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Metus comments on On not getting a job as an option - Less Wrong
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Now that would be an interesting topic: The rationalist hobo.
I am actually considering something similar. There is the extremely early retirement community where the general suggestion is to earn much money in very short amount of time, to live below means in that time, to invest as much of it as possible and to then live from the interest gathered. Driven to extremes the necessary base capital can be quite low, such as in the low hundreds of thousands.
As interest is mobile and I can relocate to a country that almost does not tax capital interest I am free to roam the world. Additional income can come from local work or donations as I intend to still work some amount of time in theoretical research which essentially is just time consuming without need for capital expenditure.
For some time at least this would be very interesting.
Edit: The availability of so much free learning material online makes this even more viable. The only issue will be maintaining a good exercise regimen and good eating habits.
Edit 2: If you can learn remotely, you can work remotely. Being on the road does not preclude doing analysis or similar stuff to stil learn an income.
Just wanted to note for any fellow Americans that this is unfortunately not an option for us. The US taxes even when you're living abroad.
Three comments.
Investments are risky. Your future "interest gathered" is uncertain and you're subject to a variety of risks including things like inflation. Don't fall into the trap of assuming that your investments will return you, say, 7% each year forever and that the amount of dollars sufficient to live on now will still be sufficient in ten years.
Time and money are fungible to a certain extent. By retiring early you're buying time with money (which you are not going to earn). Make sure the exchange rate is good and that you won't spend most of your newly acquired time trying to compensate for lack of money.
Humans, being what they are, don't do well in the absence of external pressure. To put it crudely, a life of leisure makes a man soft, dumb, and lazy. There are, of course, exceptions, but when people don't have to do much, they usually do not do much.
Yeah, but not that risky. If you start with a sum in the "low hundreds of thousands" like Metus describes, and are frugal, you could easily live for a decade without having to earn any positive return whatsoever. And on the scale of decades, a diversified portfolio of stock-based index funds, hedged with other asset classes, is very unlikely to do worse than inflation.
See this chart.
That is true, of course. On the other hand after that decade you'll be without money, without a job, and probably having issues integrating back into working for a living.
I disagree. The problem is that you're looking specifically at the US stock market and there is the issue of survivorship bias.
On the scale of decades, what tended to happen to diversified portfolios of European stocks during the XX century? Or do you know when did the main Japanese stock index, the Nikkei 225 reach its top? It was in 1989 and all downhill since then.
Yes, true. It would probably not be a good idea to attempt to retire with only one decade's worth of funds and plan never to work again. On the other hand, you could see how things go for the first 5 years and then go back to work if needed.
So would you expect a US + international market cap-weighted index fund like Vanguard's Total World Stock Index Fund (bonus: available as an ETF) to have more variance or do worse than the US stock market by itself? That would surprise me.
Or were you just saying you think the US was exceptional during the 20th century, and investors should not expect similar returns (either by diversifying across nations, or reliably picking a winning nation) in the 21st? Hmm, now I am curious what stock market returns looked like for the whole world in the 20th C.
Unfortunately I wasn't able to determine whether that particular chart took into account survivorship bias, but I did find this blog post written by the author of the book the chart was taken from, suggesting that he's at least familiar with the issue.
Yes, that is what I am saying.
I meant survivorship bias in the country sense. What's the return of a German stock portfolio over the last century? It is zero -- the portfolio went to zero in WW2 and without additional money invested it stays at zero.
On the one hand, this is an important issue and shouldn't be ignored if you're planning for your retirement.
On the other hand... Let's think about a scenario where you've worked hard and saved hard until (say) the age of 40, and then 10 years later there's a national catastrophe on the level of losing a major war which wipes out all your savings. You are, indeed, going to be in trouble. But so is someone who's been working for pay all that time: they've lost all their savings too, and probably their job. Either position's going to be pretty terrible.
But if your retirement portfolio is internationally diversified (and it should be!) then you aren't just vulnerable to war and revolution in your home country, you are vulnerable to war and revolution in any of the countries where you are invested. Survivorship bias is definitely relevant.
Sure. But now I remark that there are lots of countries and such total wipeouts are really quite rare. So, e.g., if your portfolio is something like equally divided among 10 major countries, and each of them has a total wipeout once per 30 years (of course these are both really crude approximations), then what happens is that once per 30 years you lose 10% of your investments, which is kinda like losing 0.3% per year, which is about what most index funds charge in management fees. (Of course it's worse really because it's "lumpier".)
So, again, it's an important issue but I remain to be convinced that it's that important an issue.
Why don't you look at reality instead of going for abstract approximations? You are assuming that a "major country" being wiped out by a war would not affect other countries. Really? The 2008 crisis didn't even come close to being a wipeout and how correlated were the stock markets of the major countries during the crisis? Or, if you want to go back to WW2, which stock markets remained unscathed while Germany was wiped out?
These are different issues.
This subthread is basically about estimating future returns from diversified stock portfolios and whether S&P returns for the last few decades provide a good baseline for that.
You are talking about the stability of life and about whether saving money is useful if there's a chance your country will be smashed into little bits.
By the way, a much more likely scenario for a Western country is not losing a major war but having a hyperinflation episode. In this case the guy with the savings loses all, while the guy with a job is much better off.
You raised the issue of survivorship bias at the country level and gave the example of a country wiped out by a major war. So I explained why, if you're adjusting the expectations of a retiree to account for what that sort of event could do to their investments, you also need to adjust the expectations of a non-retiree, who will also be hit hard by it.
Hyperinflation is indeed a good example of something that could hurt the retiree a lot worse than someone still working, but it seems to me that it depends a lot on (1) what form the retiree's savings take and (2) what causes and consequences the hyperinflation has. For instance, if investments in the stock market lose a lot of their (real) value in a hyperinflationary episode, I'd expect that to be accompanied by a lot of job losses -- so the worst case for a retiree with a lot of stock-market investments is also bad for someone still working.
Hmm, interesting points. I had not seriously taken into account survivorship bias in this national sense before. I will have to think more about that.
Will you be allowed back into the labor force? Many employers, especially in the IT industry, will almost certainly turn you away if you have an unexplained hole in your resume that's 5 years wide. Basically the only reason that can cover a 5-year gap is education of some kind (usually something like graduate education). If you say, "Oh, I just retired for 5 years, but now I'm looking for a job again," that's not going to help your chances of landing a job.
This might not be as much of a problem in IT as you might worry, especially if you have personal projects or open source contributions to show for it. It's difficult enough finding skilled developers that if your skill is in demand, a good recruiter will still go to bat for you. I'd say it harms your chances, but it won't kill a career.
Mr. Money Moustache does/did something like this, though with a slightly different approach.
There is a huge amount of risk involved in retiring early. You're essentially betting that you aren't going to find any fun, useful, enjoyable, or otherwise worthwhile uses of money. You're betting that whatever resources you have at retirement are going to be enough, at a ratio of whatever your current earning power is to your expected earning power after the retirement decision.
No, you're betting that you aren't going to find enough such uses for enough money to outweigh the benefit of having hugely more leisure time.
I can think of pretty good uses for a near-unbounded amount of money (more than I am ever likely to have, alas). I can think of pretty good uses for a near-unbounded amount of time (more than I am ever likely to have, alas). Working full-time, working part-time, and not working at all (note: by "working" here I mean working for pay) make different trade-offs between time and money; none of them implies not having any use at all for time or not having any use at all for money.