Early retirement must be executed differently, and very intentionally, with kids. There are no easy, silver-bullet solutions.
I think about this topic often. And, ever since my kiddo popped out a few years ago, I’ve made real changes to my financial planning in response – from building larger, stronger passive income streams to doing very detailed financial analysis of kid costs that, in turn, have influenced our planning decisions.
This week, I invited to the podcast Michael Quan, an early retiree (now blogger) with 2 kids who founded and ran an IT services company for a decade before selling it (and not for “FU money” btw) and retiring. I ask about Michael’s mindset, actions, and challenges he faced when early retiring with kids.
- How the financial crisis motivated Michael to start his own company
- How much he had saved up on the day he retired vs. where his portfolio is at now
- When did kids enter the picture relative to his retirement date
- How kids impacted the family budget, including lifestyle trade-offs they made to accommodate
- Key areas where early retirement actually brought significant savings
- How Michael spends his days now
- How having kids has influenced the way he thinks about wealth building
What resonated with you from Michael’s story? What seemed less relevant to your own situation? Let me know by leaving a comment when you’re done.
Also: I want to bring on more guests who have FIRE’d with kids.
Michael’s is one story, and hopefully you got good nuggets of insight from it, but it’s not the only story. If you know a good potential guest (early retiree family with unique story), tell me about them. I’d love to reach out.
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Links mentioned in this episode:
- Financially Alert
- Breakthrough Millionaire Podcast
- The FIRE Planner book
- HYW private Facebook community
Read this episode as a post:
Andrew Chen 01:22
My guest today is Michael Quan.
Michael is an early retiree who previously founded an IT services company which he ran for a decade until he exited the business through an acquisition. While running his company, he saved and invested, growing his portfolio of stocks and real estate to $2 million before retiring at age 36.
He now blogs at financiallyalert.com and co-hosts a podcast called Breakthrough Millionaire. His story has been featured in Business Insider, MarketWatch, and the Huffington Post, among other media outlets.
I invited Michael to the podcast today to share his perspective as someone who retired early with a family and young children in tow, and in particular, how he thought about financial independence and making early retirement work for a family’s budget as opposed to the typical bachelor’s budget you often hear FIRE stories about.
Michael, thanks so much for joining us today to share insights and tips on retiring early with a young family.
Michael Quan 02:16
Thanks, Andrew. It’s my pleasure to be here.
Andrew Chen 02:18
In what year did you early retire?
Michael Quan 02:45
2013. I sold the business at 2011, and then I stayed on for transition and exited at 2013.
Andrew Chen 02:53
Okay, got it. So it’s been seven or eight years.
If your kids were already born by then, what were the ages of your kids when you early retired? And how many did you have?
Michael Quan 03:01
At the time, I only had one daughter and she was one at the time, so she was pretty young.
Andrew Chen 03:06
Gotcha. And today you have more?
Michael Quan 03:11
I have one more. I’ve got a son now. He came a year later, so they’re about two years apart.
Andrew Chen 03:17
So one pre-retirement, one post-retirement. Is that correct?
Michael Quan 03:20
Andrew Chen 03:21
Gotcha. What was your career path before retiring?
Michael Quan 03:25
Prior to that, I used to be in the IT business.
What happened was I went to school in San Diego, to UCSD. Down there, I didn’t really know what I wanted to study, like a lot of kids out of high school, so I was exploring a bunch, stayed undeclared for as long as I could. So they said, “Now you have to choose something.”
I actually chose economics because it had the fewest number of requirements to get out of school. I was like, “I want to get out in four, but I still don’t know what I want to do, so I’ll do econ.” So that’s what I chose was econ.
As I exited college, I realized that I still had no clue what I wanted to do with this econ degree. And I was noticing at the time that some of my other friends that had gone on to computer science, computer engineering, things of that nature, were getting a lot of jobs.
It was at the time when the “dotcom” industry was taking off and things were really great in the economy. So I was like, “That’s interesting.”
I actually ended up going into IT because I had a background in gaming in college. I took apart computers and put them back together, trying to get the fastest hardware that you could to get an edge over other players.
Ultimately, I transitioned that experience into IT support and IT integration, so networking and taking care of routers and things of that nature. It was nothing related to economics at all, especially in the beginning. That’s how I wound up in IT.
What happened, though, was over time, I was only working for a company for a good year or so when they got acquired by a bigger company during this whole “dotcom” acquisition time. And within six months, 9/11 occurred.
We had an office in New York, L.A., different places, and it just literally threw not just our company but the entire economy in upheaval. People started panicking. They didn’t know what to do because obviously the economy literally ground to a halt.
My good buddy Tony got eliminated in rounds of layoffs. And then one of my other friends, Jenny, got eliminated. So I was just like, “Oh, man, what’s going on?”
“This really sucks. What are they going to do?” They had families.
I didn’t at the time, but I was like, “What are you going to do if you can’t work? That would totally suck.”
I got to the sixth round of layoffs and I was just like, “You know what? I see where this is going. Am I going to sit around here and just wait for that to happen, or am I going to take some action?”
What happened was I went to one of my buddies in the company and said, “Hey, are we just going to sit around and wait for this to just all crumble down? Maybe we should do this on our own.”
We were actually part of this grander, bigger IT company, and our group was the only profitable component. We definitely know there’s a market there. People still need their businesses to be supported.
So we got a couple of our friends and we were like, “Let’s take off and do our own thing.”
That’s actually how we ended up starting our own business. We filled a need early on as our other company was imploding. That’s how we jumped off.
I was very fortunate that I was able to start a company during a very down time after 9/11. But there’s still a need. There’s still a market.
I think that’s something for the listeners to listen to as far as your journey to FIRE. There’s always opportunities.
