Rarely are people who achieve a non-traditional retirement profiled on mainstream media, and when they do it’s usually with a “omigosh look at these crazy people” type of article. So I was surprised when I ran across this couple who talk casually about saving 50% of their income and taking year-long vacations every few years on a Nationwide Insurance commercial. Via ERE Facebook page.

Further digging revealed their full names as Richard Ligato and Amanda Bejarano-Ligato, who run their own website and wrote a book Wide-Eyed Wanderers: A Befuddling Journey from the Rat Race to the Roads of Latin America & Africa in 2005. Here’s another brief description of their story from a USA Today article:

“The key is living like you did when you were a student,” says Rich Ligato, 45, who lives in San Diego. While not completely financially independent, Ligato and his wife, Amanda, stopped working steady jobs more than a decade ago. Their goal is working for three years, taking odd jobs, saving their money, then enjoying a year-long vacation break, doing something such as living in India or biking along the Western coast of the U.S. When they return, they take entirely different jobs.

Rich is currently teaching biking classes and managing an apartment, while Amanda is teaching yoga. “It’s not about money, it’s about freedom,” he says. “If you’re just driving to make things secure and safe, think about what that means. There’s nothing interesting in life. You might as well die.”

(Updated to add: I haven’t read the financial particulars of their situation, but given their 50% savings rate alone the math would say they could work one year and take the next year off if they just kept their spending rate constant. But they work 3 and take 1 year off. So even if they spend double what they do when working, then they could put away 1 year of savings for retirement, and then spend the other 2 years on their year-long vacation. That’s still more than the average person puts away (1 full year of expenses every 4 years, or 25% of their combined annual salary every year). This may be off, but roughly how I imagine it working out.)

I always get excited by stories like this; they may not be “retired” but they are living consciously and achieving their dreams. (I’m really looking for one of these stories where they have kids and travel the world.) I still bought their book and starting reading it already. Not sure how new this is, but Amazon does this neat thing now when you order a physical book, they let you start reading the beginning on the Kindle while you wait for it to arrive. Nice for us who prefer physical books but are also impatient. 😉

The following is a guest post contributed by reader Bob, who started getting serious about financial freedom about 10 years ago and plans to reach early retirement next year at age 40. Thanks Bob for candidly sharing about your personal experiences and income-oriented portfolio.

I started following Jonathan’s blog about five years ago because I shared the same interest in personal finance and the goal of early retirement. I’ve made a lot of investing mistakes over the years, but with my 40th birthday coming up later this month I thought I’d share my approach which had the primary goal of income generation and capital preservation.

My initial goal was to cover my fixed expenses each month (housing, transportation, utilities, etc) from investment income. Once I had covered my fixed costs I expanded the goal to full income substitution for an extended period of unemployment (24 months), and later to full income substitution for 10-15 years. I’d like to say I was focused on a fixed target, but as with everything targets changed based on circumstances.

I started focusing on saving in the summer of 2005. I had graduated with an MBA and took a position at an Investment Bank in New York. I completed my MBA at the University of Texas at Austin largely because the tuition was low and I could graduate debt free. Looking back, this decision turned out be a very good one as I was able to secure a high paying job while investing relatively little in my education. In my view, maximizing revenue and minimizing costs is what personal finance is all about. However in life’s little ironies, I ended up paying through the nose for my wife’s graduate degree at UT in 2013-2014 but at this point we are far more capable of supporting this investment.

One thing I learned early on was that I did not want to be working in investment banking beyond ten years. The job takes a lot out of you and while the money is good and you learn a lot, it can be a very volatile business. Given the volatility in the markets and our annual bonus I decided I’d invest largely in fixed income and as a single guy in New York it made sense to look at tax-free munis. I don’t pretend that I had the foresight into the real-estate and financial crisis of 2008-2009 but I did witness a lot of risk taking and leverage deployed in the pursuit of returns.

I will not go into all details of my portfolio rather I’ll just go over the highlights.

