How to retire early: Early retirement by the numbers
More and more, I’m meeting people who want to know how to retire early. There’s been a lot of buzz in the media lately about early retirement, and that’s led folks to wonder how much money they would need to quit their jobs — or if early retirement is even something they should consider.
Why retire early? Well, for most people a job is a necessary evil. We work because we have to. Early retirement gives us the flexibility to choose how we spend our time, whether that entails sitting on the beach drinking margaritas or it leads to new work that provides meaning and fulfillment.
Lots of us dream of leaving the workplace in our forties or fifties instead of sticking it out until age 65 — but we keep working to support the lifestyles to which we’ve become accustomed. We like our iPhones and Playstations and Priuses, so we surrender to the idea that we’ll have fifty-year careers.
Still, there are a surprising number of folks who manage to retire young. In fact, the 2018 EBRI Retirement Confidence Survey found that 35% of retirees left the workforce before they turned 60. (Previous surveys have shown that 18% of people retire by age 55.)
These folks aren’t lucky lottery winners, and most didn’t have high-paying careers. In general, those who manage to retire early have opted to live with less when they’re younger so they can obtain financial freedom before they’re too old to enjoy it.
Early retirement is a fantastic goal, but it can be tough to achieve. Three major obstacles stand in your way:
- You have less time to earn money. If you start working at 20 and retire at 65, you have 45 income-producing years. But if you retire at 45, you only have 25 income-producing years.
- You spend more time living on your savings. Life expectancy for the average American is nearly 80 years. If you retire at 65, your savings will probably have to last only ten to twenty years; if you retire at 45, your savings may need to support you for thirty or forty years.
- You don’t enjoy traditional retirement benefits. If you retire young, you can’t access Social Security or Medicare for several years — or decades. You also face penalties if you choose to access your retirement accounts before you reaching minimum age requirements. (I’m experiencing issues with this gap already!)
In short, early retirees have less time to make money, and that money has to last them longer. Even if you stay healthy and the economy cooperates, that’s asking a lot.
That’s not to say you shouldn’t plan to retire early — it’s a laudable goal, one that I encourage here at Get Rich Slowly — but if you’re serious about doing so, you need to be diligent. You need to have a plan. And you need to understand the numbers.
Let’s take a look at the basics of how to retire early — and why you might want to do so.
Why Retire Early?
Before we dive deep into the numbers, let’s get a little philosophical. Why would somebody want to retire early in the first place?
Honestly, the reasons people pursue this goal are many and varied. The answers are as individual as we are. However, I’ve noticed some common themes.
Reading the financial independence forum on Reddit, you might think that most people want to retire early because they’re trying to escape from something. They hate their jobs. They hate where they live. They hate their lives. And yes, there are plenty of people who are hoping early retirement will solve their problems. (Hot tip: It won’t.)
I believe people are much more successful (and happier) if instead of running from something, they run toward a goal instead. In the case of early retirement, that means being motivated by a carrot instead of a stick.
Don’t chase financial independence because you want out of a bad job. Chase it because you want to obtain something worthwhile. Here are a few of the many reasons people reach toward early retirement:
- Fun. Traditionally, people have wanted to retire early so that they can enjoy life. They think they’ll play golf or tennis. They think they’ll buy a beach house and go fishing every day. They think they’ll do whatever they want, whenever they want. (Fun can absolutely be a big part of early retirement, but most successful early retirees find they want more out of life.)
- Freedom. If you’re able to retire early, you have the freedom to pursue other passions. You can travel. You can volunteer. You can spend time with your family. You can even find work you were meant to instead of work you have to do. (Some folks argue that if you’re working at all, you’re not retired. They’re wrong.)
- Fulfillment. Many people — and I’m one of them — choose to retire early so that they can turn their attention to more fulfilling endeavors. What this means differs with each person. For some, fulfillment comes from being able to watch their children grow. For others, it comes from starting a business. And still others discover meaning in writing books, teaching classes, hiking across the country, and so on.
The bottom line is that the “why” doesn’t really matter — as long as you have one. From what I’ve seen, you’ll probably be happier (and more successful) if you’re working toward something rather than trying to escape something. But even escape can be a valid reason to retire early.
The Extraordinary Power of Saving
Here’s the fundamental thing you need to know about early retirement: The more you save, the sooner you can retire. Obvious, right? Maybe so, but just because it’s obvious doesn’t mean it’s easy.
Most financial advisers urge their clients to save around ten percent of their income for retirement. Bold advisers recommend saving as much as twenty percent. These numbers are safe. They’ll get you to retirement at age 65 without making many sacrifices along the way. The downside, however, is that by saving only ten or twenty percent of your income, you’re tacitly agreeing to spend forty or fifty years “working for the man”.
A growing number of people have realized that they don’t want to work for fifty years. They want to trade the commute, the co-workers, and the hassle for something more meaningful. These folks have crunched the numbers and seen that if they’re able to increase their saving rate, they can retire sooner.
Consider the following shockingly simple math:
- With a 10% saving rate, you’ll need to work 50 years before you’ve saved enough to retire. (If you start working at 21, you can be done by the time you’re 71.)
- With a 20% saving rate, you’ll need to work 37 years before you’ve saved enough to retire. (If you start working at 21, you can be done by the time you’re 58.)
- With a 35% saving rate, you’ll need to work 25 years before you’ve saved enough to retire. (If you start working at 21, you can be done by the time you’re 46.)
- With a 50% saving rate — if you save half of everything you earn — you’ll only need to work for 17 years before you’ve saved enough to retire. (If you save half your income from age 21, you can retire by the time you’re 38.)
- If you’re able to achieve a mind-boggling 70% saving rate — I know people who have done this! — you’ll have enough saved to retire in less than nine years. (If you managed to do this from age 21, you could retire by 30.)
I’ll be honest: I used to think numbers like this were crazy. I could barely save fifty bucks a month. How was I going to save half my income?
In the twelve years that I’ve been writing about money, I’ve come to understand that high saving rates aren’t crazy — they’re just rare. Over the years, I’ve talked with many people who purposefully seek high-paying jobs, find ways to slash costs, or (most often) do both. There are plenty of people who choose to forego the modern American lifestyle in order to achieve something more important.
