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Retired at 31: An Early Retirement Story





I’m proud to introduce “Retired at 31″ (we’ll call him John), a regular contributor on Canadian Money Forum.  As his handle indicates, he retired at the ripe age of 31 with $1.7 million in net worth.  Like most millionaires, John created his wealth through investing in businesses.  In his case, the businesses were his own.  Here is his story.

Yes, I’m out (of the work force) at the age of  31 – about 10 months ago. My wife is about 80-90% removed – she should hopefully be out completely soon.

We married young at ages 19/20 and had our first child shortly after. Having the baby motivated us to get our priorities straight. I came from a frugal business minded family, my wife, not so much. It a little while to financially train her.

We saved into RRSP’s right from the time we were married along with buying a house.  Houses were cheap then and we were fortunate that both sets of parents helped with a down payment. The bank pre-approved us for $120k or something like that but we bought one for $70k that had a basement suite in it.

I started a company when I was 23. Started small and part time. I staked it with $2,000 and largely grew it organically. It required some additional injections in the first couple years and later we used a HELOC to float some inventory. I applied the same frugality to the company as in the personal life. We left earnings in the corp and just took what we needed to live on. Over time RRSP contributions increased and we “caught up” in our mid to late 20′s.  Since then we’ve maxed our RRSP’s each year.

Real Estate

We sold the first house when I was 25 for about $90k. Made a bit of profit at first glance, but had put money into it. Profit was negligible – maybe $5k or so. The next house was bigger but again, well within our means. We actually paid for a lot first and waited two years to accumulate more money for the house. Lot was $45k or so, house built for $200k or so. Over the next few years we developed the basement, landscaping, etc as funds permitted. The second child born around this time. A few years later we sold that house and changed cities. House sold for $300k, with probably $280k or so into it. Small profit. We become mortgage free in and around this time.

In the new city, the trend of buying below our means continues. It was just after the start of the boom in Alberta – the bank suggests a house of up to $800k. We laughed, but we actually had to take advantage of it for a period of almost half a year as house #2 took a while to sell. We end up buying a $470k house and we were once again with a small mortgage ($100k or so).

The housing boom accelerated and I was spooked because houses aren’t supposed to appreciate to that extent. While I wasn’t fearful about losing money on the purchase price, I knew how hard it was to make $100k taxes in. The boom town was also crowded, so we got out of there. We sold for $600k for a total profit of $120k. Great return for short ownership period.

At that time, we were looking to diversify our income stream. All of our household income came from the company. My wife was (and still is) a stay at home mother.  She worked previously at various jobs, but never had a true career per se due to children. We looked high and low for another business opportunity. We looked in BC and Alberta, and eventually find one in a smaller city in Alberta.

The housing prices in the small town were cheaper than our previous boom town, but they were starting to take off.  We downsized considerably for house #4 – smaller and significantly less “nice” than the previous two. We paid just over $300k which freed up a substantial amount of money for the purchase of companies 2 and 3. This coupled with retained earnings inside company 1 yielded a small loan required to purchase business 2 and 3.  The house is currently worth about $400k.

The Companies

Three companies are now producing income and per usual, being treated frugally. The first priority is to pay off the corporate loan asap, then worry about paying back myself and company 1.

A year passed and another opportunity fell into my lap. I took a loan for the whole purchase price, floated the inventory from the HELOC (we’re mortgage free again) and had 4 companies producing income with, again, the priority to repay loan.

This brings us up to last summer. Company 1 sells stuff to Americans. Exchange rate has been eating the growth, but thanks to sourcing goods in USD, the profitability remains great. I don’t like storm clouds on the horizon, so it was time for us to get out. We listed company 1 in March (08), a buyer comes along and we close Aug 1. Crap hits fan shortly thereafter. Timing was impeccable.  We had significant retained earnings in company 1 which are now converted to a shareholder loan after paying dividends to shareholders.

The sold shares of company 1 were kept “onside” with the exemption rules (you have a once in a lifetime $750k exemption on qualifying shares of a small business). This means no tax on proceeds.

We were so happy with the outcome of selling company 1 that we decided to sell a minority portion of company 2 to the manager. This sale also qualifies for the exemption (shares in wife’s name),  again no tax.

As it sits, we have 3 companies. Companies 2 and 4 are completely self sufficient thanks to new minority owners with a vested interest in running it well. I regularly look over the numbers and make sure things are on track.

Company 3 is without minority owner and run 80% or so by a “bonus for performance” manager.  This system is not as good as an equity owner so my wife runs the 20% or so to ensure things are as they should be. The current manager is interested in being an equity owner, but capital deficient.

