Early Retirement Math 101

Here are some simple calculations to show the benefit of compounding and the power of turbo-charging your savings. If you don’t believe you too can get rich in 10-15 years keep reading!

The power of compounding

For the average retirement saver this effect is huge. Compounding your investments over 40 or so years works wonders with your savings. If we assume a real index return of 5% (net of inflation, dividends reinvested), the first dollar invested grows to $7.04 in real terms. Investing one dollar every month, adjusted by inflation and compounded with 5% annual return gives you almost $1,500 after 40 years.

For the turbo retiree who wants to retire after, say, 150 months (12.5 years), compounding has a lot less opportunity to unfold. That first dollar grows to only $1.84 in real, inflation-adjusted terms. Investing one dollar monthly (inflation adjusted) and getting 5% real return yields only around $206 after 150 months.

What we lose due to less compounding we have to make up with frugality!

The power of frugality

During the accumulation phase, every dollar we don’t spend every month accelerates the retirement date in two ways: Continue reading “Early Retirement Math 101”


List of Index ETFs and Mutual Funds

A list of (relatively) low cost index ETFs and mutual funds, their tickers, benchmark index, provider, current fee and yield (as of 12/31/2015 in most cases), dividend payment schedule and link to the fund fact sheet. I haven’t ascertained the dividend schedule for most of the funds yet. Continue reading “List of Index ETFs and Mutual Funds”

Be Your Own DIY Zero-Cost Robo-Adviser!

We don’t use Robo-advisers because their services can be easily replicated with zero fees by smart frugal retirement savers. Tax loss harvesting, one of the Robo-adviser tasks, is also easy to perform yourself and we have been doing it since beginning to save in taxable accounts. Of course, once we are retired, tax loss harvesting is much less useful and for some early retirees, it is even completely ineffective. Moreover, investing only a small portion of your portfolio with a Robo-adviser, and managing the rest yourself is a bad idea because, among other reasons, some of your own trades could potentially invalidate the tax losses in the Robo account.

Continue reading “Be Your Own DIY Zero-Cost Robo-Adviser!”

The 4% Rule is not as good as we hoped – Part 1: Equity expected returns

Update Dec 21, 2016: Check our new series on safe withdrawal rates: 

The sustainability of the 4% withdrawal rule depends on returns we can expect going forward. Backward looking simulations may be quite entertaining but they still require the usual disclaimer “Past returns are no guarantee of future returns.” How comfortable can we be assuming today’s retirees will enjoy the same average returns as in the last 145 years, the time span used by the cFIREsim site? Or the Trinity study, which uses data since 1926? Continue reading “The 4% Rule is not as good as we hoped – Part 1: Equity expected returns”

Once you can afford to retire, you can’t afford not to

Everybody in the Early Retirement community had their own events and experiences that started the idea of Early Retirement and gave them the drive to live below their means for years and decades. Here’s our story:

For me (Papa ERN) the seed of retirement planning was planted very early. Grandpa ERN, my father, was already in his late 50s, when I was a teenager. Frequently, I would hear about his idea of “early” retirement, at age 62 rather than the normal age 65. About the incentives from his employer, and how wonderful it’s going to be to finally retire. So, one day in school the teacher asked what we look forward to in life, and the 14 year old version of Papa ERN responded “I look forward to retirement”. Everybody got a good laugh out of that, though I’m almost sure people laughed more at me than with me. In 2018, when I plan to retire most of my classmates, likely even the teacher, will still be working and I will get the last laugh after all. Continue reading “Once you can afford to retire, you can’t afford not to”

Never, ever invest in this

When we meet new people and Papa ERN explains what he does and where he works (asset management for a large financial institution), people often want to chat about investing and show off their own investing prowess, here some actual quotes:

I made lots of money with a short silver ETF

I put a lot of money in oil ETFs

I use a VIX ETF to protect against the downside

Papa ERN has heard it all and would usually respond that at work he’s discouraged from actively trading in personal accounts and thus resorts to investing in index funds exclusively. Papa ERN is trying to enjoy a happy hour or cocktail party, and so he doesn’t want to get into arguments or talk people out of bad investment decisions. Most of the recent so-called financial innovations only make the issuers rich, not the retail investor. Of course, occasionally one could win and win big, just like in the casino, but over time the house wins.

