How to retire by 40 — Is it a pipe dream?

By Ruth Bayang
NORTHWEST ASIAN WEEKLY

“I’m the busiest retired guy you’ll ever meet,” said John Chen, CEO of Geoteaming. He quit his Microsoft job at age 32 and almost two decades later, he is loving retirement.

“I always knew I was supposed to do something, I just didn’t know what it was,” said Chen. He admits to falling asleep in meetings during his seventh year at Microsoft, even though he loved his job. It was 1997 and he was 30 years old. That’s when he started laying the groundwork to transition out of being an employee. He made the jump into entrepreneurship two years later, with a wife, kids, and a mortgage.

The word “retirement” can prompt visions of sitting on the couch all day long and doing nothing, or playing endless rounds of golf, sitting on a beach, traveling the world, or countless number of other scenarios.

For the purpose of this article, retirement means the ability to quit your job and do your own thing — such as opening up a business, working for yourself, and not being beholden to a boss.

For Chen, it meant starting his own business around corporate team building.

“You’ve got to get your stuff in order,” Chen said, financially and otherwise. He said to think about your lifestyle.

“A lot of us grew up with not a lot. So therefore, you can actually change your lifestyle to ‘not a lot’ and be OK with it. Everybody has a number. You’ve just got to figure out what that number is. For some, that number for ‘enough’ could be quite low.”

For Christine Kwon, 40, that number was double her salary. She owns ROCK PI real estate investment firm with her husband.

“We have three kids under age 5,” said Kwon, so it was important to have enough to cover her family’s basic expenses, operate their business, and cash to acquire more rental properties.

“Our business doubled my salary at Amazon (in 2017). I figured it was time to quit,” said Kwon.

She left her job five months ago — at that time, Kwon and her husband owned seven rental units — the couple bought three more in recent weeks.

Kwon and her husband, Olivier, stumbled into real estate investing as a way to create another stream of income. They were living in Georgia when she got the Amazon job offer, and they needed to sell their home. They decided to renovate it for maximum profit. “It was an unintentional flip.”

When they arrived in Seattle, they were exploring job options for her husband. They decided that opening up their own real estate business was the way to go, after meeting with other investors.

Kwon helped her husband with their business around her working hours at Amazon.

“My job was very demanding. And with three young kids, it was a lot. I really needed to be full-time with our business and so I could be with the kids more.”

For our first project, nobody wanted to invest in us or with us,” said Kwon. The couple pooled together their savings, 401(k), and even money from their children’s college fund. “We used hard money also.”

It paid off. Three years later, being her own boss is a reality for Kwon.

I don’t make Microsoft/Amazon/tech money

Naoko Huffman, a senior financial planner at KeyBank, has worked with high net worth individuals for the past 20 years.

She said her clients who retire at 40 typically received windfall having worked for a company like Microsoft in the early stages and then exercised stock options, received an inheritance or gifts from parents, or won the lottery.

For the rest of us, Huffman said, “It takes a lot of discipline and planning.”

The first thing Huffman does with clients is to define and prioritize their goals and objectives, then comes up with a plan to meet their goals. Typically, she starts with a capital needs analysis. They sit down and determine capital needs, risk tolerance level and expected return from investment, and life expectancy. The assumptions also include an inflation rate, future tax rates, potential sources of retirement income and other capital from sale of a business, inheritance, a gift, downsizing the house and so on.

Huffman said that many financial institutions offer a tool to do a capital needs analysis. At KeyBank, clients can access a tool called HelloWallet. Once you create a plan, it is important to review the plan periodically and revisit the initial assumptions you made in the plan. Sometimes life takes an unexpected turn and your plan needs to reflect the changes.

Huffman said that you also need to take into account healthcare expenses. Generally, the cost of healthcare rises faster than the rate of inflation. “You don’t qualify for Medicare until you’re 65,” said Huffman. “You’ll need to find an affordable health insurance coverage that fits your needs until then.”

Her advice to those starting out in life is “enroll in a qualified retirement plan your employer offers. If your employer offers a company matching, make sure to take advantage of it. Also start contributing to an IRA. If eligible, consider maximizing contributions to a Roth IRA and Health Savings Account.”

Min Qiu was a personal trainer for 10 years. With a bachelor’s in exercise science and kinesthesiology, he made $30,000 a year when he first started and topped out at $70,000.

He would wake up between 4:45 and 5:15 a.m. every day, drive in traffic to be at work at 6:30 or 7 a.m. He would work until 10 or 11 a.m., then work another shift from 3 and 4 p.m. until 7:30 p.m. — basically around his clients’ work schedules.

“I didn’t know what was possible,” Qiu said. It was his father-in-law who planted a seed — suggesting that Qiu could leverage his ability to speak Chinese fluently, and be a go-to real estate agent for Chinese nationals looking to invest in the United States.

He did some research on the real estate industry and started networking with local real estate investors. That’s when he learned about house flipping — where investors buy distressed homes for pennies on the dollar, renovate it, and sell it at a profit.

Qiu was 30 when he did his first flip. He took a home equity loan against his personal residence to buy and renovate it. Qiu quit his job as a personal trainer three months ago.

He is now 33 years old and has completed 10 flips.

“I made sure there’s enough savings to last us (him and his wife) a couple of years, and enough marketing costs to operate my business for a year,” Qiu said.

Of his lifestyle, Qiu said, “Now, I wake up whenever I want to.” This may not last long since he and his wife are expecting their first child in the fall.