My ex-wife, for instance, has always been a super saver, and is currently setting aside more than one-third of her income. She’s not a tech bro. She started her career as a schoolteacher, and now she’s a forensic chemist. She’ll retire in a few years at age 52. I know another fellow who set a goal to retire by 40 — and did so. And I’ve met a few dedicated souls who saved so much so quickly that they achieved financial independence by the time they turned thirty.
For more early retirement stories, check out this Life magazine article from 1957 about what early retirement was like sixty years ago.
How to Save Half Your Income
According to the 2016 edition of the Retirement Confident Survey, 22% of workers save one-fifth of their household income for retirement. Four percent of workers save at least half their income.
If you believed the doom and gloom in the mass media, you’d think saving half your income was impossible. It’s not. You probably know a dual-income couple who saves half what they earn (or close to it) by socking away one partner’s paycheck. They live on one income and save the other for the future.
When I was younger, for instance, two of my close friends got married. He worked as an accountant; she taught grade school. From the start, they lived on only his paycheck. This put them in an excellent financial position when they decided to have a family. She was able to quit to become a full-time mother. Meanwhile, their spending was already comfortably within the husbands income.
If you’d like to boost your saving rate — whether it’s to retire early or to obtain any other financial goal — I recommend a two-pronged attack.
First, minimize spending. Two expenses consume half of the average American budget. Pursue these first (and with greatest vigor).
The number one way to cut costs is to pay less for housing. The average American spends one-third of her budget on a place to live. But, as you’ve probably noticed, average Americans don’t retire early. I urge folks to spend no more than 25% of their income on housing — and less is better. Choose a home in an area with a low cost of living.
Reject the advice to “buy as much home as you can afford”. Buy as little as you need. Take out a small mortgage at a low interest rate. Repay it as quickly as possible. Lastly, don’t be afraid to rent. Despite what you’ve heard, renting is not throwing your money away. Often it’s a smart move!
Transportation is the second-largest expense for the average American. The more you can reduce your use of motor vehicles, the more money you’ll save. Choose to live in a walkable neighborhood. (Before moving to our current house, I walked for 80% of my errands, which provided added health benefits.) If possible, bike to work. Use public transportation. Reject the notion that your car is a status symbol. When you buy, choose a fuel-efficient used model and drive it until it’s dead.
Cutting costs on housing and transportation will have as much impact as everything else you do combined. Big wins are the cornerstone of financial freedom. Yes, it’s great to clip coupons, to grow a vegetable garden, to shop at thrift stores, and so on. But recognize that these actions net you pennies at a time while tackling the two biggest items in your budget could yield hundreds (or thousands!) of dollars in one blow.
Many folks frown on this sort of frugality. They view it as sacrifice. They feel like they’re depriving themselves. I disagree. Saving is not sacrifice. When I save for retirement, that money is still spent. But I’m choosing to spend it on freedom tomorrow instead of fun today.
The second piece of our two-pronged attack is perhaps most important: Maximize your income. It’s great to cut expenses and develop thrifty habits, but there’s only so much fat you can trim from your budget. In theory, there’s no limit to how much you can earn. If you want to retire early, you’ll probably want to make more money.
- Your job is your most important asset. Treat it as such. Negotiate your salary, learn new skills, connect with colleagues, and actively manage your career.
- Become better educated. In the U.S., education has a greater impact on lifetime earnings than any other demographic factor. Your age, race, gender, and location all influence what you earn, but nothing matters more than what you know.
- Sell your stuff. It’ll improve both your mental and financial health.
- Start a side gig. Make money from your hobby. Take a second job.
To be blunt, most people who read this article won’t do any of these things. They won’t look for a cheaper place to live, won’t find ways to drive less, won’t increase their income. They want easy, painless shortcuts, and that’s fine. But they can’t expect to have their cake and eat it too.
There are no easy, painless shortcuts to early retirement. If you want to quit working before you’re old, you must boost your saving rate. There are only two ways to do that: earn more or spend less. That’s the basic rule of personal finance.
However, a handful of readers will heed my advice. Maybe one of them is you!
You’ll make some big changes to create a high saving rate. You’ll learn how to invest wisely. You’ll build a wealth snowball that grows faster and faster as you add to it, one that also gains momentum through compounding.
What about debt? If you follow this roadmap, you don’t have to worry about it. Even if you start the journey owing money on college loans or credit cards, that debt will disappear. Debt reduction is a side effect of boosting your saving rate.
How to Retire Early
Realistically speaking, it’s important to have a margin of safety. To that end, I make the following assumptions when I calculate whether somebody is ready to retire:
- You’ll spend as much in the future as you do now. (About 38% of people spend more, 21% spend less, and 38% spend the same.)
- If you withdraw about 4% from your savings each year, your wealth snowball will maintain its value against inflation. During market downturns, you might need to withdraw as little as 3%. During flush times, you might allow yourself 5%. But around 4% is generally safe.
Based on these assumptions, there’s a quick way to check whether early retirement is within your reach.
Multiply your current annual expenses by 25. If the result is less than your savings, you’ve achieved financial independence — you can retire early. If the product is greater than your savings, you still have work to do. (If you’re conservative and/or have low risk tolerance, multiply your annual expenses by 30. If you’re aggressive and/or willing to take on greater risk, multiply by 20.)
The numbers behind early retirement really are this basic. But, as I said earlier, just because the math is simple doesn’t mean the goal is easy to reach. Smart money management is more about mastering your personal psychology and emotions than it is about undestanding a couple of formulas.
To build your wealth snowball, you need to learn to live by your values rather than the values of your friends and family. (Or, worse, the values portrayed in the media.) You need to decide what’s important for you. If you remain focused on why you’re choosing to live on less, the “how” becomes easier to see. (Here’s how to write a personal mission statement.)
Yes, you can achieve early retirement. Others have done it, and you can too. The question is: What are you willing to do in order to reach that goal?
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There are 61 comments to "How to retire early: Early retirement by the numbers".