$800,000 in taxable accounts which generate about 6.5% yield through investments in closed-end funds, utilities, and REITs. The vast majority is in muni bond funds as I’d prefer tax free income but qualified dividends also enjoy a lower tax rate. REIT income offers no tax advantage but I hold them as until recently we always rented our home. There is obviously a high degree of interest rate risk in my portfolio, but given I have deployed leverage in other part of my portfolio I’m comfortable with it. Overall I think taxes will go higher and so I’d much prefer munis to treasuries. I also hedge my bond holding by selling naked puts on the TBT (leveraged short treasury ETF). This has the positive impact of boosting my cash returns and hedging my long bond position.

$100,000 in LendingClub which generates a 7-8% return inclusive of defaults. I was hoping for a returns closer to 9% but given the institutional money chasing loans and tepid demand for loans it is not a surprise returns are lower than expected. Hopefully LendingClub does not relax underwriting standards in pursuit of loan growth. I still like this asset as the loans are short-term, payments include interest and principle, and you can invest as little as $25 at a time but I’ll moderate my contributions in the future.

$200,000 in direct real-estate investments through RealtyMogul and Fundrise. I only started investing nine months ago, but I have aggressively added to this asset class. I get geographic diversification across the country and by assets class (residential, commercial, debt, equity) and you essentially cut out the fees paid to fund managers and REITs so I see this as a win-win. It is still too early to estimate returns, but I’m hoping tohttps://fundrise.com generate 7.5% on a cash on cash basis and any capital appreciation would be a bonus. Most of the investment promise IRR’s north of 10% so I think the 7.5% is reasonable. I also think this asset class will prove to be better than LendingClub given these are secured investments and debt financing is cheap. On the downside there is zero liquidity, lead times are very long, and the minimum investments are very high.

Overall I’m generating about $6200/month in tax advantaged income and my goal is to eventually get this up to $7000. My savings suffered over the last 12 month as we incurred costs for my wife’s graduate degree, we relocated from Berkeley, CA to Austin, TX and we purchased our first house. I feel confident in ramping up savings over the next months and hitting full income substation before my 41st birthday next year.
I’m sure other will ask how I intend to offset the impact of inflation I also have $500K in tax deferred retirement (IRA, 401K) accounts but these are broadly diversified across domestics and international index funds so not much to say. I think continuing to invest in tax deferred accounts along with real estate investments will help offset the impact of inflation.

If you have constructive questions or feedback, please leave them in the comments. Please remember to be respectful! If you’d like to share your own story, please contact me.

NPR Morning Edition featured a story today about non-traditional retirements: Seeing The (Northern) Light: A Temporary Arctic Retirement. Instead of waiting until 65, Winston Chen decided to stop working for an entire year mid-career and moved his family to a small Norwegian island in the Arctic Circle with only 180 residents.

The whole family got to do many things they’d never do otherwise. Financially, they offset their mortgage by renting out their Boston home completely as-is for a year to another family on a temporary work assignment. His wife Kristin was able to get a job teaching elementary school in Norway for a year, as it was a remote area that needed teachers. They could keep expenses low as the tiny village had no need for a car, no malls, and no restaurants. One of his pursuits ended up being an iPhone app that took off and now supports their entire family, although that wasn’t the goal.

The inspiration came from the TEDtalk “The power of time off” by designer Stefan Sagmeister. Here’s a screenshot (sorry for the poor quality) illustrating the traditional working timeline: learn for 25 years, work for 40 years, then retire for 25 years.

A commenter pointed out that this shows that our society seems to feel that education is for the young, work is for the middle-aged, and leisure is for the elderly. But what if you decided to snip 5 years from those retirement years and sprinkle them between your working years? This is essentially the idea of sabbaticals, usually associated with tenured professors taking a paid year off from their usual teaching and research duties. Every 7 years, Sagmeister completely shuts down his popular design shop for an entire year.

Both Sagmeister and Winston Chen add that if you do this, you shouldn’t just give yourself a year of nothing and expect to figure it out along the way. At the minimum, you should make a list of all the things that you want to try and/or accomplish (Chen’s included oil painting, photography, reading, learning Norwegian, and learning how to play the ukulele). Both broke it down into a daily schedule as well (Chen’s is below).

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