Andrew Chen 07:12
Got it. And the company you started, you were doing the same thing as your previous company? Is that network support?
Michael Quan 07:20
Yeah. We’re doing network integration, IT support, IT security, and end user support as well.
Andrew Chen 07:27
How long did you run that business before you exited?
Michael Quan 07:35
We ran that ourselves. It was just three or four of us in the beginning, and we did everything. We got down on the floors and plugged in cables and helped end users.
And then slowly over time, we started figuring some things out. Eventually, we ended up landing some bigger contracts and then hiring on some additional people. And then eventually, you start building processes out.
I always knew from the get-go that I wanted something that was at least self-sustaining, that didn’t require my input for the long term. It took me a little longer than I wanted to. Ten years is actually longer than I thought it would take me, but so be it.
After doing that, putting people and managers in place so that they could run itself was the goal. And then at that point, we had an opportunity to transition because we got an inquiry to sell the company, as well as once we got the inquiry, I went out and looked for other people and played them off each other.
That was the evolution of my IT career path. I definitely loved it. It was a really good time.
I learned so much. I learned a lot about running a business. We were providing value.
The reason why I decided to exit was I had done it for quite a while and I was looking for something else on a personal level to grow somewhere else. And some of my partners were happy and satisfied just running this business more as a lifetime business versus I wanted something that was more scalable, so I decided that it was time to move on.
As well as it was very stressful. We had a number of money managers that were our clients, so just being responsible for so much IT infrastructure at times was stressful. So I was like, “I want to do something different.”
Andrew Chen 09:26
So it sounds like it was essentially a professional services firm that ultimately you guys sold.
Did you retire immediately after that? Was there anything that happened between the time you sold the company and the time you retired?
Michael Quan 09:48
What happened is once we exited, I ended up signing a three-year employment agreement with the company to stay on and transition, just to keep culture intact, and got through a year and a half of that, realized that the company that we had sold to had different values than us.
For example, they didn’t pay their bills on time and they would just slow pay people. I wouldn’t even get into it, but they had different values and morals than we did.
There was definitely a difference of opinion in how to run a company. They did what they did. So I was like, “This is not really in line with my values and how I treat other people or businesses.”
I was like, “I want out. Let’s figure out a way to separate ways.”
So we came to figure out a way to get a severance package. I left a year and a half after that occurred.
Basically, that was my exit into early retirement. It wasn’t necessarily well-planned out as we’ll probably get into.
Andrew Chen 10:54
Leaving a company that you had started and sold, I imagine there would have been a lot of professional options available to you at that point. When did you decide that you wanted to actually just retire early?
Help us understand why you didn’t decide or want to start a new business or join as an executive at another company, etc.
Michael Quan 11:25
That’s a great question, Andrew. I’m going to take a quick step back. When I was growing up, I actually had a couple of uncles that had done very well for themselves.
They never went to work and I just didn’t understand why. I was like, “How come they don’t have to work and my parents have to work? This is interesting.”
They took their kids to school. They went on vacation all the time. They’re always tinkering with projects at home.
I’m like, “How come they don’t have to work?”
Eventually, I realized that they had basically become financially independent. I didn’t know the word obviously when I was really young, but I realized that I wanted that early on, probably when I was seven or eight. And I started to continue to notice that.
And I was very close to some of these uncles because we spend a lot of time with these families. Of course, I got to benefit a little bit of it. I got to go on vacations with them.
But by the time I was 14 or so, I picked up a book by Tony Robbins called “Unlimited Power.” And it was just a very interesting book because it really taught me that age doesn’t matter and you can do anything that you want so long as you model successful people and you take the right action.
So for the longest time, I knew that I wanted to find, in my head, it was called financial freedom back then, but ultimately financial independence, where I could find freedom to do whatever I wanted to do. That was definitely a goal from very early on.
Fast forward, that was one of the stimuli for me to actually take that leap of faith back when the economy was imploding. That was part of the mindset to “Let’s go ahead and do something. Let’s create a business.”
“It may fail, but it’s okay. I’m young. I’ve got time.”
And it was a perfect situation. The economy was crashing around us with my existing company. There was an opportunity, so I definitely took it and I tailored the business to the point of exit in that mindset.
However, when I actually transitioned, it wasn’t specifically “I’m actually defining this period of time.” But by the time I exited, I had flexibility. And I think that was the key.
I really had that flexibility at that point to say, “I don’t actually need to go back into a professional situation yet.”
And part of my decision to stay at home was that, like I was mentioning earlier, my daughter was one at the time. So it’s really interesting how different life situations affect you.
Unfortunately, my mom had passed away just a few years before that from cancer. And we didn’t have a lot of time when we actually found out. It was late stage four.
And I think that affects you. Whenever a family member passes, it affects you. But the gift in that was that it allowed me to appreciate life more.
So when I finally took that exit and my daughter was one, I was like, “I have a very unique opportunity here to take this time and be present with my daughter.”
I could go back to work, of course. That’s easy. I could go get a very good, high-paying job.
But why did I do all this in the first place? It’s because I wanted the ultimate freedom, and I’m never going to get this time back.
So I was like, “Why don’t I try staying home for a while? We’ll save on the cost of a nanny. And I can just spend this time being fully present.”
So that’s what I did. It was a trial and error.
That’s what happened. That’s where it all started from. It was just a little bit of a trial and error to see how things would work.
Andrew Chen 15:18
What was the life that you envisioned having in retirement at the cusp of when you were making this decision?
Michael Quan 15:31
The funny thing was, at first, when I finally put my head around “I’m going to do this early retirement thing,” like a lot of people, when you’re going through your FIRE planning (I’m writing a book right now and I have a little section on FIRE planning), it’s great to have fun goals that you have set out in place and what you’re going to do when you finally pull the trigger.