I’ve read that FIRE should be changed to FIWYAOED (Financial Independence Working Your Ass Off Every Day), as that seems to be the reality for many FI people. This isn’t a bad thing, of course, as early retirement often times means an early death, alcoholism (or other bad addictions), depression, insane boredom. I think the main reason FIRE has caught on so much is because there was finally a new step to achieve and promote beyond Dave Ramsey’s classic baby steps:
Baby Step 1 – $1,000 to start an Emergency Fund
Baby Step 2 – Pay off all debt using the Debt Snowball
Baby Step 3 – 3 to 6 months of expenses in savings
Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
Baby Step 5 – College funding for children
Baby Step 6 – Pay off home early
Baby Step 7 – Build wealth via mutual funds and real estate, and give!
These were the classic steps for years, which kind of get boring after awhile, but then people came up with an exciting new 8th step called FIRE that nobody needs. And when most people try it, they resort back to working their ass off anyway. “But I end up working on my PASSION,” they will say. Maybe you do, or maybe you are just fooling yourself.
In other words, the more you work on your “passion,” the more it just seems like any other job. I’m sure some of you have noticed this. 😉
*ahem* I may or may not fit that description. 😉
I used a rough version of the baby steps after college and WOW, it really helped me get my life straightened out. The plan took longer than expected but I managed to knock out over $250,000 in debt over a 7 year period. If the was a debt a person could have, you name it, I had that debt. No more! No debts in almost 4 years with no plans to take on new debt by paying CASH for everything.
I agree. FIRE is just a cool new acronym for common sense strategies that have been around for ages. My partner and I did a version of FIRE that allowed us to travel around the world for two years.
We wrote about it here: https://www.twolostamericans.com/real-life-steps-to-financial-independence/
We’re still not truly retired, as we work remotely, but changing our spending habits has helped us to lead lives that are more in balance and definitely happier.
Yes, those are nice steps by Dave Ramsey for the average old guy (or trump supporter – those donald supporters really love this guy I hear) whose habits are so ingrained, they can’t handle the idea of FIRE, but several of Dave’s steps are wrong or in the wrong order for FIRE, and you got some stuff backwards if you want to compare to FIRE.
FIRE is not the last step of that list, the ‘killing themselves early’ part is wrong, and the ‘going back to work’ part for a ‘passion that is not their passion’ is not correct.
Please let me clarify:
1. You are not working overtime to achieve FIRE, so you are not “working your ass off” and creating pre-mature death. You are continuing to work regular hours and earning your normal salary, but making significant lifestyle adjustments so that you are saving 50% of those earnings.
2. This is important to understand: When you start making those lifestyle adjustments, your life gets SIMPLER. When life gets simpler, you have more time – more time to incorporate healthier practices, more time to exercise, more time to cook right, more time for spiritual development, more time to grow personally and mature. And when you do finally achieve FIRE, you are able to put even more time for these things, creating an even healthier lifestyle and further personal growth and levels of maturity. If you read many of the other main bloggers of FIRE, you will discover that most of them have “discovered” habits and ways of thinking as they pursued FIRE that brought them increased happiness and fulfillment. They discover things about themselves when they are finally able to stop and think for a bit of what they want to do with themselves now that they don’t have to work. They are not the same person as they started – if they were some average-Jo before, they certainly do not think like average-Jo after.
Also these changes are usually good changes, healthier changes. The bad changes you mention like “alcoholism (and other addictions)”, depression – ummm… not only are those expensive and a person living FIRE would never make those choices, but as mentioned previously, the person who achieved FIRE thinks on a much higher level.
It is important to understand that growth takes place in someone who has undertaken FIRE. They are no longer the average-Jo, engaging in bad habits and bad decisions and when life comes to give them a spanking, and their life no longer falls apart because they won’t be making bad choices and choosing bad habits. If prior to starting FIRE they were the kind of people who blame immigrants for stealing the jobs and get easily scared by the fear mongering of politicians, they are no longer that kind a person after FIRE – they no longer have need for a job & have no fear running out of money, they should now understand that blaming others was wrong and not the solution to their problems, that most people who are in financial trouble are in that position because of their own wrong lifestyle choices, trying to live above their means, and unnecessarily complicating their life.
FIRE can be achieved by anyone, at any wage level – but its not so much about the amount of money saved – its more about making smart lifestyle changes and habits, which helps change your perspective on life and brings personal growth.
3. When you achieve FIRE, you now have options and time to think of what you want to do. So yes, many FIRE-achievers go back to working, but it’s the work they want to do. Many FIRE-achievers now have the time and resources to give back – either financially or by volunteering. And they discover that this brings increased fulfillment to their lives. So no… the FIRE achiever is not bored or getting into bad habits… after so much opportunity for self-discovery and growth, the FIRE achiever won’t be going down this path.
…but I know what you were trying to say, but you are mixing up a FIRE-achiever with an average-boomer-Jo who just retired the “normal” way (work until 65 and use Social Security, pension, 401k ect.)
For the average-boomer-Jo, the 60+ year old who has worked all his life, who made no lifestyle changes or significant personal growth, who is stubborn to change and doesn’t want to learn anything new… this guy is at high risk for being bored in retirement and going back to work. He has no idea what to do with himself now that he doesn’t need to work. He’s the one at most risk for unhappiness, health issues, financial trouble, & getting into bad habits/premature death. He is one who goes back to the same job… because he did not self-grow and does not know where to find happiness, or his inflated lifestyle is too expensive for his retirement salary, or he had no time to taking care of his health before because he had to work, and now he’s paying the price for that neglect. And maybe when politicians start preaching their fear mongering and blaming and spreading lies, he latches on to that kind of thinking because he didn’t self-grow and mature very much in life, his lifestyle resulted in financial insecurity, and he is looking for a “savior” from his unhappiness and insecure position.
This is not the way to end up in life.
