Taking The Risk Out Of Your Early Retirement Plan


Today I have a guest blog post for you guys from a finance professional and not someone that just plays one on the internet, like myself. Joe is a very intelligent guy who spoke way over my head in the conversation that we had so I was very excited when he offered to write a post for the blog. Anyone that has student loans should check out his site FitBUX because he has created a wonderful FREE resource for determining the best payment plan to choose for your situation. In this post he offers a conservative and foolproof approach to determining net worth needs for retirement. I hope you guys enjoy.


Recently, Jared Casazza published the article “Retiring Early on a Physical Therapist’s Salary” on his blog.  The article was a guest blog by Chris from Eat The Financial Elephant.  Chris discusses retiring early as a physical therapist and references his article “Our Ultra-Safe Early Retirement Plan”.  In the last section of the referenced article, Chris mentions a few of his fears in regards to his plan.

This article discusses the problem with using “traditional” ways to determine how much money you need to retire, how to reduce how much you need, and how to limit the risks you face.  Most importantly, this article highlights a phrase I often say, “Every financial product has their purpose. If used correctly, you can maximize the benefit.”

The Problem

“Traditional” ways to calculate how much you need for retirement have three large problems (note: there are many mathematical problems with the traditional approach but I will spare you the boring details and state the high level problems):

  • They make a lot of assumptions. When it comes to money, the more assumptions you make the more risk your plan has.
  • The calculations dramatically underestimate how much you actually need to retire.
  • A “safe withdrawal rate” is often stated by financial professionals when planning retirement. However, most of this research drastically underestimates how much money you will actually withdrawal in retirement thus underestimating how much you need.  The main flaw in this research is again, a lot of assumptions.

Financial professionals continue to use the “traditional” way because the actual number would demoralize many individuals.  Non-financial professionals continue to use this approach because the materials they read reference it….but where did this type of analysis come from?  Many pensions used to use the same models so that is where we will look for answers.

A Conservative Approach

For years pension funds used similar calculations to predict future liabilities, withdrawal rates, and asset allocations.  Overtime, pension funds became seriously underfunded and ultimately have gone bankrupt.  The solution they have begun implementing is a portfolio management approach called Asset Liability Matching (ALM).  Pensions, banks, and insurance companies use this approach in managing their portfolio of assets.

The most basic form of this approach for personal finance looks at a liability in the future and then invests in a risk-free asset that will grow in value to match the liability in the future.  In the case of retirement, the liability his our annual expenses we will have to pay for while we are in retirement.

For example, say you have a $40,000 expense in a year from now and you can earn 1% on a risk-free investment today.  You would invest $39,604 today and it would be worth $40,000 next year when you need it to meet your expense.

This approach removes stock market risk because there is no market risk.  It also removes the risk around a “safe withdrawal rate” because you have an asset to directly match the liability (the liability in this case is your annual expenses.)  Although there is risk in this modeling approach, such as predicting expenses and reinvestment risk, it removes many assumptions.  In short, it is the most conservative way of predicting how much you need in retirement.  So why doesn’t everyone use it…the results…

Chris’ Example

Using Chris’ scenario, assume he has retired at age 40 and estimates his expenses each year are going to be $40,000 with inflation at 2%.  At todays risk-free rates, if he were to use the ALM approach and he wants enough money to last him until he is 100 years old, he would need $2.2 million to retire (for those that are wondering, if he wanted enough money to last till 87 years old he would need $1.7 million).  Having this amount and using the ALM approach would greatly reduce Chris’ risk of running out of money.  However, there are ways to reduce the amount needed to retire.

For example, most financial professionals agree that you should have between 10% and 30% (depending on your age) of your investable assets in an annuity.  This greatly reduces what is referred to as longevity risk, i.e. you will outlive your retirement income.  Let’s make the assumption that Chris puts $200,000 into a variable annuity.  This annuity has a guaranteed withdrawal benefit of 5% per year with a rider that increases the withdrawal base by 10% per year regardless of stock market performance.