All 3 companies are debt free from external sources, save for company 4 which still floats it’s inventory via my HELOC. All 3 companies do owe us significant shareholder loans in the range of $500k (not including the HELOC which varies between $150k-$300k depending on the time of year).

At current repayment rate, we will be down to zero from $500k in 2 to 3 years, with one company being ready to produce income in a year or so.

There’s just under $200k left owing on an owner carry portion from us selling the shares of company 1 and 2. Both of these are uber secure as both have a clause which gives us the shares back if the buyers default.

The Retirement Income

As it sits, we have no (salary) income streams whatsoever. We’re deriving some income from non-reg investments and also from interest on the owner carry portions of the share sales. So we are currently eating some capital to live. I dislike debt (even to myself) and the sooner these companies throw income the better. The best way to do this is not to cripple the companies by taking income out of them.

Frugality persists, but we have loosened the purse strings a bit in the past 3 or 4 years. Combined household income didn’t pass through $100k until I was 28 and then never more than $120k until this past year when the shares were sold. Company 1 had around $200k or so per year that it could have been paid to us but we lived on far less.

In addition to RRSP’s of about $180k, we’ve stashed fairly significant funds for the children in an RESP and in trust accounts (approx $100k at the moment). Our oldest child is about 5 or 6 years away from being a high school grad.

The Future

The future is to be determined. A complication of retirement is children. Summer vacations excluded, we can’t venture far. We’re committed to this city until both kids are done school. I’ll be 43 then and actually free. At some point we’ll likely become minority shareholders and eventually non-owners of the 3 companies. Assuming no change in the profitability of the companies, both of us will have maxed out the exemptions ($750k each) when they are sold.

I’ve read quite about about retirement – early and otherwise – and it’s challenging. I took the winter off to pursue a hobby but now that winter is over, what do I do now? The traits that got me to where I am today is difficult to simply turn off. The wheels continue to spin – more so from a private business investment standpoint, but I am finding more ideas in the market.

I’ve considered returning to university as many years ago I left after a year of engineering. I’m not sure what I’d take, or if I’d even complete a degree, but learning stuff you’re actually interested in can be fun.  I might take a job to fill the time, but only for the sake of doing something productive, not for the income. Perhaps a non-profit? I don’t know for certain, I’m still figuring things out.

The Lessons

How did we get to retirement at such a young age?  Frugality, owning a business, having children young, setting goals, and delaying gratification are among the most important things. Splitting income and deferring tax via the companies has also been critical.

Stay tuned, I have an interview with “Retired at 31″ coming up that digs into a few more details.





43 Comments, Comment or Ping

  1. 1. CPS

    Great story. It’s inspirational, but at the same time, means I’m not likely to reach similar early retirement goals in 4 years. Hopefully by 37 though.

    Delaying gratification is something I struggle with because for me I find it’s not just a financial decision, but a living without regrets.

  2. 2. Kathryn

    Wow, that’s quite the adventure. Thanks for sharing it.

    I have to admit it’s the first time I’ve ever heard anyone say they were able to retire young because they had kids young. Most people I know who amassed a large net worth were DINKS (Double Income No Kids) for many years before having kids if they had children at all.

    Well done. Although I do hope you were speaking in jest in reference to your wife about it “taking a little while to financially train her.” :-)

  3. 3. Ed

    Fantastic!!! This was my dream,,,but as he said,,,opportuies kept falling in his lap….I’m still waiting….

  4. Interesting. Thanks for sharing. I’d be very interested in knowing what sort of business John is in — i.e. if he is willing to share.

    BTW, wouldn’t this make John “Canada’s Youngest Retiree”???

  5. 5. cannon_fodder

    Congratulations, John. With all due respect, I think the one thing that separates people like you from the rest of us (and I include myself in this camp since I’ve only ever worked for somebody else) is the attitude, not the smarts. There are a lot of intelligent people out there who don’t have the courage, or lack of fear, to take control of their destiny.

    Some people will say that they can’t when they have a young family to take care of – the risks are too great. Perhaps that motivated you further – you have to take care of a young family and the best course would be to take more responsibility.

    Perhaps you should look at mentoring other people – it potentially could lead to some venture capital opportunities which could further diversify your assets. You also would get the satisfaction from keeping those creative juices flowing while helping other worthy individuals realise the same dreams you have. I’d imagine you have to tackle the income stream first and when you have sufficient capital to invest in the right opportunity, you could proceed.

  6. 6. TDang

    Wow..great story!