Overall, Dave Ramsey’s 7-steps make no mention of lifestyle change, making it completely different than FIRE. Here are the major differences:
Step 5 – cross that whole step out. There is no saving for your kids’ college. There really is no need. I have 3 degrees – my parents paid for none of them, and I left 12 years of college education with very little debt, and would have been none if I made a smarter choice in where I chose to live. If I can get through 3 degrees almost debt-free, anyone’s kids can get through 1 degree with no debt. If you achieved FIRE, you are going to teach your kids how to think the same – definitely if the FIRE-achiever has taught their kids right, their kids are not going to be foolish and pay out-of-state tuition, likely they aren’t going to choose to go to some private Ivy League school when they can get learn the same skills at a state university for a fraction of the price, and possibly they are going to go to community college for the first 2 years if needed.
Step 6 – They paying off the house part – yes/no. This step needs to be moved to step 2. If you are doing FIRE, you are moving into a smaller house or apartment well below your means, and if it’s a house, then you are going to pay it off ASAP, or you are going to do minimum payments and invest the rest.
Step 2 – Yes, debt needs to be paid off initially, ASAP, but you can get rid of a lot of debt by downsizing. Instead of paying off your 2017 F-350 turbocharged ASAP (which most people have almost no need/very infrequent need for such a powerful, resource intensive, and expensive vehicle), you get rid of it and buy a used 2010 Corolla or Civic.
Step 1 and Step 3 can be removed… having a 1000 emergency fund, or a 3-6 month expenses in savings – these milestones are very trivial to the person working on FIRE, who is living so far below his means that emergency funds really aren’t needed. Within a few years of starting FIRE, he should be able to live 3-6 YEARS off his savings… not because he’s got a lot of money, but because his lifestyle is so affordable.
Have you looked at the cost of college today? Even taking inflation into account, the costs of skyrocketed. The only way to put yourself through college today is to have a full time job and go part time, which people do. Parents pretty much have to help their kids through college in order to give the kids a decent financial start in their adulthood. I know too many people in their 20’s and 30’s, who thought the way you do and those people are either living with their parents, stuck paying off student loans way larger than any I ever did (I attended a private university and put myself through school) or they live hand to mouth, again, paying off their large student loans.
This has changed so much for the worse and its not all profligate spending.
Unfortunately I know of hardly anyone that saves 35% or 50%. For most, 10% is even a big stretch. Then again they are the ones that tell me about their great vacations in Vegas and tropical places then complain about how long it will take to pay for the vacation that was put on the CC. Also the same ones that make CC payments in June for things they bought at X-mas
I currently save 55%, nice to meet you.
Awesome Travis. That is great. I was just referring to what I see around me and that is that most people save very little to none at all. I am not just referring to people that make $20k a year but people that make over $200k a year. They have almost every toy imaginable and take crazy vacations but still barely have two wooden nickels to rub together.
Yes, most people are like what you describe. So the FIRE movement is to wake people up and help them move toward finding true happiness, and not fall into the same mistakes everyone else is doing.
The younger generations, the same millennials that the older generation loves to criticize because they aren’t behaving like the older generation, are really catching on to this stuff – probably because they grew up watching the older generation do exactly what you just describe you see and witnessed first hand their miserable, fake, stressed out lives, having nothing to show when retirement comes – and so many of the younger generations have concluded they don’t want to be like them.
Exciting to see what they can accomplish!
The last few years I’ve been saving 40-50% of my after tax income. I’m not making $200,000; I make about $100,000, which I know is still a lot for most people. As a senior level programmer it’s about average. Now I can retire a few years early, but not at 40 or 50. But, if you’re working a lower pay job it’s going to be hard to save anything.
>Unfortunately I know of hardly anyone that saves 35% or 50%.
My household saving rate is well over 50% post tax. Lots of us do this. It’s just our some of us have horrible families with horrible financial planning. While I have no problems telling relatives “No” if they ask for money I just don’t want to deal with it.
What do I gain by advertising I have high savings rates? Nothing. So a lot of us just don’t talk about it.
This is well written article and inspirational. I managed to retire at 47, this year, and I did it by saving almost 35% over the years from working at a job. Used public trasport, renting out rooms, home cooking etc.
The percentages and formulas you state in your article are spot on for me although I live in the Middle East (UAE). I have a paid up home and infact had some surplus which I used to buy a small running business. I do not intend to dip into my retirement savings until after a decade (allowing it grow) and am trying to manage mine and my son’s living costs with the little profit the business is currently making. I encourage all to work towards the FIRE movement, it is liberating; the freedom to call your time your own is priceless.
Retiring early at 38 from a job I didn’t like worked out very well for me. I became a SAHD/blogger and life has been great over the last 6 years. I think running from a bad situation is perfectly valid. Once you’re out, you’ll have time to figure out what to do next. You don’t need to have everything set up for the next phase in your life, you just need to know that you need to find something after retirement. Traveling and having fun isn’t enough for a fulfilling life.
Anyway, this is a good comprehensive post. Early retirement isn’t easy, but it’s worth it. The autonomy is awesome.
Thanks Joe for your comment. I am about 20 years behind your RE stage, and heading for “early” retirement next summer at age 58. I definitely agree that we don’t have to have it all figured out what we are planning to “Retire to…” before taking the plunge.
For me, I also know that I am, against the standard guidance, “retiring from” a hated job, one that I think has over occupied my waking and resting thoughts for too many years, to the exclusion of all else, and I cannot say what I am retiring to.
I think the expected peace and leisure time of retirement will help me figure out the next step. If I were to keep working in this job until the future path was all very clear to me, I might delay ER (as late as it is compared to many on these sites) indefinitely. I am determined not to fall into that trap, even if the road ahead remains uncertain for now.
Continued good luck with your ER.
From my experience, the more “walkable” a neighborhood is, the higher the cost of living. It *kinda* seems like you’re advising us to exchange one expense for another. I live in a “reasonably priced” Seattle neighborhood (as reasonably priced as Seattle neighborhoods go, that is) with a walk score of 99. I bus commute to work and run most of my errands on foot. However, I actually think I would have come out ahead if I lived in a suburb and had to drive everywhere. I don’t think the transportation costs I’ve saved come anywhere close to covering the elevated cost of living of a walkable neighborhood. For context, my transportation costs are less than $10/month, down from ~$250/month when I had a car. A quick google search tells me I’m paying roughly $400/month more in the city than I could for an equivalent home in the suburbs.