One of the things that I did was I had a number of different bucket list items. Before we actually told the nanny not to come anymore, I took a good eight or nine months to just go out there and do whatever the heck I wanted.
I spent time going to do a lot of fishing. I love fishing, so I had the freedom to go fish whenever I wanted to. I like to do things outdoors.
I also wanted to be in the movies business when I was younger. I liked special effects and things blowing up and things of that nature. So I actually went out to Florida and I took a special effects course from a company that did special effects for the big amusement companies and the film industry.
I got to blow up a car. That was one of the fun things for me at least.
Some of you might be thinking, “Why is that fun?” But for me, it was highly fun. I just really got to experience that and explore that.
I even actually explored, “Would I potentially want to do this professionally?” In the end, I didn’t, but it was really fun to explore.
I think that was one of the biggest things with FIRE and for listeners as you continue to explore this journey is the freedom that you get to just try different things is amazing.
But ultimately, once the eight months were over and I was done having fun and playing, I came back to the ultimate goal. “Okay, let’s settle down a little bit and be a little strategic.”
For money purposes, obviously we didn’t need a nanny. It was just me running around doing random things.
Plus, at a point, you also realize that you still need to grow. And in order to grow, you need to do something that’s meaningful.
For me, what was meaningful at the time was taking care of my daughter, raising her as my wife was going to work. That was the focus for the next few years was being a stay-at-home dad and just being fully present.
Andrew Chen 17:51
So the eight- or nine-month exploration period that you talked about a moment ago, was that the first eight to nine months of early retirement or the last eight to nine months of your working period?
Michael Quan 18:07
It was a little bit of both. I would probably say half-half.
I had one year in transition in exiting out. You’re not necessarily being held accountable to do certain things, so I had more flexibility. I would take half the time to go fishing after I was done with the day.
But finally, when I did pull the trigger, that’s when I had even more flexibility to go travel and do different things or just be at home and do projects at home.
Andrew Chen 18:33
Was there a specific savings target you had set for yourself for when you knew you were FIRE-ready? Or how did you come up with your FIRE number?
What were the considerations that went into it? How did you get clarity on what the burn rate would be that you would need, factoring in things like child expenses, medical, travel, unexpected or emergency expenses? I’m sure there was probably a buffer that you cushioned in.
How did you come up with your FIRE number?
Michael Quan 19:13
That’s a great question, Andrew. It’s something that I really wish I knew at the time. But honestly, at the time, I didn’t know.
And some of this stems back to when I was a child because I just realized, “To be rich means to be a millionaire.” I was like, “Let me set my sights on being a millionaire by the time I’m 30.” So that was the goal: to be a millionaire by the time I was 30.
Thankfully, I reached that goal through the business and through savings and ultimately through some real estate. But it also limited me because you set your sights on a goal and then you hit it, and then you don’t necessarily have anything else to grow towards after that.
So you have to do some reallocation. And that’s something that I teach my students currently.
But what happened was I just had this random round number of a million. I just thought back then (because I didn’t understand inflation), a million dollars was a lot of money. Present day, obviously, a million dollars is not as much money as it once was before.
So what I really did was I just had this in the back of my head, this million-dollar number. And to be honest, I didn’t really plan out some of the expenses until I got to that point where I had exited the company, and then I was exploring.
I had always been good at at least understanding my cash flow. I was still relatively conservative and I still had cash flow coming in from the sale of the business. There was still significant cash flow coming in from there.
My wife was still working, so we still had excess. We were still saving even once I exited the business. We had some flexibility there, so I didn’t really have to worry too much there.
Long term, though, I started to finally realize, “At some point, obviously, the spigot is going to turn off and I’m not going to get these installment payments anymore.”
Once that happened, we started to redirect funds and be a little bit more conservative with how we were living, although it didn’t affect us that much, to be honest.
Part of that was because my wife is a schoolteacher and she is just very passionate about it. She’s one of those rare people that actually loves her job and would literally almost do it for free. She had no plans of FIRE-ing with me, even though we could have done that.
We talked about it and I said, “Do you want to exit as well?” And we’re probably not going to live in California. We’d probably have gone and lived in Texas somewhere, somewhere with lower taxes.
We could have just bought a house that was the same size but a quarter of the price and just lived off of that for quite some time. But ultimately, we decided we didn’t want to do that.
She didn’t want to do that. She loved her job. She loved her position.
So I’m like, “Okay. That’s fine. Let’s look at other ways that we can adjust costs.”
Now, of course, we were saving money on the nanny stuff because I was at home with my kids. And then we also did something in San Diego.
San Diego is a pretty big area, like where you’re up in the Bay Area. It spans a pretty large area. There’s different parts and components to the counties.
We decided to actually move down by where she was teaching, which was a lower cost of living than where we were at, which was Central San Diego, very urban.
We were like, “I’m not working. You work down here. Why don’t we just move a mile away from where you’re working?”
“We’re going to save on gas. I don’t need to commute anywhere. Really nice suburban neighborhood that’s growing out around there.”
“And we’re going to save probably a good few hundred dollars a month, maybe even more, just in gas plus mortgage.”
So then we ultimately ended up buying a house down there and keeping the other one as a rental. I think that was the evolution of just slowly going through the numbers over time.
In hindsight, of course, I wish I had taken more time to really understand how the numbers had worked. At the time, I didn’t understand the 4% rule. I didn’t understand 25 times your expenses.
But I will tell you that even though at the time I didn’t really understand that, in the back of my head, I always knew that I wanted to be conservative. At the time, actually, just so you know, when I finally exited, we were a little bit over a million dollars in net worth. We didn’t reach the two million until later on when we had the great run of the last 10 years.
