Early Retirement Extreme for sale: $85,000

Published on October 24th, 2008

Posted by Jacob in Early Retirement, Finance

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It is now possible to buy extreme early retirement for under six figures. No, it’s not what you think. I’m not talking about selling my site (*), rather I’m talking about the ongoing decline in the market which has made dividend yields very high compared to just a year ago

(*) If someone wants to buy this domain/blog it is of course, like anything else I own, for sale out of general principle.

Now, for extreme early retirement, I advocate a dividend/income approach rather than a total return approach. I prefer the increased certitude of a money flow rather than basing it on past statistics (the 4% withdrawal rule). Using a dividend approach makes the 4%-rule less applicable. Rather than worrying about portfolio declines (which are great!), the main worry becomes whether the companies will keep paying a dividend and whether they will keep hiking it beyond inflation.

To arrive at the $85,000 I have assumed a 7% dividend yield and a $6000/year expense level (6000/0.07~85000). If you lower the yield to 6%, you need $100,000, but that expands the options quite a bit. I generally use a stock screener (here’s a free screener from google) to make the initial cut based on dividends and book value. After that I use value methods to narrow the selection further. I prefer to have a portfolio of 15-20 companies for proper diversification. Beyond that it becomes hard to keep track of things. If you do not want to do the work yourself, I am sure you can find an income based funds, mutual or exchange traded or closed ended.

An amount of $85,000 used to buy a kitchen remodeling during the real estate bubble. It’s probably a little bit cheaper today, but what are granite countertops compared to financial independence?

Of course this amounts demands getting rid of a lot of other superfluous baggage such as extra bed and bathrooms, cars, toys, etc. and what have you in order to cut the budget down to $6000/year.

It is entirely doable though. $6000/year means $500 a month. Here’s an example of how to split it up.

Rent $200-250
Health insurance $75 (get the cheapest possible and stay healthy!)
Food $50-75
Transport $0-$75
Utilities $25-100

Clothes and entertainment can usually be had for free or pocket change.

16 users responded in " Early Retirement Extreme for sale: $85,000 "

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Daizy said, in October 24th, 2008 at 20:35

Doable, I agree…but for that kind of rent I would probably have to rent my sister’s basement and then she would want me to be her nanny for her 7 kids. I could do it now but I think I’ll work a few more years so that I have a little bit more money. A couple hundred more a month and I won’t feel so dependant on others.

Jacob said, in October 24th, 2008 at 21:19

Before we moved to CA, we were looking at 1BD/1Bath apartments in the midwest for $400 ($200 each). For a long time I had no idea how to hack that on the coast until I fell over the RV idea.

tightfistedmiser said, in October 25th, 2008 at 08:52

Living on $6000 a year would be pretty difficult. I suppose I could do it if I lived in a van and/or spent half they year hiking the AT.

Only needing $85,000 would make my goal of early retirement much more attainable. My current goal is $200,000 but I’m willing to change that if the lower amount actually works.

I just opened a brokerage account this week to buy some dividend paying stocks. The stock market has been going down even more as I’m wanting for my account to be funded. I should have some really good deals when I’m finally able to purchase some stocks.

Jacob said, in October 25th, 2008 at 09:02

@tightfistedmiser – As I see it (from a yield perspective), what costed $175,000 last year is only $85,000 today. From a fundamental safety perspective, it is less likely to see future declines currently, than it was a year ago. In short, it just got easier (unless actually selling stocks is part of the plan (it’s not part of mine).

forex said, in October 26th, 2008 at 05:52

Scheme is not bad. But i don’t know not convinced. This calculation might have arrived based on the present scenario. After 10 years I think this will not work out.
Regards
Forex Income

Patrick said, in October 26th, 2008 at 08:12

@Jacob – Just keep in mind which companies are now more likely to cut dividends due to the current business climate.

Frugal Bachelor said, in October 27th, 2008 at 20:13

I never thought of $85K as financial independence before. Great, thought provoking, post.

I would take the money and go to a developing country. There are plenty of places where you can live VERY well for $500/month, and which have nicer weather than here also.

Now I need to go find the 6%-7% yielding stocks.