Achieving 25 x expenses in savings is NOT the 4% rule unless those savings are invested in at least a 60/40 asset allocation. Just saying…
If it is all saved in CDs or bonds, you will not maintain a robust enough portfolio for the 4% rule to work for you, statistically.
You are talking about long term investments here, a 60/40 asset allocation is a way to guarantee you will make below market average returns. Investing in all dividend paying equities in quality companies allows you to take out 3 to 4 percent in dividends annually while your underlying equities grow faster than any reasonable risk bond. A few simple rules work well: Positive and growing free cash flow, 10 year plus history of paying dividends and growing those dividends, relatively large cap., decent management who respect shareholders and customers, a balanced portfolio of 10 to 25 companies so you can keep track of them. Retirement and work are about more than money, but these simple guidelines gave me financial freedom earlier than most folks. It also paid for 3 kids to get through college debt free. I always referred to the point at which you can start peeling money off and the principal keeps growing as critical mass.
Great roundup of articles and advice from the last few years. There’s so much being published in the echo chamber these days that it’s refreshing to read something that gets “back to the basics” of FI.
I get a kick out of folks wanting to retire early. I am 76 and a retired MD. I had more than 7 figures in our retirement accounts by the time I was 40. I had a wife and 4 kids also. A beautiful home in a lovely area, 2 nice cars, a summer cottage on a lake 2 hours from our home with a ski-boat, jet ski, 2 canoes and 2kayaks. It always had a full larder as well. It was the “go to” place for all the kids and friends well into college and even after.
As a retired physician at 40 I would have missed some of the greatest advancements in modern medicine, and for what? Retirement? I was able to use my mind for 25 more years, make lifelong friends, enabled young physicians to get their careers started, and make healthy more than 7000 patients.
My children, now the oldest who is about 50 have great memories of travel, of the cottage (which we still have and use with the grandchildren), of minimal student loan debt, etcetcetc that they would not have had had I retired when I reached “my number”.
Our children CHERISH their growing up years. They loved having undivorced parents who love each other still. They loved their financial freedom to be able to attend the university of their choice, to have friends over without worrying about feeding them as they grew in school and beyond.
This is what non-retirement is all about. It is about LIFE. It is using your mind to help others. It is NOT about “side hustles” and endless travels and owning rental property. All this is NOT carefree. It is work.
I love your log. I love to read your tales. I love to spew my hot coffee on my iPad when I get to simplistic answers.
Anyhow, keep up the good work.
^This guy^
Jack gave me a wake up smack I needed.
Overly self centered and seeking the good life through fantasy and detachment. Maybe there is a way to make what you have work in a more meaningful way. S
I was one of those: I saved half of my income. I lived alone or rented out an extra room. Had no telephone until age 25. Bought my first house at 19, by working THREE jobs (lab tech, gas station, union musician). No girlfriends. No college debt. Beat-up cars (usually a Volvo). Changed my own oil, brakes, clutches, carbs, exhaust. Maxed out IRA and 401(k) when it became available later. Didn’t need a hobby – too busy making money. Paid off my second house at age 33. Bought another – and another – and … wound up with a bunch of rentals. Paid ’em all off. Retired at 61 with a high-seven-figure net worth. I could have retired in my forties, but work (Fortune 100 semi manufacturer) was actually fun towards the end of my career.
* Money doesn’t buy happiness. But it’s convenient.
* Balance is the key I never found. I burned my youth and early adulthood – I never recommend that to anyone.
* Your biggest asset is your health. Once it is gone it is hard – or impossible – to regain it.
* I agree that for SOME work is a necessary balance. It’s more than a paycheck.
Best of luck to you all. And thanks, J.D.
Great article. I just wish it could apply to a school teacher living in Silicon Valley. It is so sad to teach all the affluent children of tech-rich families and not be appreciated with a proper income to afford to live. Forget about retirement. I’ll have to move somewhere very, very cheap. Our country should start appreciating the jobs people do because they care about people. Education is one of the most important gifts people can give. I am rewarded with this pride everyday in the students. The reality though is that most teachers cannot reach the “American Dream” of retirement that everyone speaks of. At least not in California.
So why not take action to change your situation?
Why is it all of these that are “retired” early are out blogging and doing side-hustles? YOU ARE NOT RETIRED, just self-employed running your own business. You all sound like the stick market advisers that are trying to tell us how to invest. If you really could read the market and knew how to invest you wouldn’t be telling anyone, you would be living on your yacht with the millions you had made.
First up, not all early retirees are blogging and doing side-hustles. Blogging is very, very rare actually. But because bloggers have a public voice, you hear about them more.
Second, your definition of retirement — “not working” — is only one definition of retirement, and a new and limited one at that. If you look at older stories about retirement (such as this article about early retirement from 1957), there was no expectation that retirement meant “not working”.
Finally, what makes you think that if people achieve financial success they’re going to “live on yachts with the millions [they] made”? Where do you even pull this from? That’s you making things up. Some people — and I’m one of them — get fulfillment from helping others. Just because you don’t doesn’t mean it’s true for anyone else. When you make your millions, you go live on a yacht. I have zero interest in that lifestyle.
Well said JD. Most people I’ve met with planes and yachts are bored as hell, and gripe about how little time they spend on them. There is a surprising number of multi millionaires giving all of their money away, and keeping only what is essential to live. Why? Because they realized it didn’t make them happy being on a yacht. Great post.
“In 1952, with $13,000 in savings [$119,000 today], he quit, got married, and bought an orange grove near Phoenix.
He remodeled a house, built five rentable apartments, tennis courts, and a swimming pool and settled into the family life he wanted to lead, teaching youngsters how to swim and play tennis and improving his property. He had special qualifications that pulled him past the critical point where many who try retirement give up and return to the beaten track. He was an expert do-it-yourselfer and a qualified athletic instructor.
Still, he found decompression from high-pressure life hard to take. “I’d be plastering one of the apartments,” he says, “and I’d suddenly think that I ought to be on my way somewhere.”