However, I always knew that I wanted to be conservative, so in my mind, if I had gone back and extrapolated, I was probably targeting closer to about 30 times expenses in terms of where I would be living at.
In other words, if my wife was not working and we actually had both FIREd at the same time, then we would have probably reduced our expenses to the point where, let’s just say there was $1.5 million at the time, divided by 30 years, we would have spent that amount of money for the year and been very conservative in that regard.
I don’t think our money would have ever run out, but our lifestyle would have definitely been different had she not been working.
Andrew Chen 24:36
So it sounds like there was a general pragmatism and conservatism when it came to spending, but you didn’t do crazy complex scenario planning.
Michael Quan 24:57
Not at the time.
Andrew Chen 24:59
How did having kids or being a parent influence your planning for early retirement? How did you make sure your kids would be well-covered financially in early retirement, especially when you had your second after retirement?
I imagine that also shifted things, small children at a young age. Raising kids is expensive. In San Diego, I’m sure it’s not cheap.
Even if you’re saving on a nanny, eventually there’s preschool. You want to make sure your kid is getting socialized and learning things, enrichment activities, not to mention food and medical and clothes and all the gear and supplies that you need.
How did having kids and having a second kid shape your retirement planning or change it?
Michael Quan 25:53
That’s a fantastic question, Andrew. What was really interesting about that time and being home with my kids was we saved a lot of money.
Because specifically I was home with the kids, I was talking to all my other friends that were spending money on the nannies and doing the daycares and doing the preschools when they’re going to work. People are spending sometimes $20,000-30,000 on this a year. That’s significant money.
Obviously, in California, this might be a little bit higher than where you’re living across the country. But in terms of just those sheer cost savings that we had by me being home, it was significant.
And because I was home with them, I was cooking their own meals. I was taking them grocery shopping.
I was helping to supplement some of their developmental learning, so we didn’t ever put them into a private preschool, although we had intended to at the time. I realized, “Why not do it myself?”
So what we did was we would put them into some of the city subsidized preschools. It was more socialization than anything, and then we would supplement the academics.
We like that mix of things because my wife was a teacher, I had free time, and then I knew exactly what we were teaching them versus what we weren’t. And then with the city program where they were actually getting interaction with the kids, it was great because they’re just going there and playing and interacting on a social level. We did that roundabout.
But the great thing about that was those programs actually didn’t cost so much money, so we were able to save there. And it didn’t really actually cost us that much in those early years to support them. It was actually interesting to figure that out.
I also had a lot of clothes from my sister who had just had a child a couple of years in advance. She gives all the car seats and the clothes and things of that nature.
Andrew Chen 28:03
Nice. That stuff adds up.
Michael Quan 28:06
It really adds up to a lot. I think that’s one tip for people.
When you have a child, in the beginning, you want to give them everything. You want to give them the world. You want to give them the best of the best.
And at a certain point, you realize some of that doesn’t actually mean physical things. It means giving them time and the attention. In the beginning, you might buy all these new things for them, and then all of a sudden, they grow up in six months and they don’t fit them.
You realize, “I can’t use this anymore. This has no more value to me. How much money did I spend on this?”
And then you’re like, “At least I want it to go to someone who is going to make use of it.” So you either sell it on Craigslist or whatever, or you give it to someone that obviously is close to you.
Once you come to that realization, then you’re like, “Maybe I don’t need to spend it on the brand new thing this next time around.”
So that’s exactly what we did. We had a lot of great family and friends that supplemented. Of course, we bought some things, but it wasn’t enough to really throw us off of our budgeting and our cash flow.
Andrew Chen 29:16
At the time that you FIREd, did you know you were going to have a second child? Or did you think you would have a second child? Or did the decision to have a second kid come completely after you FIREd?
Michael Quan 29:31
We did definitely intend on having a second child. In terms of cash flow, we were definitely looking at every month.
This was before the days of automation. I had a big spreadsheet. But I always checked what was coming in and out.
Again, I was always in the conservative mind. When I exited, we were saving probably 50% of our inbound revenues. Once my income got wiped out, then it was down to just my wife’s.
We were still saving a good 20%. So it’s like, “As long as we’re not dipping too far below, then we can have as many kids as we want.”
Although granted my wife only wanted one more, I was like, “We can have even more.” But ultimately, we ended up on two just for personal reasons.
It was a matter of just making sure that it always kept within the budget and to adjust. I think that’s one of the other things just for the listeners.
Having flexibility is really key because even after you FIRE, a lot of times nowadays, in the media, it’s like you start building up this very specific nest egg and then you withdraw a very specific number. As someone that’s done it, I just want you to know that you always have the flexibility to adjust.
Sometimes people worry about the sequence of returns. What happens if you start withdrawing your money and it actually is in a down economy and then your portfolio starts getting wiped out?
There’s always things that you can do to mitigate these risks live and real time. Don’t ever feel that you’re stuck into a very specific tight little hole, a little square peg that you can’t get out of. There’s a lot of flexibility even after you FIRE.
Andrew Chen 31:19
That’s a really good point. And reacting to the circumstances that are actually happening on the ground is really critical to making sure FIRE is successful.
It sounds like in your case, at the time you decided to FIRE, even though you only had one, you were essentially already preparing for a second. Is it fair to say that you were planning FIRE for two children?
Michael Quan 31:46
Yeah, absolutely. And what happened was my wife did take some time off once she had our children.
When my daughter was born, even before, she took time off and was really present for a good eight months. She took that time off from being a teacher. And then also when my son was born, she took that time as well.
