Trust Fund at 38: Charting My Course to Financial Independence

It’s kind of hard not to be envious of people with large trust funds. Many of them can sit back, enjoy life, not work, and have plenty of money to fall back on.

This Reddit poster is in a bit of a different situation. He’s 38 years old with a $500,000 annual salary, and he’s also getting $200,000 a year in tax-free income from a trust fund. His wife is 35 and earns $160,000 a year.

They have $2.3 million in taxable investments, $100,000 in cash, and a $250,000 balance in a 401(k), not to mention $800,000 worth of equity on a home they still owe $1.7 million on.

In four years, the poster will be eligible for a second trust fund worth $10 million. He plans to invest it in stocks and draw 5% tax-free.

Then, when a relative of his passes, he expects another $20 million, though the timing of that final trust is a bit unclear.

The poster wants to know if he should retire in four years once he receives the second trust. He says, “My wife and I work far too much and it seems like life is passing us by.”

I give the poster credit for working when he could fall back on his trust fund instead. And I do think the poster is in a great position to retire in four years. But whether he ends up happy with that is a different story.

The numbers should work out

The poster needs to be careful not to fall victim to lifestyle creep given that he earns a large salary and has lots of money coming his way. As long as he doesn’t, he should be in a great position to retire in his early 40s.

The poster says he currently spends $300,000 a year. His $10 million trust fund should give him more than that, as he’s expecting to draw 5%, or $500,000, per year. And when the $20 million comes his way, he’ll really be set.

But the decision to retire early shouldn’t just be a financial one.

Early retirement isn’t just about affording your expenses

I’m not worried about the poster not being able to afford his expenses. Even with a child on the way, he has so many options for living within his means given how large his means are.

What I’m more worried about is what the poster will do with his time day in, day out.

Sure, there will be a child to take care of, and maybe another one on the way. But a lot of retirees end up being bored and miserable once they leave their careers behind. And they also lose their sense of purpose. If that’s such a common thing at 60 or 65, imagine feeling that way at 42.

That’s why the poster needs to think carefully about whether he’ll really be happy retiring. He mentions the possibility of consulting and working with charitable organizations. He’ll need to decide if that’s enough for him to feel like he has a sense of purpose.

The poster also says his wife may no longer work at that point. In a way, that’s good, because if no one in the family is tied to a job, they should have more flexibility to travel and do other things together.

But in that situation, the wife, too, might start to feel unfulfilled. Then they’ll both be grappling with the same issue together.

But before moving forward with this plan, I would suggest that the poster do two things:

• Engage in some soul searching to see if he really thinks he’ll be happy without a career at such a young age
• Speak to a financial advisor, because even though the poster has a lot of money coming his way, it’s important to manage it carefully

If the poster takes his time to consider his decision, he’s more likely to make the right one.

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