Financial innovations play with the same emotions as all the other gimmicks, whether it’s cars that exude the feeling of a race car, downhill skis that make you go down the slopes like a gold medalist or designer clothes that make you look like a Hollywood celebrity. By trading this ETF or switching to that platform, or studying this chart pattern, ostensibly, you too can become a trader. Or at least feel like one. Intriguingly, the same people who now laugh about their parents and grandparents falling for the Marlboro Man many decades ago, now get suckered into an equally damaging scheme targeting their financial health. Here are some of the worst ideas: Continue reading “Never, ever invest in this”

Real Estate: Buy or Rent?

If there’s one major disagreement in the Early Retirement community it’s on buying vs. renting your home:

  • Mr. Money Mustache apparently owned two homes at some point, lived in one and rented out the other. Both properties were paid off. He might have sold the rental property recently if I remember correctly, but still owns his primary residence. Owning real estate seems to have worked out all right for him. But he also points out that if you have to live in a large metro area, renting an apartment in town is probably better than owning a McMansion in the suburbs, with all the additional costs attached to it, see here.
  • Go Curry Cracker are renters. Mr. GCC had a bit of a traumatic experience as both a homeowner and an involuntary landlord. Besides, with their busy travel schedule they seem better served renting.
  • Jlcollinsnh thinks owning a house is a terrible investment.
  • Yours truly, Mr. and Mrs. ERN, live in a condo. The property has appreciated quite a bit since the purchase. But had we invested the down payment in an equity index fund, we would have gained as well. I once did a careful exercise to calculate our current gain net of the equity index opportunity cost, and we did come out ahead quite a bit owning our place. But this experience may not be typical. It may certainly not be replicable going forward.

We personally believe that the pros and cons of homeownership are about balanced. The median household with the median income and wealth living in the median U.S. city should be about indifferent between renting and owning. The personal idiosyncratic factors would tip the scale in one direction or the other: Continue reading “Real Estate: Buy or Rent?”

Asset Allocation 3/2016

By asset class Allocation Fees
Cash 0.1% 0.00%
Home Equity 25.2% 0.00%
Private Equity (Real Estate) 9.5% 1.00%
Muni Bonds 0.9% 0.50%
S&P500 Index 37.0% 0.05%
US Total Stock Market 7.2% 0.06%
US Small-Medium Stock Index 0.3% 0.00%
ACWI ex US 1.6% 0.00%
Options Trading 18.2% 0.20%
All 100.0% 0.16%

By Account Type Allocation Fees
Taxable 63.8% 0.22%
401k 11.4% 0.00%
Deferred Comp 6.7% 0.11%
IRA (post tax) 2.2% 0.05%
IRA (rollover) 12.9% 0.05%
Roth 1.8% 0.05%
529 account 0.6% 0.12%
Health Sav Account 0.6% 0.14%
All 100.0% 0.16%



  • We started investing new money in private equity real estate funds. We also shifted money to an option trading strategy that benefits from sideways moving markets.
  • We max out our 401k contributions, but taxable accounts grow much more because most of our savings come from bonus money, which is after-tax.
  • Home equity is Zillow estimate less 7% for selling cost less mortgage
  • Private equity is two investments in multifamily housing funds, projected rental yield ~8%, plus some modest capital gains
  • Funds in the 401k are all no fee, apparently subsidized by the employer. Nice!
  • Deferred Compensation is bonuses from prior years (already vested) that we voluntarily deferred
  • Options trading: I will write some additional detail in a later post, but for right now, this is mostly exposure to US large cap equities



We are Early Retirement Now, or ERN, and right now we prefer to not give more information about our identities, except that we are a married couple with a young daughter. Papa ERN is in his early 40s and Mama ERN in her early 30s. We plan to  retire in 2018, so strictly speaking, our blog title is a bit of a misnomer because as of right now we’re not actually retired. Extreme retirement planners that we are, planning ahead two years is nothing, considering that retirement has been on our minds for decades already. Seeing that a lot of other early retirement blogs are from already retired, established and successful bloggers, we decided to start our blog early to follow our journey through the last few years before retirement and then (hopefully) many decades or retired life.

Currently, nobody knows about our plan to retire early. Not our relatives, not our friends, neighbors and colleagues. To us, early retirement is this very life-changing event and profound lifetime goal and we don’t want to jinx it by talking about it too early. Out of an abundance of caution, therefore, we will keep our plan a secret, at least for now. Otherwise it would be a bit like announcing we are going to have a baby in two years. A lot can go wrong with that, too. We don’t want to have to answer nagging questions from everybody. Worst of all, we don’t want people trying to talk us out of it. Once we go public, in early 2018, you will see more of us! Continue reading “Welcome”