There were periods where she was not even working for a good eight months, and then there were periods after that where she was only working two-thirds of the time. So it was a really great time for us to really be together as a family unit and really get to experience the real FIRE life where she’s not working, I’m not working, and we’re just focusing on the family.
Of course, we had to account for that. She’s not getting income during that period. But again, we’re conservative.
One thing I also want to mention was as I was exiting the business, I took some equity off the table. I was like, “What am I going to do with this money?”
I realized that my uncles that had done very well for themselves had done a lot of this through real estate, so I had taken some of that money and invested in real estate as I was exiting and in early retirement. I continued to invest in real estate. That gave us some additional cash flow.
Andrew Chen 33:08
That’s a really good segue.
I’d love to understand, during your accumulation phase, when you were accumulating assets and when you were taking some equity off the table, what proportion of your savings were going into different types of accounts or into alternative assets like real estate? I’m thinking in particular of things like tax-deferred accounts, tax-exempt accounts versus taxable accounts.
And by the time you actually retired, what proportion was in each bucket or in alternative classes like real estate?
Michael Quan 33:42
That’s a great question. Right out of college, I realized early on. And luckily, my dad was a CPA, so he was just conservative by nature.
He always said, “Start doing your Roth IRA.” He was like, “Obviously, this is a very great tax-advantaged account because you’re not going to have to pay the money when you finally pull it out.”
I was like, “Okay.” I just did whatever he said.
But in the back of my head, I also really wanted to save 50% from the get-go. Even before I got married, I was really starting to save and invest.
In the beginning, to be honest, it was all over the place. I was doing automated savings. It’s now Capital One 360, which is just an automated savings.
I was also allocating money to ShareBuilder, which was a way that you could buy fractional shares in specific stocks. Back in the day, I was an active investor thinking that I was going to figure out how to find the little inefficiencies in the market and capitalize on them.
I actually had a taxable account where I was putting money in, and then I had a Roth IRA, as well as I had the 401(k) for my company that I first started working with. And then ultimately, when I left there and started my own business, then we had our own SEP IRA, so I was able to put money into that account over time as well.
I would say over time, it was about 30% into taxable accounts and about 70% tax-advantaged. The majority, by the time I had FIREd, it was probably in my SEP IRA or my self-employment. As a business owner, you have your own 401(k) plan.
So it was in there, and then it became a rollover IRA once I left there. I would say the mix was about 70% tax-advantaged accounts, including the Roth IRAs, and then 30% just money that I had saved that’s completely taxed already and just growing in either savings or that ShareBuilder account at the time.
Andrew Chen 36:00
When did real estate come into the picture for you?
Michael Quan 36:03
Real estate came into the picture a year before I decided to exit. That was because not only did I realize that I wanted to do this. I actually had wanted to invest in real estate for quite a long time.
What happened was I was studying forever about real estate investing, but the time that I actually got excited about it, we were in an up market, so all the cash flow numbers and projections didn’t really work out. I was like, “What’s going on?”
All these people were buying properties just based on the idea that it was going to go up in value, so they were banking on appreciation. The more I read, the more I realized that’s probably not really investing. That’s more like speculating.
So I held out and I waited a good five years until it was the year 2010, and then they started pulling the trigger. That was literally two years after we had this big downturn in the housing market of ’08.
I was able to go on and buy some properties in the Las Vegas area. I wish I had bought more, but I bought three properties out there and they were great.
They were cash flowing. I only put a little bit of money down, and over time, they started building up appreciation as well.
The reason why I share it also is because as I was FIRE-ing and staying home with my kids, of course I’m checking the cash flow, but at the same time, I’m also seeing that the value of my properties are going up. So that gave me a little bit more comfortability that things are going to be fine, I was going to be flexible, and things would work out.
Andrew Chen 37:55
Yeah, there were some amazing deals back in 2010. Those are long gone now.
Michael Quan 38:01
But I think they’re going to come back at some point.
Andrew Chen 38:03
Yeah, we’ll see with this whole pandemic thing.
Michael Quan 38:06
Maybe not as good, but there just wouldn’t be an opportunity to have better deals.
Andrew Chen 38:17
You said you retired in 2013, started acquiring real estate in 2010. By the time you retired, if you look at your whole net worth as a pie chart, what proportion was in real estate versus in stock investments?
Michael Quan 38:35
Not counting our primary residence, which we had a fair amount of equity into there, I would say it was maybe 30% real estate to 70% equities and other miscellaneous investments.
Andrew Chen 38:58
And then double clicking on the securities and other miscellaneous investments, it sounds like that was roughly 30% taxable, 70% tax-advantaged. Is that right?
Michael Quan 39:08
That’s correct. And at the time when I exited, I had a chunk of cash that was sitting there as well.
In addition, just to answer your question, as I was actually in the process of early retirement, part of that was trying to figure out, “How do I best make use of this money?”
I realized that I wanted to be more heavily invested in real estate. I wanted more than 30%, so I actually took a good chunk of that cash and I put it more towards real estate.
And because I had young children, it’s not like I could really go out and look at property as actively as I was before. So what I did instead was I actually did a number of crowdfunding investments, which are like these mini-syndications which are group investments.
That was a great time too because we were going in. I was pooling money with different real estate investors. They would go onto a really expensive neighborhood like Beverly Hills, knocked down a really old house, threw up a mansion, and they were making 10 times their money.
It was a phenomenal time where I was getting sometimes 18% internal rate of return, which was phenomenal. So I definitely put more money into real estate after the fact.
Andrew Chen 40:27
When you were investing in securities at the time, what were you investing in? Passive index funds, individual securities, fixed income?
What were you actually buying?