    I am 31 now and my husband is 37, we paid off our house about a year ago (market value ~400K). Now, we are working towards paying off our rental home in 6 years (240K owing, market value $300K). With both our kids one is 7 and one is 9 years old, it will be a few years yet to save up for their University tuition fees. Our goal is to retire before 50 years old but we see ourself working part time when we retire.

    :-)

  7. 7. nobleea

    Thanks for sharing. I agree that it is your attitude that made you successful. Delayed gratification and living below your means. Kudos on being this successful while having kids young too.

    I am also curious about the business types – are they distributors? Industrial service companies?

  8. Great story to hear always. Although I wouldn’t know what to do if I retire at 31, I actually enjoy working at what I like to do, and it makes life easier & “predictable” to some extent

    And this story also proved my point that it’s relatively easier to reach millionaire when you have businesses. It is much more difficult to do so as an individual full-time employee

  9. thx for sharing this great story!

    I think I will print it and put it on my board to remind me to work on my own business instead of working for others!

    Being a full-time employee will pay bills but you will have bills to pay for the rest of your life (therefore, you will have to work for the rest of your life!). Having a company paying for your bills and growing your income is the best way to retire young…

  10. Great Inspiration. My fiance and I are creating our own plan. We plan on having children soon but both see the importance of paying down debt.

  11. 11. Anna

    Inspiring story! Would be interested to know what kind of business/businesses John owns?

  12. 12. Retired at 31

    Hi All,

    Thank you for reading and commenting.

    Some followup to your questions/comments:

    1) Well done. Although I do hope you were speaking in jest in reference to your wife about it “taking a little while to financially train her.” :-)

    Partly in jest, but two spouses who don’t pull in the same direction won’t make a very effective team. A large part of our success originates from shared vision/goals.

    2) opportuies kept falling in his lap….I’m still waiting….

    My father always said he wasn’t waiting for his ship to come in – he was going to swim out to meet it. Opportunity is out there if you look for it and act upon it.

    3) What kind of businesses?

    The companies were an e-commerce retailer, two franchised quick service restaurants and a brick/mortar specialty retailer.

  13. 13. Adrian

    Nice story with happy ending! Congratulations to John and his wife!

    Entrepreneurship can be very rewarding if you are willing to put up with the extra risks. For each success story like this there are probably 10 failures (The person that bought company 1 from John is one of them – I imagine.). It’s in the humans nature to talk less about losses.

    A friend that started a business a while a go. At the beginning, everything worked great for him until the economy started to turn around. Now, he lost his beautiful house that he built, rented a small house for some time before being forced to move his wife and 3 little kids in the offices of his small business with the hope of weathering this storm. But he keeps his positive attitude and he’s convinced he’ll succeed. Few have the guts to go through this. And much fewer would think it’s worth it.

    The possibility of greater returns always comes with higher risks…

    Again, a great story.

  14. 14. steve_jay

    For someone looking to buy his first business, would you have any advice?

  15. 15. Englishman in canada

    Really enjoyed the story.

    1 section that really intrigued me was what you plan to do now that you are retired.

    I find the term retired and retiring early a funny concept at 31. (i personally enjoy my job and profession and will continue it until i’m seriously bored)

    As it suggest that you don’t plan to ever work again once you retire.

    I’m surprised when someone so skilled and in control of their life decides to retire early rather than to continue working.

    Maybe the term retirement is wrong. Maybe it should be financially free at 31. As you now have the freedom to do what ever you want. you may decide to take a break for a year. Or you might decide that the reason you were successful was you enjoyed identifying opportunities and capatilising on them.

    My Question to the readers and retired at 31 is, having become financially free at 31, do you stop working altogether. or do you continue with the risk that
    a. you make more money and build your wealth or
    b. make poor buisness decisions resulting in loss of your financial freedom?

    I ask as i know people who have done both (neither did it at 31 though ;))

  16. 16. Quiet Posting Guy

    I congratulate you for your success in your endeavors thus far, however, I have to say that I would never aspire to do as you are doing.

    I have no desire to retire in my 30s, or my 60s for that matter. There is only so much travel, crosswords, and gardening I can do. I am not defined by my work but I do enjoy working and providing for my family and others, when I have the ability and opportunity.

    I’m not sure when the mentality came into being that says the earlier you can quit working the better. Though you may be prepared to sacrifice going forward, in order to be retired, I’d rather take that opportunity to involve myself in some form of work that I would enjoy — and where I could be a positive force for others — my family, employees, etc. rather than seek the earliest date to take my ease.

    Just my thoughts.

  17. 17. nobleea

    Quiet Posting Guy;

    I think you are confusing what retirement used to mean (travel, crosswords, gardening), with what early retirement could be. The freedom to do whatever you want – volunteer, start a company that aligns with your hobbies and interests, go back to school to learn something fun, pick up a new sport. Early retirement means working on what you love because you can. Instead of working to provide for those you love because you have to.

