Retiring early: More able to pull it off

The modern American dream is to make a bundle in investments and retire early to the beach or golf course. Thanks to the booming economy, the dream has become a reality for thousands of baby boomers who might otherwise continue working into their 60s.

According to an NBC News report, more than a third of Americans plan to retire before they reach 60. The get-rich-quick schemes have worked for some entrepreneurs, in the high-tech arena especially, but wise investing is helping even middle management and service workers say goodbye to the daily grind.

John P. Greaney, creator of The Retire Early Home Page who retired at age 38 after working as an engineer and capital cost analyst for several Fortune 500 companies, said retiring is as easy as one, two, three: Manage expenses, accumulate capital and invest wisely with low fees and commissions.

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More specifically, he said that to bring expenses under control, don’t shell out income to pay off debt service, do take advantage of employers’ 401k plans and do make your own investment decisions to add 1 or 2 percent to your returns.

The big question everyone who is thinking about retiring early asks is “How much do I need to retire when I’m 50?” There are many factors to consider when planning on retirement. For instance, how long will you need to live off your retirement savings? Thirty years? Can you live off $20,000 per year? Or $50,000? Then, of course, you need to account for inflation.

Malcolm “Bud” Collier retired at age 60. The former chief executive officer of First Federal Bank decided to leave the corporate world when Commercial First Federal bought his family-run company in 1998. “They did offer for me to stay on their board, but I didn’t want to do it anymore,” he said.

“The business was started by my grandfather, and none of my kids wanted to go into the business. I also had a little heart attack five years ago, and it made me stop and think about what was important,” Collier said.

His first year of retirement was spent trying to figure out what to do. “I was going to start a little start-up bank,” he said. “The more I got into it, the more I decided I didn’t want to do that.”

A year ago he bought the Rocky Mountain Angling Club, which has 1,300 members and leases on 38 properties for fishing. Now he works about three or four hours a day, and is fishing as often as he wants to. Had Collier not sold the business, he said he still would have been able to retire at 60. “I had an IRA. And for years at First Federal we had profit sharing. I sold the business and we came out pretty well on that,” he said.

Dave Rigo, former chief operating officer of Exabyte Corp., left at 59, and despite being heavily involved with many start-up and growing technology firms, he doesn’t miss the corporate world and doesn’t want to reenter it.

“Not in the slightest. I’ve said ?No’ enough times that the calls have stopped.” Now he’s down to one for-profit board position with Crossroads Systems, after leaving the board of the Boulder Technology Incubator.

He holds board positions with two non-profits: Blue Sky Bridge, a children and family advocacy center in Niwot, and the Boulder College of Massage Therapy, where he is president of the board.

“In spite of the fact that I had no experience in the area of massage therapy, they were looking for someone with more business experience. I just love it. I have gotten a lot of self-satisfaction out of serving on that board,” Rigo said.

Rigo’s goal had been to retire by the age of 60, which he beat by five months when he retired at age 59 in 1997. “I have had an investment plan for 20-some years. I enjoy a small pension from IBM plus health benefits. It’s given me flexibility that maybe others don’t have.”

He has a broadly diverse portfolio he’s built over the past 20 years. “I’ve got a fairly high-risk portfolio,” Rigo said. Even so, he is set to remain in retirement despite some fluctuations in the stock market. “Right now I am projecting out 35 years.”

Every financial planning firm, full-service brokerage, savings and loan and even money management magazines offer calculators or spreadsheets that will determine how much someone needs to retire. They factor in the number of years left before retirement, the payout period, your expenses, your portfolio, inflation, return rates, and ka-ching — out pops the magic number.

Retirement calculators are also available online and cost nothing. Greaney’s home page offers several: The Generation X Retirement Planner; Retire Early 401k “Shaft” Detector; IRA Withdrawal Calculator and Roth Analyzer; IRACALC Spreadsheet; Calamity Planning Spreadsheet; Retire Early Safe Withdrawal Calculator; Retire Early Diversification Worksheet; Retire Early Annuity Factor Calculator; Retire Early Annuity “Shaft” Detector.

Peter Baumgartner, certified financial manager and vice president of Merrill Lynch in Boulder, warns against planning for your retirement alone. “Even Carl Lewis had a coach,” Baumgartner said.

Merrill Lynch planners start with a written plan that includes all your assets, your benefits, income, Social Security benefits, liabilities, investments and so on, and then it includes a general understanding of what is most important to you about your money. It may be that you want to retire at 50; you may want to buy a vacation home, or travel around the world, or send your kids to college, or start a trust for your grandchildren.

The key is then to evaluate what that might cost, taking into consideration how much money you want to spend each year. “If you contribute to your retirement plan, it will consist of stock, fixed income, cash equivalents, such as money market accounts. You can generally begin by figuring stocks will return 10 percent,” Baumgartner said.

“We might use 7 or 8 (percent) on fixed income and 5 or 6 (percent) on cash equivalents. Then we generally inflate (the total) by 3.1 percent per year. It depends what your lifestyle is going to be. If you are going to be buying real estate, it is inflating more than 3 percent. If you are figuring on playing golf, it is increasing by 7 percent a year.”

Baumgartner said once you have figured out how much money you need to retire and stay in retirement, the risk is that you have to go back to work because you have been too conservative in your rates of return or taken too much risk in your investments. Visiting a financial planner can help avoid improper asset allocation.