Michael Quan 40:40
That’s a great question as well. I had maybe a common evolution of investing. Maybe not.
Let me just take a step back. I always knew that the stock market was a great potential place to grow your money. However, I had this belief in my head that you had to figure out how the market worked, how to crack it so that you could be on the top 10% to actually make money in the market.
I always saw the statistics. The majority of people don’t make money in the stock market. I was like, “I can figure this out.”
I read a lot of books. I read a lot of material, trying to figure out how to get that edge. I would come up with these different theories of why specific tech companies were going to outperform other companies.
And using my tech knowledge, because I was in the industry, I theorized, “I have an edge over people.” When I saw the internet coming out, I could capitalize on different companies.
Long story short, I did very well at certain times. I bought Amazon when it was $10 a share, but I also bought tons of dogs.
Over time, these things level out. Although you have these great wins with Amazon, eBay, other things basically go to nothing and they average out. What I finally realized after a good 10 years of active investing was that I didn’t really have that much to show for it other than a lot of time spent really trying to understand the markets.
And in that process, towards the end, I had started my blog, Financially Alert. And I started reading a lot of different blogs and understanding what different people were doing and the whole passive approach.
I was like, “That would never work, this whole passive approach. It will work, but you’re never going to get the real returns that I’m looking for.”
Ultimately, as I continued on through FIRE, I realized that I was really not making that much more from being active, and I said, “Let me try half of my portfolio in a more passive capacity and just test.”
To a certain extent, I was already doing that with the 401(k) and different things because I wasn’t really actively managing certain accounts. Comparing them side by side, I looked at it.
Here’s my taxable accounts that I was actively managing. Here’s my tax-deferred ones that I’m not as actively managing. And the returns are about the same.
So I was like, “Why am I spending all this time? I should just be spending this time on real estate investing instead.”
So at a certain point, I decided to push everything over to passive investing and clear out individual stocks. I’m actually still in the process just based on how you can manage things tax efficiently.
But now I’m a completely passive investor, meaning that I’m putting it all into index funds, I’m letting it grow long term over time, and then I’m taking that time and focusing it on real estate and entrepreneurship.
Andrew Chen 43:54
That makes sense. By the time you retired, if I was to synthesize what we were discussing earlier, it sounds like you had roughly a million dollars in investments in your portfolio and then something like another $300,000 in physical real estate. Is that roughly correct?
Michael Quan 44:15
Yeah, I’d say that was roughly correct.
Andrew Chen 44:18
Now, once you had FIREd, what has been your approach to determining how much you can afford to withdraw every year so that you feel comfortable about outlasting your nest egg? Do you generally apply the 4% rule in a fairly straightforward way, or is there more nuance to your approach?
And if I understand correctly, your spouse has not yet followed you into early retirement, so she’s still working. So this could be moot in the sense that if her income alone is sufficient for your day-to-day living expenses, then obviously you’re not withdrawing anything. But I’m curious how you’ve been thinking about this.
Michael Quan 45:02
That’s a fantastic question, Andrew. You’re correct. Because my wife is still working, we’re more along the “barista FIRE,” which basically means someone is still working and you’re able to save on healthcare and other ancillary items that other people that are completely FIREd have to worry about.
I will tell you that, yes, we have some flexibility in that regard, so that definitely helps. However, we did run through the numbers, like I was mentioning before, if she had decided to exit.
If we had done that, we would have potentially moved somewhere like Texas or Florida, somewhere that there was lower income tax, Nevada, wherever it may have been, and obviously, much lower cost of living.
We could have just taken equity from our existing house, bought another house, had additional savings that we could either put into the stock market or put into other real estate that would provide cash flow.
The nice thing about as our listeners go through running the numbers is the 4% rule is a great rule of thumb. It gets you in the ballpark of where you need to be, understanding what you need to withdraw from your accounts that you draw down over time.
However, because I was more conservative, I always wanted some sort of ancillary cash flow, and that meant real estate. Even if you’re generating $1000 a month of additional cash flow, that can significantly make a difference whether you withdraw 4% from your portfolio or not. If you can make a shift, and instead of 4%, you only have to withdraw 3%, that’s significant.
Definitely, I think I’m more along the lines of being conservative, of where you don’t necessarily have to draw down that 4%. It’s good to know that it’s there and that you can do it.
If I did actually need to live off of those funds, I would have done the Roth conversion ladder, which essentially is pulling money from your Roth IRA tax-free because you’ve already paid taxes in it. And you have to season it for a while if you’re going to put it in a traditional IRA. But essentially, I would have just pulled from there and just taken it slowly over time and adjusted.
We talked about this earlier. There’s flexibility in FIRE.
Knowing your numbers is fantastic. It gives you that confidence to move forward. In my case, it was no different.
We had the flexibility. My wife didn’t have to work if she didn’t want to, but she chose to.
And because she chose to, obviously, she gets to have fulfilment in her work, but at the same time, it affords us a different level of living now at this point. How I live now is not necessarily how I would have lived on a pure FIRE scale. To be honest, the only difference would have been significantly less eating out because we spend a lot of money on eating out.
Andrew Chen 48:06
Yeah, that makes sense. You alluded to it a moment ago. How did you plan for healthcare and insurance cost?
What do you do for health insurance now? Or did you always know that you would just be on your spouse’s plan because she’s still working?
Michael Quan 48:25
That was definitely one of the considerations. There’s obviously a lot of savings there with my wife’s healthcare plan.
And because she’s a teacher, some of that is also subsidized by the district. So that was a really nice value add right there in terms of running the numbers for FIRE.
However, we also looked at what if she didn’t work? In that case, you’d be at a much lower income bracket and then you would get access to the Affordable Care Act plans. We would have obviously gone with something like that to get our healthcare.