But I don’t have money or assets

Geoffrey Yro Auza arrived in the United States from the Philippines in 2009.

He was in his junior year in nursing school and chose to veer from that path for an opportunity to come to the United States, and start all over.

Within two weeks, Auza landed a job. He also went to college while working part-time as a geriatric nursing assistant. Just before his student visa expired on June 1, 2013, Auza was shipped out to basic training for the U.S. Army.

“I wanted to become a citizen,” Auza said of his decision to enter military service. With that decision came perks like the Veterans Administration (VA) loan.

From a very young age, Auza understood that financial freedom was possible through passive income.

His grandmother, who raised him, retired at age 40. Auza said, “In school, when the teachers asked what your mom and dad do (for work), I told them my grandmother stays home, cooks, cleans, and once a month, people gave her rent money. She didn’t have to work for anyone.”

Auza started investing in real estate in 2015, while he was on active duty in the Army. He bought a fourplex in Lakewood, Wash. with a VA loan — one of the very few “zero down payment” home loan products around, offered only to eligible service members.

“I paid $1,100 for an inspection (prior to purchase),” said Auza. That was his only out-of-pocket expense. “The property had been on the market for 300 days, so the seller was motivated. We even requested that they put in a new roof, new insulation, and other improvements.”

Auza said he inherited bad tenants, whom he had to evict. “But in the military, they have free attorneys, so I didn’t have to spend any money on evictions.”

Auza and his wife, also in the Army, lived in one of the units in the fourplex. The rent received from tenants in the three other units was more than enough to pay the mortgage and monthly expenses. When analyzing properties to buy, Auza aims to net a minimum of $100 per unit.

Auza bought two more fourplexes with VA loans — all of the units generate enough income to cover monthly expenses while he enjoys the market appreciation and debt paydown, courtesy of his tenants.

Auza is 27 years old now and in the reserves. He just got his real estate license and recently completed his first flip — a house in Tacoma which he bought at an auction.

“I earned more than my year’s worth of Army pay in just about six months of doing real estate full-time.”

The million dollar difference

“Do you know what the difference is in lifetime earnings between someone with a college degree and another person with a high school degree? $1 million,” said Chen, citing a Georgetown University study.

“By the time you retire, you would have already been a millionaire, except it came to you in little drifts,” said Chen.

The Georgetown study said the choice of a college major is critical as well. The difference could be upwards of $3 million in lifetime earnings between the highest and lowest paying college majors.

A college education might seem out-of-reach financially for some. But joining the military could be one way to pay for college.

There are also tons of scholarships out there that very few people ever apply for, Auza said. “The amounts are small — $1,000, $5,000 — but it adds up.”

Elisabeth Embry had her college education paid for by the Army. She also said to consider trades like carpentry, or becoming an electrician or plumber.

Never too young, or old

Shirllin Ching, 29, hasn’t had to work since she was 23. Growing up, she witnessed her parents arguing over money and she swore that that would never be her life.

After graduating from high school, she helped her father with his business and learned the ins and outs of running it. Once she had built up enough capital, she started buying up student housing properties. She now travels the world and pursues her other life passions, which bring her more fulfillment.

Embry, 50, just left the corporate world. But she saw the writing on the wall at age 36, when she was working at the now-defunct Washington Mutual (WaMu).

“I knew that I needed a way to replace my income and it needed to be passive.”

From WaMu, Embry also worked at Amazon and T-Mobile. Her husband works in tech.

The couple lives on half of their take-home pay and bought their first investment property when she was 45.

“For me, it’s about quality of life,” said Embry. “I made a substantial six figure income at T-Mobile and drove a Honda Fit. I’d rather spend $10,000-$15,000 three times a year on travel, than drive a Tesla and live in Clyde Hill.”

When she was reminded that not everybody makes “Microsoft money,” Embry said, “My dad never made more than $27,000 in his life and he owned rental property.”

“If you have little or no money, look for a mentor and someone with knowledge,” said Kwon. She is helping a first-time investor, 26, acquire his first rental property through creative financing and less money up front.

“It takes time, money, and knowledge,” said Qiu. “If you have no money, what else can you bring to the table to add value?”

“I’d be willing to pay more (money) if someone else puts in the sweat and time,” said Embry. She also states that skills like carpentry and plumbing are incredibly valuable if you want to invest in real estate. And those trades can command a very high hourly rate.

Embry said, “At some point, you can prove yourself and you could gain equity share — a piece of a pie of something.”

Passive income ideas

Most of the people interviewed for this article built their wealth through real estate. But there are other ways to generate passive income — defined as getting paid over and over for something you did once.

Create something: write a book, song, create YouTube videos or an online course — you will receive residual income for the rest of your life.

If you have a website, you could do affiliate marketing and there are courses online on how to do this.

Somewhat related to real estate, you could rent out a spare room in your home via Airbnb.

You could even rent out your car when you are not using it through a company like Turo.

“A lot of entrepreneurs fail because they don’t give themselves enough time, and time equals money,” said Chen. “I had a friend who started a business and he had all these government contracts. Well, those contracts can sometimes take years to close and he needed revenue in one to three months… that’s a problem. Every business takes time to ramp up.”

“But you’ll never find out until you try it,” said Chen. “If you really want to retire and stay retired — it’s not about the money. It’s about the mindset.”

Ruth can be reached at editor@nwasianweekly.com.