From his property and teaching, Brecheen today nets $8000 per year [$73,000 today].”
Just so we are clear, in 1952 the ideal was that people joined a company and spent their life working their way up the ladder. Retiring early here means jumping off that “beaten track” and working full time at something else.
If that sounds like your idea of retirement, then you can easily do it now. Or at least try if you think you have the skills.
Jack, you are absolutely right. I retired at 65 and did not have to work for financial reasons. I was then asked by my former employer to return full time after one and a half years. I am energized to be back, train the next generation, and pass along decades of knowledge in my field. My family sees the positive change. It is better to be able to contribute to society and be in a position to help one’s family, than to worry about being a burden to them in one’s old age, if the calculation does not work out. Besides, studies show a longer lifespan for those who continue to work a bit longer than the early bird retirees. Careful what you wish for. One of the authors of “Your Money or Your Life” did not have a long life, after retiring early.
Thank you! I am right. I would have failed all of my mentors, all of my professors, all of my colleagues, all of my patients, and most of all, myself. I chose this field to help. God gave me a brain to use, not to collect rental receipts, watch the stock market, and travel.
I would have been deeply ashamed to have chosen FIRE as my goal and lifestyle.
BTW, at 77 my health is fine. I asked MY physician how I could live to “a ripe old age?” He said, “Don’t smoke and wear your seatbelt”. Done!
My wife said my mind is slipping. I am only 76, not 77 (3 weeks to go).
Good thing I retired. LOL
This only works because few people do it. If everyone took this advice and tried it would crash the economy. Even a 1-2% uptick in savings and less application for credit wreaked havoc on our economy just a few years back. If every baby boomer had done this, well, they couldn’t have. There’s not enough money for all of them to save up a million dollars. If people stopped spending frivolously across the board then the sources of income would dry up, companies would close, pay would be cut etc. The only reason some people are able to do this now is that there are people who spend all of their paycheck, every paycheck, and who take out loans when they get in over their heads. Wealth amassed is nice, and I have done much of this myself, but I’m not kidding myself that it’s only possible as long as many others are exceedingly poor.
“This only works because few people do it.”
Maybe. Maybe not. But so what? It does work for those who want to, and that’s the point. There’s no risk of everyone doing it because most people aren’t willing to put in the time and effort. That means it’s a terrific option for those who are willing to work hard, save half, and be patient.
This is one of the most ignorant post I have seen in a while! I am a social worker in Baltimore – I consider myself lucky and privileged that I have a roof over my head and the ability to save. Saving is a privilege, that no matter how many “expenses” someone cuts – isn’t feasible for everyone. Period. Post like these should come with a note that at least recognizes this disparity, followed up with links to resources for help (Gas and bill assistance, food banks, and shelters). Post like these also come off “preachy” – as if everyone is 21 and everyone can find a way to save. If it were as easy as post like this make it sound – student debt wouldn’t be at an all time high, mortgages wouldn’t be going into foreclosure, and people would be buying instead of renting. Savings advice can be a great thing, just as long as you can stop making it seem “everyone” can do it.
JD, if you took the time to look around the site, you’d see that we’re very aware that not everyone can do this. We’ve written before about systemic poverty and the plight of the poor. That said, social economics doesn’t change math. Early retirement is about math. Nothing about the plight of the poor invalidates anything in this article. And this article isn’t meant to say that “everyone” can do it. It’s meant to provide an outline for what’s needed to achieve early retirement — and that’s a gap between your income and your spending. If you can’t create that gap, you’re not going to retire early.
JD#1- do you even know JDRoth’s story? Here is another one—My husband grew up extremely poor. His parents grew their own food/3 kids in 750sq feet- poor. His grandparents were poor (lived in the railroad station where “mom” ran the window and “dad” fixed tracks.) My husband started delivered newspapers in the frozen mornings at 10 and working in potato fields at 12.
My husband did not get a good primary or secondary education. Instead his mother supplied them with used encyclopedias and made them do extra at the table with her. He lived in the horrid side of town. Most of his extended family had very “poor habits”- his parents did not- choices.
If he was “young now”, he probably would have been able to get grants to go to college.
He choose to join the military at 18- during a war. At 21 left and went through college- nine years- one semester on, the second working for the forest service. He rejoined the military as an officer. Learned Chinese at 40. He retired from there at 47 .
He believed in the power of saving. When we married- he trusted me with the mission. We rented for our first 16 years of marriage. We paid off our first house five years after we bought it-21 years into our marriage. Our salaries, together, were never in the six figures. He retired at 59. Not extremely early- but early. Our kids are not poor. Both are educated. Both joined the military. Both are getting or got their college through the military. Both are savers.
Choices every one.
BTW- Seven out of nine schools that I taught in were Title 1. A number of “my kids” have been very successful. Choices are hard and often scary- but they are there for those who travel that road.
I have 5 kids, and we started our family early (I was 24 when our first twins were born). We managed to save between 5-10% for earliest years of our marriage, thanks to 2nd-hand clothing sales, but we believe there’s an important balance between going ‘bare bones’ expenses and enjoying the time I have while my kids are living at home. Thanks to career and income advances, we save over 20% now, but the early years, we were saving just under 10%.
For me, the extra years I will likely end up working due to not saving as aggressively in my 20’s have been well worth it for the memories of trips and comforts (far from extravagances) we have spent on.
What about health insurance? How do you retire early, without the benefit and security of Medicare, and not risk loosing everything to health care?
As many of my friends who hit 59 and are given pink slips know–Health care becomes an expensive part of early retirement for many. It needs to be saved for and budgeted in.
I’m a CPA and I’ve been advising people for years to live within their means, set aside savings, etc. This all good advice. My only addition to your article is that my second largest expense is not transportation, it is health care. Health insurance alone, without paying a dime towards co-pays, deductibles, etc., is 19% of our expenses. Once I’ve paid for the out of pocket items, I’m closer to 25% of our expenses go to health care. I’d love to hear how people are cutting their health care costs while still maintaining health insurance.
