Retired At Forty?

People are sometimes curious about how I managed to punt my job and move to the sticks at the ripe old age of forty. If I have any regrets and how much money it takes are also popular questions. Unfortunately the details are not very exciting or enlightening, but for what it's worth here is a summary.
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The Story

Basically we were very lucky since all my major career decisions were motivated by the desire to goof off.

I graduated in 1975 with a chemical engineering degree from the University of Waterloo. A couple of years later I found myself working in Toronto and hating it. The job was great, but I had become addicted to skiing in my last year at university; the mountains were calling and Toronto was big and well, urban. The solution? Grad school; the time honoured refuge from the real world. So off we went to the University of Calgary where I pursued my MsSki in Chem Eng and Chris got her bachelors degree in computer science. A very good time was had by all, but eventually these things end and a I soon found myself once again in a corporate tower morosely contemplating life in a cubicle and weekend lift lines.

With winter fast approaching and my desperation levels rising I hit upon a scheme inspired by a particularly dull software manual. I proposed to my former thesis supervisor that I write a calculator program for use in designing natural gas processing plants. In return I would become a minority shareholder in a small ($5000/year revenue) software company he was involved in and could dump the nine to five. After much thrashing the deal was cut and I and another grad student became minority partners with our respective supervisors in a company called Hyprotech (long since acquired by Aspentech).

At the time design programs were run by submitting the input file to a computer, waiting for it to be processed, and then poring over the resulting mounds of output. My hook was to write a program that would be interactive, i.e. one where you sat at a terminal and 'conversed' with the computer. Pretty tame stuff now, but nearly heresy at the time. Computers were far too expensive for that kind of tom foolery, they said. Turns out 'They' were right and we damn near starved. Consulting kept the wolf at bay, but just barely since this was in the middle of a major recession in the oil and gas industries. However in 1984 I bought an IBM PC/XT and drove down to Seattle to get one of the first math coprocessors available. I became convinced that this was the answer to our problems, but one of the majority shareholders didn't quite see it that way. A palace revolt ensued that saw him replaced with a very talented fellow who was working with us. All four of us now had equal share holdings.

My wildly optimistic estimates of how many PC copies we might be able to sell were in fact hopelessly pessimistic. There were many battles to be fought, but slowly the company became one of the major players in the chemical engineering simulation field and the money flowed in. Unfortunately the original goal of more goof off time vanished into a miasma of near continuous work. By 1992 I had been doing this for twelve years and although I was making more money than I ever dreamed of, I didn't seem to be enjoying life all that much. Also by this time one of my partners and I had such serious, although amicable, differences of opinion on matters such as employee relations and pricing, that he was considering leaving. Since we were the only two partners who were involved with the actual programming, it was clear if he left I would be stuck in the company for many years to come. I couldn't face that and he was quite willing to be a corporate tycoon, so I decided to leave.

The resulting settlement was enough to allow us to live comfortably, if modestly, without working. We aren't exactly out shopping for yachts and mansions, but our time is our own.

Any Regrets

I certainly miss working with the friends I made at Hyprotech and particularly the excitement of the brain storming sessions. It is also natural for me to look at some of the directions that the company took and think about how I would have done it differently. I don't miss the endless pressure, the political bickering and never having enough time for all the things that had to be done.

That is now a completely different world and a different life. My current life is exceedingly enjoyable and I certainly wouldn't want to trade it for my previous one. Life is far too short not to enjoy it fully.

How Much Money Does It Take?

How much money do you need before you chuck the old job? It depends on how much you need to live in whatever style you are willing to settle for and how much risk you can stomach. If you are young, not terminally ill or overly suicidal, you probably have to assume that your nest egg will have to support you for several decades. This means you must preserve your real principal through inflation, recessions and nagging toy dependencies.

The inflation adjusted return, including dividends, of the SP500 has been about 6% per year since 1928 and about 14% per year since 1982. Unfortunately there have been a few nasty decades in there, like the 30s and 70s where there was zero or negative return. Few investors and only about a quarter of mutual funds beat these market averages and the long term return on T Bills and bonds is probably negative once tax and inflation are considered. Therefore, unless you have a pretty good feeling about the long term stability of the equity markets, you should probably assume no more that about 5% return on your investments after inflation. So once you decide how much money you want as income, you will know how much you need in the kitty. For instance if you can get by on $50,000 per year you would need a megabuck, but if your tastes are such that you would starve on anything less than a quarter mil a year, you better have about 5 million salted away.

This is assuming a widows and orphans attitude towards risk. If you are willing to take more risk you can achieve much higher (or lower) returns. Indeed the last few years of the 1990s were incredibly good for investors and returns were much higher than anticipated, but the tech bust that followed and its fallout illustrate the need to be able to tolerate the down times as well.