So it would have been manageable. For the most part, I think with healthcare, a lot of plans are similar. You can still use some of the same providers, so that doesn’t really shift in that regard.
Being that we’re young, you have some flexibility, so you don’t need all the bells and whistles. We didn’t need the whole PPO thing where we were choosing an exact doctor. We were fine with an HMO.
Andrew Chen 49:23
Michael Quan 49:24
We barely go to the doctor anyway.
Andrew Chen 49:26
Now you’ve been in early retirement seven or eight years. You’ve been doing this for a while.
Have there been any large unexpected expenses that have come up over the years that put stress on your retirement finances and made you rethink, “Should I go back and get a job or not?” I’m just curious how the seven or eight years have unfolded in terms of any large unexpected expenses.
Michael Quan 50:01
In terms of unexpected expenses, there hasn’t been anything major, to be honest. The only thing that I would say that was in the back of our head was just potentially our parents.
My mom has already passed. My dad is self-sufficient. My wife’s family, they’re pretty good but they may need some assistance.
Just having that on the back of your head that there’s a cash flow component that you have to account for later on is always important. We haven’t had to go there at this point yet, but there’s always the possibility that we would have to help out my wife’s family.
Andrew Chen 50:43
Makes sense. Do you account for that just by building in, cushioning in a buffer?
Michael Quan 50:48
Yeah. From the early days, I really just thought, “Let’s set aside.”
In our minds or in our projections, maybe one of the houses with the cash flow was going to be going to them at some point and all the appreciated equity from there. If anything ever happens, that could cover them.
Andrew Chen 51:11
Michael Quan 51:11
Yeah, it’s definitely and continues to be a factor in what we consider over time.
Andrew Chen 51:19
What does your portfolio look like now seven or eight years later compared to when you first early retired?
Michael Quan 51:27
I was very fortunate, obviously, when I exited the workplace because we were going into a really great bull run for the last 10 years. Again, you can’t really plan that per se. I’m not smart enough to say that I planned it exactly.
But I was actually able to benefit from that because over that time, even though I wasn’t working, I wasn’t making income, the portfolio has grown. The net worth when we exited, I told you it was a little bit over $1 million. And now we’re roughly about $2.3 million overall in net worth.
The portfolio is close to double, but maybe not as much. I don’t know exactly. I forgot to check that one specifically.
Andrew Chen 52:14
The 2010-2020 run was definitely huge. If you retired early in that window, you definitely got a lot of tailwinds behind your back, for sure.
We’re in a funny situation now. I’m curious, has the coronavirus altered your plans in any way or pretty much still business as usual?
Michael Quan 52:38
Coronavirus hasn’t really altered anything. Business as usual for me. Because I’m at home with my kids, I’m very fortunate.
I would say the one thing that did derail my little short term plans was, for the past few years, I’ve obviously been home with my kids and being very direct in their lives. But they’ve also gone now to elementary school, and my son this last year had just gone to kindergarten. Finally, I was like a mini-empty nest here.
I had more time to myself to do my projects and work on my investments and my little business side projects, like the blog and my coaching. I was really going to focus in on that.
Obviously, with coronavirus, they’ve all come home. They’re at home constantly 24/7 now, whereas before I had these eight-hour windows where I could go do whatever I wanted. In that regard, that’s the only effect of the coronavirus.
But again, I’m very blessed that we still get to remain very comfortable in our cash flow position. My wife’s job wasn’t affected. I know a lot of other people have been affected.
Knock on wood, all of our tenants actually have not defaulted at all. So things have been working out.
Andrew Chen 54:03
How do you spend your days now? During normal daytime hours, what’s your routine pre coronavirus and post coronavirus?
Michael Quan 54:14
Pre coronavirus, when I actually had the time to myself, I dropped my kids off to school. Usually I’d walk them to school and then I go home and I have a good four hours that I would just focus working on the blog.
Sometimes I’d be working on real estate investments. I’d be working on other random projects. Or sometimes I’d just take the day off and go fishing, to be honest.
Fast forward to now that they’re back home, now it’s a little bit more hands-on, making sure that they get some of their work in in the morning. Sometimes they want to play basketball and do different things. We go on family bike rides.
That’s a good chunk of the day now is just really being engaged with them, keeping them active during the summertime now as well.
And then also, for myself, I’ve just transitioned a good chunk of my working time to late at night. Literally, sometimes it’s from midnight to 4:00 in the morning is when I can get my stuff done. I’m actually in the process of writing a book specifically about FIRE, and I use that late night window where everyone is asleep, where I can just focus and hone in and create content.
Andrew Chen 55:23
Makes sense. Cool.
One thing I wanted to ask, I forgot earlier, is that you mentioned that your real estate portfolio has grown a lot. How many doors are you at at this point?
Michael Quan 55:38
I bought three in Vegas at the time, kept two of them.
We also kept our town home in San Diego. We had three from there. We also had some other property in Los Angeles.
And then a lot of the investments that I’ve done subsequently are in either crowdfunding or in syndication. For example, I’m in these properties in San Antonio, Texas where it’s a pooled investment but I put a chunk of change into it. We own 280 units of this class B apartment in San Antonio.
What I really like about syndications, though, is you get to leverage the skillset of a professional real estate investor. You still have to do your due diligence and you still have to understand what the market looks like, but if you find a good one, then you simply hand them over your money.
It’s very passive. They basically take it and they give you a return every quarter. And then by the time they finally exit the position, then you get all your money back plus more.
Andrew Chen 56:42
Do you find these syndications through crowdfunding websites, or you knew the partners directly?
Michael Quan 56:50
A combination of both. Sometimes it’s through crowdfunding places.
