women, the importance of friendliness and courtesy.

3. General experience indicates that "husky" girls - those who are just a little on the heavy side - are more even-tempered and efficient than their underweight sisters.

4. Retain a physician to give each woman you hire a special physical examination - one covering female conditions. This step not only protects the property against the possibilities of lawsuit, but also reveals whether the employee-to-be has any female weaknesses that would make her mentally or physically unfit for the job.

5. Stress, at the outset, the importance of time; the fact that a minute or two lost here and there makes serious inroads on schedules. Until this point is gotten across, service is likely to be slowed up.

6. Give the female employee a definite daylong schedule of duties so that they will keep busy without bothering the management for instructions every few minutes. Numerous properties say that women make excellent workers when they have their jobs cut out for them, but that they lack initiative in finding work themselves.

7. Whenever possible, let the inside employee change from one job to another at some time during the day. Women are inclined to be less nervous and happier with change.

8. Give every girl an adequate number of rest periods during the day. You have to make some allowances for feminine psychology. A girl has more confidence and is more efficient if she can keep her hair tidied, apply fresh lipstick and wash her hands several times a day.

9. Be tactful when issuing instructions or in making criticisms. Women are often sensitive; they cannot shrug off harsh words the way men do. Never ridicule a woman - it breaks her spirit and cuts off her efficiency.

10. Be reasonably considerate about using strong language around women. Even though a girl's husband or father may swear vociferously, she will grow to dislike a place of business where she hears too much of this.

11. Get enough size variety in operator's uniforms so that each girl can have a proper fit. This point cannot be stressed too much in keeping women happy. [roadandtravel]