At age 60, Chris begins to withdrawal the income each year from the annuity to meet a percentage of his required expenses. Based on these assumptions, Chris would need an additional total of $874,000 invested using the ALM approach to meet his retirement needs until he reaches 100 years old.  Therefore, the total amount he would need today to retire is $1.074 million.

One of Chris’ fears was related to health expenses.  Most people will spend more on long-term care than actual medical expenses in retirement.  Therefore, Chris could hedge this risk with a long-term care insurance policy and since he is relatively young he could do so cheaply.  For our example, we’ll assume he spends an extra $5,000 per year for he and his wife to be covered, thus, upping his annual expenses to $45,000.

Adding long-term care insurance would increase the total amount Chris needs to retire today to $1.32 million.

For his investment portfolio, instead of using all risk-free assets such as treasuries, he could put some of the longer term investments into other secured products such as structured CDs.  These investments are FDIC insured, have a minimum annual return (most of the time between 0% – 2%) and the actual returns are based on the performance of the stock market.


I would again like to thank Joseph for taking the time to write this post for the blog. Leave any questions or comments for him below and check out his site, FitBUX as he is helping a lot of people with their student debt burden. 

Retiring Early on a Physical Therapist’s Salary: “Choose Healthy, Not Normal”


Today I am very excited to bring to you the first guest post on this blog. This post comes to you courtesy of Chris who writes for his and his wife’s blog, Eat the Financial Elephant. Chris recently retired in February after working only 16 years as a full time physical therapist. He is extremely knowledgeable with finance related topics, has a bigger blog following than me, and is a much better writer than I am, so this should be a treat for you guys. Without further ado, here is his post which he fittingly titled, “Choose Healthy, Not Normal!”

Thank you to Jared and Whitney for the opportunity to write a post for the “Fifth Wheel Physical Therapist.” I am a physical therapist as well, with a shared interest in personal finance.

I started my career in 2001. After 16 years, I have achieved financial independence, or at least enough financial security to quit my job to pursue other interests, while putting our ultra-safe early retirement plan into action.

I am extremely excited to start reaching out to young physical therapists and other professionals to assist your financial education and be an example of what is possible in life by simply making a few decisions differently than the masses.

Are We Normal?

There are probably a handful of readers of blogs like Jared’s or mine who are looking for inspiration or practical solutions to start their own journey to financial independence. If you are one, then cheers to you.

More commonly, people stumble upon blogs like ours. They look at people like Jared or myself and see examples of the “extreme.”

Some see us as some type of outliers, with special financial skills or knowledge they do not and can not possess.

Others assume high savings rates equate to sacrifice. They tune out before learning the deeper truth.

Still others simply do not believe what we are doing is possible. We must be exaggerating, or making our stories up completely.

If you assume you could not achieve financial independence quickly, I am going to ask you to challenge your assumptions today.

Does Average = Normal?

As physical therapists, we work with the general population. Ask yourself a few questions.

What percentage of your clients eat a diet consisting primarily of processed foods? What percentage of your clients exercise at least 30 minutes daily, at least three times per week? What percentage of your clients are overweight? Obese? What percentage have Type 2 Diabetes? Hypertension? Heart disease? What is the average number of medications each of your clients takes?

Is a sedentary lifestyle, excessively eating garbage food, having multiple associated lifestyle diseases, and managing them with multiple medications average or typical for a middle age American? Unfortunately, it absolutely is.

Is it healthy? I hope you agree it is not.

Is it normal?

The Parallels of Finance and Health

Think of everyone that you graduated with. Think of other high earning professionals that you know. Now ask yourself a few more questions.

What percentage of people graduate with student debt? What percentage have 6-figure debt? Despite this debt, how many of them go out and finance a fancy car as soon as, or even before, they collect their first paycheck? How many are all too excited to let a lender determine what they can “afford” when going for a mortgage on a first home?

How many high earners save at least 15-20% of their income? Of that small number, how many take the time to actually understand and manage their investments? How many simply follow the worst investing advice I’ve ever heard everywhere?