“My only addition to your article is that my second largest expense is not transportation, it is health care. ”
a good point..
we saved hard and refinanced our house when rates got low, so
#1 expense is health care. I pay $500 per month, my employer pays $1600. That’s $2100 per month for family health coverage, just for insurance. Plus of course the co-pays, a varying and changing percentage of all costs incurred, etc etc. Our FSA is $2400 per year and is usually exhausted by the middle of the year, so figure another $300 per month on payments not covered by insurance.
$2500 per month.
Mortgage payment is $450, real estate taxes and house insurance are $400, so a mere $850 on housing.
Transportation is hard to calculate. Minimum legal requirement insurance is about $260 a month. No car payments. I do most of the maintenance work, probably about $100 per month between oil changes, tires, etc etc. Gas probably another $250 ?
Call it $700. That’s quite a lot..
We can’t afford a walkable neighborhood, as Katelyn says earlier in the comments – housing costs would double, so it’s pretty much a wash. Some friends live without a car in San Francisco, but their one-bed apartment cost a million..
Retired at 49. Federal Pension earning 72% of the average of my final 3 years of service. We “planned for my retirement 10 years out”. Every promotion or cost of living increase was placed in multiple areas of our portfolio (savings 1-2%, 98-99% into investment funds of each increase). We maintained a comfortable lifestyle on 70 percent of my income for years. Never living it up or increasing debt. Now, I choose to work after spending 18 months in full retirement. Save what you can as early as you can, pay yourself first by investing pre-tax monies, 100$ a month or whatever you can. It does get easier to save. Now we are fortunate that with my pension is a health plan. Health care costs eat up many of my friends retirement monies. Hence, many retire much later than I due to that and that alone.
Some observations, comments:
1. More people are going to live to 100 than ever before. That means you need more money to make it that long.
2. Are you factoring inflation? On average, the cost of everything has doubled every 20 years since WWII. That means a person who retires today at age 50, then lives to 90 (conservative) will see the cost of everything quadruple by the time they die. How will their assets keep up?
3. What about taxes? If the current state of affairs continues (states making pension promises they cannot keep and the feds running at a huge deficit; plus SS, Medicare and Medicaid all going broke) taxes will HAVE TO increase in the future. How will the young retiree face the tax burden.
4. Meaning of life: I love it when people say they want to retire young. What are you going to do with all that time? And, if you assume a low standard of living to save the money, that indicates a low standard of living DURING RETIREMENT too. You’re not going to afford to travel the world.
Bottom line: there are more factors than simply saving 20% or 50% or whatever.
I found this article very inspiring! “Luck favors the prepared” as they say and it’s easier to keep on one’s toes when we don’t *count* on our plan but use it as a guideline and be *honest and *realistic. Being strict and sticking to it is the hard part. That and reforming ones habits and conscious choices. Thank you for sharing your techniques and ideas this info. really got me thinking and taking more seriously practicing comprehensive budgeting.
“shockingly simple math”
The math holds up, but the assumptions are contradictory, and false. That’s usually the problem with math in the real world.
From the link,
1. You can earn 5% investment returns after inflation during your saving years
2. You’ll live off of the “4% safe withdrawal rate” after retirement, with some flexibility in your spending during recessions.
3. you want your ‘Stash to last forever, you’ll only be touching the gains.
Point 1 was possible for a short period in the late 20th century. It’s not possible now and hasn’t been during my 30 years of saving in the US.
Point 2 is woefully over-optimistic, most financial advisers are now suggesting 2-3% as realistic.
https://www.barrons.com/articles/rethinking-retirement-rules-1527898022
Point 3 contradicts point 2. If you only touch the gains, it’s not a 4% withdrawal rate but 0%. So I’m not sure how this can work.
Our savings rate has been 20% of income to retirement funds, 10% for college and emergency funds. I had $220 000 saved for college for my kids, but need to find another $100 000. This is for in-state tuition, not expensive private schools. After 30 years I’ve had to cut the retirement savings to 10% in order to fund college loan payoffs. Retirement is still at least eight years away, been working nearly forty years now. The first ten years of saving disappeared entirely, since I was then living in another country where the stock market returns were negative for fifteen years and inflation ran 10% or more. So it goes..
A lot of people would be bored retiring at 40 or 50, but….
If you make enough to retire at 40 or 50 you could spend that free time starting your own business, keep yourself mentally fulfilled, and in a few years probably be pulling down some nice money working for yourself. I never got to that point, but if I get bored in retirement I may give it a try. Some people can turn a retirement hobby into a business and that’s even better.
I retired at 60 (not too early, I know). I was a school teacher for 27 years in the U.S. so my teacher pension is not high, but I saved in a 403 (b) too. One perk from teaching is that my healthcare is covered until Medicare kicks in. I have horses and board is expensive so I moved from California to Oregon. I sold a pricey CA home for an inexpensive OR horse property with no mortgage and no horse boarding fees. To those who say it is better to rent, I would ask them how much equity they are building!
Thanks for the advice. I saved from a pension that I did not know I had from a large company so I withdrew it and invested in my own IRA and also received a huge amount from inheritance. I own three homes, and will be completely debt free this coming April, 2019. I am retiring and working at my home business. So So Excited.
I didn’t read every single comment, but of those I read, no one mentioned the cost of healthcare (nor did the author). At age 58, I’ve dropped to part-time work for the first time since college graduation, and I’m loving it. I’d like nothing more than to continue to work less than 5 days/week. However, our reality is this: at ages 58 and 62, open market insurance (residing in Michigan) premiums could be $21,600 for my husband and me, with a $13,400 deductible. If we make less than $65,000 (as a consultant and a farmer our income is unpredictable), our premium drops to $8,604 but the deductible remains @ $13,400. So the bottom line is this. If we break $66,000 annual income as a household, $35,000 of it could conceivably go toward healthcare. It’s mind-boggling and disheartening.