Dividend Growth Investor said, in October 29th, 2008 at 10:27

Jacob,

Isn’t 6% – 7% a rather high current yield for the moment? The sectors that could provide such current yields include utilities, reits, mlps, some financials, and then you also have tankers, canroys, BDC’s which offer much higher yields.

I am mostly concentrating my dividend portfolio in the dividend aristocrats stocks ( not all of them however).

I disagree with you on the total return issue. As a dividend investor i do want to get a nice total return to match at least the market average. But dividend investors got a nice year to date performance as some bechmarks like the dividend aristocrats have outperformed S&P 500 YTD..

Anyways i would be interested in hearing more about your portfolio. E-mail me if you are interested about sharing dividend stock picks

Kevin M said, in October 31st, 2008 at 10:40

$75 a month for health insurance is completely unrealistic. I’m 33, in good shape and had an HSA with the most basic coverage you can get as well as a $2,500 deductible and it was over $100. Even raising that deductible to the max would not have saved much more than $20/month. And that’s just for the premium – what happens if you actually have to pay for something – like a doctor/hospital visit?

Interesting idea, but seems much too low for 99% of the population.

Jacob said, in October 31st, 2008 at 16:27

I’m 33. In very good shape, non-smoker, etc. and willing to change my behavior radically to avoid medications (for instance, I’d rather sneeze or stay inside than eat allergy pills). I pay $72/month which is below 75, so apparently it is realistic, at least for me. I think my plan has a $3500 deductible; I can look it up. I found it on hasinsider.com (it’s blue anthem). To actually pay for something, I would take it out of the HSA account. It’s a nice tax-advantaged place to keep money. It functions much like an IRA with the tax advantage. If you consider the tax savings, it almost pays the premium. As far as I understand, I can even use it for general living expenses once I’m old enough. I intend to remain vigilant/proactive about my health.

Jacob said, in October 31st, 2008 at 16:32

@DGI – it does not take much REIT exposure (I’m at 10-15% depending on which dya you ask) to raise a 4-5% yield to over 7%. I still consider total return a bonus. Current income is crucial as I don’t want to have too much of a relatively non-performing cash buffer to rely on capital gains.

George said, in November 11th, 2008 at 17:42

Of the MLPs I watch, most are currently yielding 8+% and have a good track record for increasing the distributions. NRP is paying over 10% if you pick the right day to buy, but the asset price is down compared to 5-yrs ago. OKS is my current favorite and APU is okay.

For normal stocks, PEP substantially increased it’s dividend over the prior 5 yr bull market and isn’t likely to cut it. Imagine if you’d had your salary increased by 2.6x?!? It’s that sort of income growth that will make Jacob’s portfolio soar over time without much effort.

Johnnny said, in May 18th, 2009 at 09:24

Awesome idea, and one I was thinking of during the periods of great fear.

Unfortunately, high dividends are not guaranteed. Most of the companies I was following with great dividends slashed or suspended their dividends.

Still, an excellent strategy.

George said, in May 18th, 2009 at 09:41

Since I wrote back in November, Johnny’s post reminded me that it’s probably time to revisit the dividends.

So far, so good on my dividend payers… they all increased or held their dividends except for Unilever (UL), which was down a little (<10%). In the MLPs, OKS dropped their distribution a little (<10%), but the others increased.

My one clunker has been Alliance Bernstein (AB), which manages mutual funds. Their payouts are tied to “assets under management”, so if the market falls, so does their payout.

With AB, I’ve frustratingly learned a lesson here… In December 2007, the recession was pretty much a foregone conclusion, so staying with AB entailed an obvious risk. My reasoning, at the time, was that even if AB’s assets under management lost 30-50% of their value that their distribution would be cut accordingly. And, to me, that was acceptable.

The lesson I painfully learned was that I forgot to factor in how the clients would redeem their money if the market fell too quickly… or if there was a credit crunch and the clients suddenly needed cash. Both of which are exactly what happened and the distribution for the most recent quarter was brutally slashed by over 80% compared to last year!

martin said, in July 14th, 2009 at 09:36

Jacob the food cost seems very low
do you just spend that yourself and is it just for yourslef?

Jacob said, in July 14th, 2009 at 09:43

@martin When I quote numbers, I typically quote for one person only.