I lost five years of early retirement by not having a plan

One of the key concepts J.D. discusses here at Money Boss is having a personal mission statement. This in turn helps you develop a life plan. And the plan enables you to develop action steps to be sure you achieve your goals. I love this sort of thing.

I've always been a New Year's resolution sort of guy. Every year I make a list of what I accomplish the next year with an eye on five to ten years down the road for the big projects. I write down goals and then break them down into daily habits that set me on the right path.

But for many years I somehow neglected to go all the way in setting specific, long-term financial goals. And I missed five extra years of early retirement as a result. This is the story of how you can get lost without a map.

My (Vague) Plan

I have been an avid earner, saver, and investor for some time.

I'm not sure when it all kicked in but about 15 years ago I started putting this money stuff together. I had done well up to that point and had a decent net worth, but for some reason things started to click and I began to focus on growing my wealth.

By almost all measures I was doing well. My income hit new heights, my saving rate was high, and my investments were performing well. However, this success was a double-edged sword. Because I was doing well, I could afford to be sloppy. Even without a written plan, I was knocking the ball out of the park financially. So why take that extra step?

So I was on cruise control financially. My good progress allowed me to get away with a back-of-the-envelope plan. It was a simple wild-ass guess based on what I knew about our finances.

This was the problem. My goal wasn't SMART. Specifically, it wasn't measurable or timed. Instead my financial independence plan was simply this:

  • Accumulate $4 million in assets.
  • Generate $100,000 in annual income from those assets (which would allow us to never have to spend our assets — we could live off the income alone).

I knew “roughly” that if I hit these goals I would be financially independent. I knew this instinctively because I had a pretty good grip on our finances. (Twenty-two years of Quicken data will do that for you!) I knew what we made and what we spent. And I was sure that if we hit those numbers we would have more than enough.

So life kept moving along, we kept saving, and all was well. That is until…

Life Happens

As could be expected, life threw us a couple curve balls, like it is known to do.

First of all, I was fired from my job the year after we had a record year. I considered retirement at that point but for some reason I still didn't run the numbers. I simply stuck with my $4 million/$100k goal. Since I wasn't there, I kept moving forward and got a new job.

Then that job started to weigh me down. I had a micro-manager boss who was next to impossible to please.

My work life got so bad that it jolted me into reality. I finally ran the numbers and discovered that I didn't need $4 million in assets or a $100k income to retire. My assets generated around $85k per year and with a few tweaks I could get that to $95k. Creating my retirement budget I saw that I “only” needed $95k to retire each year, and since I had that, I could retire anytime I wanted. Running the numbers and having a specific plan that was measurable made me see that.

So, I retired. And I've been loving it ever since.

What I Missed

Admittedly my lack of a formal plan was not a complete disaster. After all, I did retire at 52 with the ability to live off the income my assets generated. It's hard to moan too much about that.

But most people do not have the finances we have. There's not nearly the margin for error we had. That's why I'm writing this post — to encourage everyone reading this to develop complete, SMART financial goals.

That said, we were impacted. Here's what I lost by not having a SMART plan:

  • We spent too much. Since we weren't shooting for a specific goal, we spent what we wanted. It wasn't extravagant but it was money we could have saved/invested a lot earlier. Looking back there was a lot of waste that really didn't benefit us much.
  • We didn't save enough. Because we didn't have a specific time we were shooting for retirement, we didn't push our savings as much as we could have. We made a very good income which allowed us to save a ton for sure, but not save with intention. Again, we were sloppy. With just a bit of planning, we could have saved a bit more and retired much earlier.
  • We didn't allocate investments to generate income. I did invest in real estate, the move that eventually made my early retirement possible, but I didn't buy as much of it as I should have. I also put too much money into retirement accounts. Yes, these are accessible before 59-1/2 but it's not convenient to do so. A plan would have had me saving more after-tax (in a Roth IRA for example) to have more available post-retirement.

These three mistakes, caused by only having a vague goal, kept me from retiring much earlier than I did.

Five Years Lost

There were several times I could have retired earlier if I had a specific plan. Namely:

  • If I had a plan, I would have bought more real estate and retired in 2011.
  • If I had a plan, I would have saved more aggressively and been able to retire in 2013.
  • If I had a plan, I would have seen that I had enough to retire in early 2015 when I was fired.

In short, not having a plan meant I didn't know exactly what I was aiming for. I was lost because I had no map (or at best an incomplete one). It cost me a few years.

Again, it's hard to boo-hoo about my results. But consider the implications for the average family. Without a plan they could lose those five years too — and likely even more. For them it could mean the difference between retiring at 65 versus 70 or 75. Those are some critical years to lose that late in life.

So consider this post a public service announcement: Don't be like me. Be SMART. Have a financial plan, work it, and achieve your goals.

Here's wishing you a great and prosperous 2017!

Note: John isn't just a Money Boss reader; he's also a friend and colleague. He currently writes the excellent ESI Money blog. If you like Money Boss, you'll probably like his site too. Check it out!

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EurFI
EurFI
3 years ago

Yes, that is so true. A plan is very important. And not the plan itself, but the thinking about it. Since having heard of FIRE, and blogging about it, I made so much progress. If I started with 18, I would have been retired by now. But I only heard about it two years ago…

Josh
Josh
3 years ago

I have met a lot of people with this same problem. Sometimes its not about money but the plan. A dream without a plan is just a dream. You have to plan and JD your personal mission idea is great. Keep writing quality material.

The Green Swan
The Green Swan
3 years ago

Hi John! I’ve really enjoyed following your blog and love all the insights. What a critical lesson folks need to understand. Not making SMART goals can be the equivalent to flying blind.

I didn’t wake up to this until a few years ago myself. I now have complete goals with a better understanding of what I need to retire. Blindly I used to think I needed 6 million, now I realize I only need about half of this!

Sanjib Kumar Saha
Sanjib Kumar Saha
3 years ago

I have learned a lot from this post. Earning well does not give us the right to be sloppy. Sometimes we need to look at the big picture so as not to lose valuable time. So from today onwards, I will have a SMART Financial Plan too and try to recognize my financial needs accordingly. Thank you for sharing your experience as it will save a lot of people from making major mistakes.

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