I’m 24 and looking in to what it will take for early retirement mostly because of medical reasons. Chronic illnesses makes it hard to work 40 hours, and when I was doing 60-80 hours I nearly died. I looked into SSDI, but you’re never allowed to have more than 2,000 dollars on hand in cash or assets, which seems more detrimental than the payments are helpful. I’m moving in with a group of friends, so at least three people bringing in income and two more to help care for the house, and I’ve been looking into mutual funds and various saving investments. Living in a group right now at least is the best way to cut residence expenses for people my age, and I’m lucky enough to have this group of people I like and who are in the same situation I’m in. I frequently find myself bouncing from complete despair to cautious optimism when it comes to my financial future, and reading this at least gave me some assurance of a starting point. (Also, here’s to maybe one day getting an inheritance from an unknown relative haha)
I early-retired at 50 involuntarily when my entire section of the Canadian federal civil service closed — they closed all 65 weather offices in Canada. I ended up on a 52 percent pension instead of the 70 percent one expects. But the pension is indexed and I paid extra deductions for that indexing. And, of course, the inflation rate during my 22 years of retirement has been much lower than was expected when they set the deduction rate for that inflation indexing.
I loved my job. But we left an expensive, very cold, polluted, northern industrial city that my wife hated and retired in the best climate in Canada, the Okanagan Valley of southern interior British Columbia, which has hot summers, a semi-arid climate, and large natural lakes. While the valley bottom is dry (snowfalls are so light that it really is not necessary to shovel the driveway), the surrounding mountains offer some of the finest skiing in Canada. My wife has a quarter acre to garden in, and she is very good at it.
I have always lived very much in the present. I re-invented myself and became an expert in my hobby, amateur astronomy. I write for my hobby’s leading magazine (an American one) and that provides enough money that I can buy the telescopes that I want or travel to Australia to observe the wonders of the southern hemisphere sky in large telescopes or travel the world to experience total solar eclipses. After chasing total eclipses around the world, one also gets to see much of the world eventually. Since my hobby is self-supporting, there are no arguments with my spouse about the money that I spend on it.
In Canada (and in every developed country in the world except our southern neighbour) the government provides excellent health care, and university tuition is not beyond the means of students. Both of our children were in university when my career suddenly disappeared, and they were able to largely put themselves through good universities although it took them a little longer since they had to work part time.
Before somebody shouts “socialized medicine”, just let me say that my American wife refused to retire in the astronomy mecca of Arizona as I wanted to because her experience with medical care has been so much superior in Canada to what she experienced in the USA.
Live in the present, take whatever twists and turns life may deliver, and roll with the punches. My early retirement was totally unexpected, but because I had chosen a career with a proper pension plan, life in retirement has generally been a very rewarding mix of astronomical observing and writing, wind-surfing on Skaha Lake across the street, biking on the nearby rural backroads, sailing on 80-mile-long Okanagan Lake where my sailboat is moored 20 minutes away (my astronomy hobby paid for the sailboat too), skiing, serious duplicate bridge to stave off Alzheimer’s, and world travel.
Chances are that the stress of my job would have killed me if I had worked until age 65.
Several thoughts:
Why do so many people assume they’d be bored if not for work? I have many interests and hobbies, and I have many plans for my early retirement! Since I’m only a few years away, I’ve already put some of them into place. I may choose to work seasonally (for example, I’m interested in being a summer tour guide at a national park — or I may consult in my current field), but I won’t HAVE TO work for money again.
Personally, I’ve been saving for 26 years, and my pension + interest from savings will be almost as much as I earn now — once I’m old enough for Social Security, I’ll be making MORE in retirement than I am now. I have considered inflation and health care, and I have plans — not dreams.
Keep in mind, too, that age-ism is quite real. I know more than a few people who’ve been laid off in their 50s. Those who had money stashed away may find themselves downsizing their retirement plans a bit, but those who hadn’t saved are in trouble — they’re forced to take low-paying jobs such as working retail. I’d rather save and have choices than assume I’ll work ’til I drop.
I love this blog! Thank for for making me feel not weird! 🙂
We are not counting here the most important thing..luck…somepeople have it ..others not. ..let’s go back to 2010 ..you loose your job, loose your 401k, the bank foreclouse your almost paid home..and you end up renting a small apt. with your family and working at waltmart a part time….CAn you tell me how to save 15% ? ….we did not get a bail out like the big ones….luck my friend..you are just one of the lucky ones and should be grateful that the recession did not hurt you. .. What i would like is for you to tell me specifically just one place to invest and how to do it ..not generally gibberish on roths,cds,401bs etc…
Why not just join the military?? Twenty year retirement. Done. No brainer. And actually do something meaningful instead of fixing someone’s computer.
I don’t look at FIRE as early retirement but achieving financial independence so you can pursue “ikigai”.
ikigai: A combination of the Japanese words ‘iki’, which translates to ‘life,’ and ‘gai’, which is used to describe value or worth. Ikigai is all about finding joy in life through purpose. In other words, your ikigai is what gets you up every morning and keeps you going.
Tough to make a catch acronym out of that, though! maybe FIIG? 😉
Retirement is a featureless ocean of time with only one destination. Don’t do it. Die with your boots on. Retirement is the ultimate state of idleness (wall to wall holidays/vacations don’t count).
If we accept the idea of “psychological retirement” then early retirement is easy. You just decide you are retired.
But for most people retirement means freedom from earning a living. For those people, early retirement means accepting a less expensive lifestyle than they would have had if they retired later. There is really no way around this, work longer, delay spending your savings and you will have more to spend.
That is what really makes that “shockingly simple math” work. If you can live on 30% of what you are earning then in nine years if you save all the rest you will be able to continue to live at that level for a very long time. But its not just the savings that does the magic, its the lifestyle adopted to achieve those savings that does most of the work.
JD, quick question if you are still reading. I’m curious about your comment to repay your mortgage as quickly as possible. My wife and I have been on this journey for a few years (yay, over 50% of the the way there!), but we’ve gone for a 30 year, low interest mortgage, and thought that that way we could keep more cash in the market. Your thinking seems to be different on this, could you expand a little?
Hey, Daniel. Actually, I’d prefer to carry a low-interest mortgage if that were an option for me (it isn’t). That said, I think either approach is fine. In fact, we had a big discussion about this topic recently when a readers asked, “Should I pay off my mortgage?”