Other times, it’s through a network of people that I have come to know. Sometimes they’re private.
Andrew Chen 57:02
Through your local area or just through networking online?
Michael Quan 57:06
Just networking, actually, from blogging. Have you gone to FinCon, Andrew?
Andrew Chen 57:14
I haven’t yet.
Michael Quan 57:15
It’s like a big bloggers’ conference.
Andrew Chen 57:17
I thought about going this year, but it’s going to be different this year because of all the pandemic stuff.
Michael Quan 57:25
Yeah. After that plays out, definitely I would say, check it out. And the reason why is that I went there just obviously to learn more about blogging, to learn how to market better and create better content.
But in the process, I actually met a number of real estate investors because there’s a whole segment of real estate investors within the blogging world of finance, which is fascinating to me. That’s actually how I found some of my syndicated deals was from other investors who blog.
Andrew Chen 57:55
Gotcha. Cool. How does having kids and a family now at this point influence how you think about wealth building during FIRE in terms of ensuring that you want to give your kids every opportunity, have a college fund ready for them, assuming you’re planning for that?
How does that impact how you think about wealth building these days?
Michael Quan 58:17
That’s a fantastic question, Andrew. My thoughts around this have evolved over time.
My initial idea was to basically create enough wealth so that they’re taken care of. They can have all their college tuition paid. And I’ll tell you, I was very fortunate my parents paid for my college tuition, so I didn’t have to work that much while I was going to school.
However, in the process of all this, I realized that part of FIRE is really learning how to grow and understand who you are. And being present with my children and being a parent, there’s just a philosophy that you have to start to adopt or create on your own. Everyone has a different philosophy on parenting.
What I realized over time was that, although I can give my kids everything that they want, it doesn’t necessarily mean that I should. Even though I can buy them all the toys and all that stuff, that’s not really what I want them to value.
I want them to value learning to be in uncomfortable situations so they can figure something out. I want them to be hungry to understand, how do you create value in this world and spread it out into this world?
How do you become entrepreneurial so that it’s just an indicator of the value that you’re creating? And how do you ultimately grow yourself? Sometimes I think that means not giving them money.
And my idea of fully funding their college tuition has actually shifted. Before, I was just like, “I’ll just pay for it, just like my parents.” But I thought about it and I was like, “I think they need skin in the game.”
So when all is said and done, even if I have the money to provide for them, and I’m pretty sure we will, I’m not necessarily going to give them all of that. And here’s the reason why. Again, I want them to have skin in the game, but I will supplement them.
If they’re doing well, if they can keep their grades up, and if they are able to be self-sufficient, then of course, I’m going to give them a bonus. But I’m not just going to blatantly hand it over just because.
So that’s where I’m at today, present day. And it has shifted over time, but that’s just how it has evolved.
Andrew Chen 1:00:38
Makes sense. Michael, this has been really enjoyable.
I’ve learned a lot chatting with you. Really interesting to get your perspective as a family man who has FIREd while having a family.
Where can listeners find out more about you, your work, what you’re up to? And also tell us a little bit about the book you’re writing.
Michael Quan 1:00:58
Absolutely. You can find me on my blog. It’s called financiallyalert.com, and it’s a blog that I started actually when I FIREd.
It was something that I needed to do for myself just to keep my mind active since I was home playing with the kids. I wanted something that could keep my mind active and just be able to grow myself, so I created the blog.
It’s been there for the last five or six years. We talk about money mindset, financial freedom, financial independence, and really helping other people to realize that there are possibilities that you may not have realized existed.
Secondly, I have a podcast called Breakthrough Millionaire that I co-host with my friend Marlon Smith. He’s a motivational speaker, so we actually talk about building wealth from the inside out.
We talk about motivation. We talk about money, goal setting, and just about values as an individual. Definitely check that out if that’s of interest.
And then with the book right now, the book that I’m writing is called “The FIRE Planner.” It’s literally everything to understand FIRE from a high level and the entire process. Everything that I didn’t know at the time that I wish I knew has gone into this book.
Literally talking about what is this FIRE movement and why is it taking catch now and why is it so popular? And what are the majority of people in FIRE doing?
There’s a lot of people that are doing extreme savings. That’s something that I never did but makes sense.
If you really want to have complete freedom, you can trade a lot of your current lifestyle for that freedom. Or if you don’t want it (I didn’t necessarily want that for myself), figure out a way to create more income.
So I list out in the book all these different ways that you can achieve FIRE and then ultimately how to create a plan around that, so that you can find that baseline 4% rule understanding of where you’re going to really FIRE in your mind.
And then once you finally get there, what do you do? How do you ensure that you’re continuing to grow and you just don’t get there and fizzle out?
The last thing you want to do is to get to this place of complete freedom and then just not grow anymore. That’s the worst place.
That’s why you see all the time people going to retirement, they get depressed. You need something else to do.
Whether that’s creating a business, whether that’s volunteering or being some larger part of something, I think you have to really find a place for yourself to create value. That’s what the book is all about.
And then fourthly, I have a private mastermind that I just created called Financial Freedom Pass. This is a private group coaching program that every quarter I bring people in and we literally discuss all these different components.
A lot of times, it’s mindset. It’s about strategies. It’s about understanding where you are and just giving people the extra juice to get them to the next step is really what it’s all about.
Andrew Chen 1:04:00
Cool. We look forward to sharing all of those and linking to those in the show notes.
Thank you so much for sharing today about your experience and journey and what you’re up to. I look forward to sharing this with our audience.
Michael Quan 1:04:11
It’s been my pleasure, Andrew. I really appreciate it.
Andrew Chen 1:04:14
Cheers. Take care.
Michael Quan 1:04:15