How many people plan to work until age 60 or 65 or greater? How many simply do it because that is when you can get Medicare, collect Social Security and take retirement distributions without penalty? How many people do not even put that much thought into retirement planning?

Now ask yourself again, is this behavior average or typical? Absolutely.

Is it healthy? I think not.

Is it normal?

Redefining Normal

The first step in fixing our health and financial problems is redefining normal. In our society, what Jared and I are doing is very atypical.

However, it is also atypical for an average American to eat an organic diet focused on healthy fats, proteins and copious amounts of fruits and vegetables. A typical American diet is mostly processed foods from boxes and cans, pesticide sprayed produce, hormone and antibiotic infused meat, and tons of sugar and salt. Does anyone recommend this to their patients or clients simply because everyone else is doing it?

Exercising regularly is atypical for the average American living a sedentary lifestyle. Should you strive for lousy posture because the average client presents this way? Do we ever suggest that it is “normal” to not be able to lift your arms overhead or bend down to pick something from the floor? Should we dissuade our clients from starting a walking program, because most people do not get out and walk? Of course not.

We define normal for our clients as the healthy ideal, not the average or typical presentation. Why do we not define normal in our own financial lives as a healthy state? Why do we mindlessly accept normal as the average or typical lifestyle, simply because everyone else is doing it?

Am I Normal?

My introduction to FIRE (financially independent, retired early) blogs was Early Retirement Extreme (ERE), written by Jacob Lund Fisker. I started my blog to document my path to financial independence to give a different perspective, that of a “normal” couple.

I couldn’t relate to most of Jacob’s story. He chose to live in a trailer, with no car and no cell phone. He described eating mostly the same foods every day, living off about $9,000/year while living in the San Francisco bay area.

We live a more typical American lifestyle. Neither my wife or I have ever had a year where we earned a 6-figure salary. We live in a 2,000 square foot home and own 2 cars. We have traveled extensively domestically and abroad. We have a child. We prioritize eating healthy and have no food budget. Our spending is several multiples of the ERE standard.

However, my wife and I have made our own set of choices, that are also not “normal.” We have always saved at least 50% of our income. We have taken a hard line against debt. We have collected 6 degrees between us with less than $20,000 total debt. We used a 15 year mortgage and paid it off in 7 years. I have never made a car loan payment in my life, and have never paid a penny of credit card interest.

Choosing Healthy Over Average

The things that it takes to become financially healthy, and eventually financially independent, are often simple, but they are not always easy. They are a result of making conscious decisions to take a different path from the masses.

There are no long lines of high earning professionals fighting Jared and Whitney to get spots in the campgrounds that enable them to make their story a reality. Likewise, my used Chevy Malibu was out of place for years parked in a lot full of Lexuses, BMWs, and full-sized SUV’s owned by others who I have worked with.

We also must admit our problems and confront our weaknesses. Burying our heads in the sand will not make problems or deficiencies go away. Jared has written extensively here about his 6-figure debt and strategies to address it.

In my case, I had to overcome massive mistakes due to my ignorance with investing and tax planning early in my career. After years of costly mistakes, I have documented how I now save tens of thousands of dollars each year by managing our investments and creating a simple tax plan.

It is easy to focus on others’ strengths and think that they have it easy. However, we all must face our own demons and address them.

Get Started Today

Maybe you are a student reading this blog and considering options as you start your career as Jared was a few years ago. Maybe you have been working for years and find yourself burnt out and starving for change as I was when starting my journey. We each have our own unique story and face unique challenges.

The key is to first make the choice to reject the idea that today’s average lifestyle is normal. Consciously choose your own path. Choose healthy, not normal.

Then that decision must be followed with massive action. What will you do to start your own journey to financial independence today?

Thanks again to Jared and Whitney for allowing me the opportunity to reach out to your readers. I love to connect with others with similar interests. Leave me a comment below or connect with me through my blog, Eat the Financial Elephant, if I can assist you on your journey.

I sincerely appreciate Chris taking the time to write such a well thought out blog post. Be sure to check out his blog and to leave comments or questions below for him.