  18. 18. Adam

    Yes, I agree with nobleea. For me, retirement has always been the point where I stop working for money and start working for purpose.

  19. 19. QCash

    Retired at 31

    Congratulations!

    Quiet Posting Guy
    The “retirement” in this sense is actually more acurately defined as “freedom from required work” as opposed to the traditional sense.

    Great work.

    Q

  20. 20. paul s

    Thanks for sharing “John”. Hope that name isn’t inidicative of the businesses you were in…I guess we’ll find out when more details are disclosed!

    On a related note. Your story and so many others starts with owning real estate at a very young age. It’s a common theme. The other common theme I see is flexibility. You moved around, weren’t afraid to downsize, weren’t tied to any one place in particular.

    Good topic.

    thanks

  21. 21. ldk

    ‘Retired at 31′ is bang on with his advice…his story could be our story (had kids/married young, owned several businesses and now are semi-retired at 38) and I would agree with all of his comments…start early, live well below your means, take calculated risks and use the tax laws to your advantage.

    I particularly identify with the personal challenges not having to work raises, however in the bigger scheme of things…definitely one of the better ‘problems’ to have. Enjoy your journey!!

  22. 22. Rob

    Great article…quick point re capital gains exemption – the children can benefit from this exemption as well through the use of a family trust. Essentially, the family trust can own the shares of the company, sell the shares, and allocate the gain to the children who can utilize their $750k. Consult with a professional to look at the details, as it can be a complex area and there are considerations around implementing this – but it can be a significant tax savings if you have children, and depending on the expected value of your company when you are looking to sell.

  23. This is definitely an inspirational story.

    However, it would never worked for me. Here in Manhattan Beach, CA the homes are well over 1 million. So for now it is renting for me only.

    I’m very surprised John can retire @ age 31 with just $1.7 million. Here I would need so much more since my Significant and I spend about $7000 a month – and I’m actually very practical with my spending.

  24. 24. Johnnybender

    He’s got $1.7 million – but still has passive income streams. And as you said – you’re renting. He’s paid off his mortgage, so his expenses are significantly less.

  25. 25. tom

    count me in!

  26. 26. nobleea

    Ms Save Money;

    Even in the most expensive city in the world, spending US$7K after tax, every month would not be considered ‘practical spending’.

  27. 27. acusue

    Hi – Thank you for sharing your story, it was very inspirational. I admire the continued committment and vison to look ahead. I only wish that I could get my husband to see like that. He lives for today and thinks retirement will take care of itself. Living below your means is a success story in itself for most of us. It really is a simple formula, money in should be greater than money out. With that principle you can add RRSP, mtg., investments etc. Thank you again, I look forward to part 2.

  28. Great story. Glad ‘John’ got out of business one in time. Goes to show that success does require some luck as well as hard work.

  29. 29. StockStalker

    Great story, “John!” Thanks for sharing, it will serve as a source of inspiration, hope, and reminder. In terms of entrepreneurial-tax-frugality education, is there a particular book/source of info that you would recommend? Also, when you said, “shares in Company 1″, did you mean actual stock market shares?

  30. 30. Retired at 31

    Adrian:

    New owners of company 1 are doing just fine. The company is still profitable, just not as much as it has been. Recessions come and go and sooner or later it will return to it’s former levels. The timing was good for selling it at it’s maximum valuation (small business valuation is largely a function of profitability), not for getting out before the ship sank.

    I hope things turn around for your friend.

    steve_jay:

    Advice for buying your first business – I’d suggest starting your own. The return is much higher as you’re not paying for goodwill. It can be harder though. If buying, find something with strong margins, a consistent track record of growth in revenue and profit, good location/lease (if applicable), and try to buy it assets rather than shares. Find a business that you know something about, because sooner or later you’ll be doing everything at one point in time! It also helps to have a field that you enjoy, unless money really motivates you!

    Englishman in canada:

    At the moment, I’m on the stop working tangent. That might change. I’m not worried about bad decisions wiping me out. At the moment, I’m not that driven by pushing harder for more wealth either. At some point, it becomes enough. Would I like a Ferrari? Sure I would. But if I push and got one, will I then want another one? or an airplane? Or a second home, or etc etc etc.? It’s a consumption cycle. Pushing harder to just put more money in the bank or into investments doesn’t motivate me at the moment.

    nobleea:

    I agree completely!

    paul s:

    Business types were disclosed in an earlier comment by me. Real estate played a role, but I wouldn’t consider it key. Total gain from real estate might account for 10% or so of our net worth. Decisions surrounding real estate were more crucial imo. Buying less house, downsizing, etc freed capital up for things that offered much better returns.

    ldk:

    I’m looking forward to the journey. Thanks for the comments.

