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Dare to retire before 50

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The Kaderlis said that when they first retired, people treated them like they were on an extended vacation and would soon return to work.

"Some thought we were committing social and financial suicide, and others projected that we were selfish or lazy since we opted out of the mandatory working world," the Kaderlis say. "This included family members, friends and even strangers. Our choice of early retirement was too far out of the box for them."

Think like an entrepreneur
The Kaderlis and Aldridge say they have always been debt-free, except for the time when they had mortgages, and they avoid debt now like the plague. They also live below their means, even when their investments throw off more income.

These two actions are key to the ability to retire early, says Herb Hopwood, president of Hopwood Financial Services in Great Falls, Va.

"It really comes down to the fact that you can't control what the markets are going to do, but one thing you can control is your expenses, and that's probably the biggest thing," he says.

Hopwood likens extreme early retirement to extreme sports.

"Extreme sports are risky and you must be in great physical shape. Early retirement is risky, because what you're planning is going to be for a long period of time without income ... and you have to be in great financial shape."

After an initial financial plan is developed, whether informally penciled on the back of an envelope, like the Kaderlis, or more formally with a financial planner, it has to be monitored and changed. Setting yourself up to receive the same income no matter how the markets perform can result in financial disaster, says Hopwood. "The objective is not to tap the principal."

Once you begin doing that, he says, it's alarming how fast principal erodes, leaving you with a smaller pot from which to draw income. A portfolio should remain fairly aggressive in equities, up to 70 percent of the total. But Hopwood cautions against a blanket approach when it comes to what's considered aggressive.

"You can be aggressive in allocation, and stupid in investments," he says. For instance, he wouldn't recommend that all the equity allocation be in biotech, or growth stocks, but in a balanced blend that will return an average of 8 percent over time.

Hopwood recommends that clients seeking a long retirement train themselves to think like entrepreneurs. The portfolio, rather than a job, is providing income, and like an entrepreneur, a retiree should be constantly watching and adjusting the rate of income.

"Too many people adjust their lifestyle to their income," Hopwood says. "That's a very dangerous thing to do."

Bankrate.com's corrections policy -- Posted: Nov. 28, 2007
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