    Rob:

    I’d be pissed if my parents had “wasted” my exemption. While I might be happy to have 750 clean, odds are I wouldn’t appreciate the value it represented. My children will have their own exemption to take advantage of should they choose a life in business. I wouldn’t mind having a company valued at 3MM though ;)

    Finance Guy:

    The harder I work, the luckier I get!

    StockStalker:

    A single source? Nothing all encompassing that I’ve found. Read everything you can find. If your accountant isn’t offering up ideas and has to consult others when you propose stuff – find a different accountant! Networking with others in similar financial positions also helps – odds are someone somewhere has found themselves in a similar situation. Other business owners can be the source of wealth of information and experience. Small businesses have shares just like big businesses that are publicly traded. None of my businesses are publicly traded. The upside with small business shares is that Mr. Market isn’t giving you a quote every second of the day and liquidity sucks.

    I watched an episode of Dragon’s Den the other day and I think I know why a lot of businesses fail within the first couple of years! Wow. It’s amazing how much passion and investment people will put into a bad idea!

  31. John,

    That is a truly fascinating story. I wish you well in your retirement.

  32. 32. Gill

    What do you plan to do now for your and your family emotional well being?

    Your children are young and have a lot of years left in school..

  33. 33. Frank Kim

    Having children young. Goes against conventional wisdom but actually makes a lot of sense.

  34. 34. Lewis

    I’d like to hear more about why you assert having kids young is financially advantageous. Better for the woman’s health I can see, but what’s money angle here? Or are you just wanting to still be relateively young when they move out?

  35. 35. Lewis

    What the angle with having kids young? Easier on the mother’s health and they’re out of the house sooner, but why do you list this as a financial advantage?

  36. 36. Retired at 31

    Children at a young age served as a tremendous motivator to increase income. It directly contributed to me starting the first company. It also forced us to prioritize spending and hone the frugal tendencies.

    While our friends were partying and competing to see who could get the biggest credit limit (he with the biggest limit is the richest, right?) we were baptized by fire!

    Getting them out of the house sooner isn’t for sure either. Seems kids are sticking around the nest longer and longer on average these days.

  37. 37. Tim

    family trusts are complicated however the tax savings can be tremendous if properly implemented.

    I used my kids capital gains exemption through a family trust when i sold my business. one day they may get pissed that i did however the family saved millions in taxes and the trust we established will ensure they have a running start financially.

  38. 38. Jeff

    How the hell does having children young make sense? How does it allow you to retire younger? There is an oportunity cost to doing so and I would argue the money spent early on on children could have been saved and compounded to increase over all weath which would allow you to retire at the same age with more money – to fund the expenses associated with your children.

  39. 39. nobleea

    Easy there Jeff, most people don’t whip out the spreadsheet before they get it on.

  40. 40. Journey

    I hope I can follow this story.

  41. 41. Saro

    What an inspiring story, John. Thank you for sharing it with us. Although, my priorities and perspectives are a bit different than your business vision, I love hearing innovative tales about other people. Oddly enough, it inspires me to start on my own journey.

    I’m a couple of days shy of my own 31st birthday and own my first condo. As a young child, I was very mindful about money and later on worked for one of the big banks for over six years. . . almost on my way to becoming a financial planner. I have to say that saving money, teaching my friends the benefits of a healthy relationship with finance, and expanding on this passion of mine is multiplied in such an informative and warm community. So, thank you everyone for your insights. I might just start blogging on the subject, myself. :)

    Cheers,
    Saro

  42. 42. John

    I am also 31 right now and a business owner. If I had read your story a few years ago, I would have said : “Wow, it’s so great !”. Now I say : “What a waste! “. You really hope to spend another 50-60 years contributing nothing to society ? You seem like an intelligent, (previously) hard-working guy who lives with tight control over its spending. Your knowledge could be useful to other people who want to build great things and have a positive impact on society, not only profit from a bull market in real estate and business valuation. I am not saying that you should slave 60 hours a week running spreadsheets, but sharing your skills a few hours a day could have a tremendous impact on young entrepreneurs. Think about it.

  43. 43. Lump Sum Annuity

    Well as far as my opinion is concern to read this story i would say,it’s really good to have a safe retirement at just 31 years of age,but you know retirement is not about age limit ie (55 or 60) when you fell your future is safe,you can live your rest of life with your saving that you earn till now you can go for retirement.

    Thanks and keep Posting

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