Is retiring early a possibility or a pipe dream? For those who really want it Retiring Early is Obtainable and attainable. The fact that I have been able to do it proves that. It takes dedication, planning, and follow through. Always keeping your eye on your final goal.
My path to early retirement is nothing spectacular. My first retirement was at the age of 51. I didn’t do it by winning the lottery, receiving an inheritance, receiving a severance package, taking any kind of government help, claiming bankruptcy, or winning a lawsuit. Not that there is anything wrong with any of that. It could certainly help someone get where they need to be financially.
I married, raised 3 children to adulthood, paid for their college and later their weddings. I now spoil my grand-kids. I started my career with just an entry-level job at the age of 20. I took night classes and dedicated myself to that career for 31 years. I stuck to it that long because for a large part of it I really enjoyed the journey. But for far too many of those 31 years when the demands took me away from my family, when the never-ending layoffs caused increased workloads, when the stress and expectations took all of my focus to the point of exhaustion, I stuck it out because I had to in order to make that magic number.
I fell for the American career-driven lifestyle which was all I knew. I have always been the primary bread-winner and we spent a considerable amount of time in our early years in debt with my having to work 2 jobs and living pay check to pay check just like everyone else does when they start out. Yet I still pulled it off because I had a Strategic Retire Early Plan and so can anyone else.
If you are wondering why my full name isn’t presented here or anywhere on this site it is because I believe in always being open to opportunities that I have interest in. It is all part of my Retire Early and Often lifestyle. I proudly tell people I meet and know that I am a Leisure Freak but I don’t want someone who has not met me finding my name associated to financial independence and early retirement freedom so they can make negative conclusions as they do. Face it, a lot of companies prefer desperate employees and consultants. I can have all the passion in the world for an opportunity but it does no good if you can’t get in the door.
The System Makes Early Retirement Tough To Do
There is no shortage of total bummer stories to go around. Let’s face it, the whole employment, save, then retire system is rigged against us. I think it is all designed to send us to an early grave. Many of our companies, the educational system, and our government made agreements and promises to us. Then just as we are finished meeting all the demands, playing by all of their rules, there are all these cautions coming out that we are a burden. They can’t or shouldn’t have to honor those agreements and promises. They are telling us we need to continue working and paying with both our time and money into their systems.
Adding to all of that, the biggest part of the U.S. economy is consumer based. Not saver based. You are constantly encouraged to buy the latest this or that. Another discouraging thing. For years now savings interest rates are sacrificed for the sake of lower borrower (consumer) rates. Let’s face it, right or wrong, if everyone started living below their means and saving a huge percentage of their income, forsaking the latest gadget, this country’s economy would tank.
If you are someone who lives like me. A Leisure Freak who rebels against the norm of always playing the game of keeping up with the Jones’s, I say congratulations.
Early Retirement is Possible
Many people will say that it is impossible today for anyone to retire early. Except for those who are rich or lucky. Being rich doesn’t hurt but you don’t have to be rich to do this. Being told I am just lucky to retire young only ticks me off. I planned, saved, avoided consumerist temptations and did what it took to get here. There are no extravagant vacations or a parade of new cars in my past.
Unfortunately for many, early retirement may not be obtainable. Because of their economic situation, debt burden, or an unforeseen crisis that totally disrupted their plans and life. I do feel badly for them and hope they find their way to a better financial situation. However, if you are in a career or position that just doesn’t do it for you anymore. If you are ready to take the early retirement leap and embrace a passion-driven mindset. Refocusing your life on what really makes you happy and toward what is really important to you. Then early retirement it is possible and most importantly while you are still young enough to enjoy it.
Spend less and save more. I am not trying to be a smart-ass but it will have to come down to that. Your savings rate is what will determine when you can retire. Assuming an investment portfolio earning a real return of 5% and you are able to live on a 4% withdrawal rate of your portfolio total in retirement then if you save the often recommended 10% to 15% of your pay you can plan on working 45 years to get to your retirement date .
By increasing your savings rate you decrease the time to retirement. if you got serious about restraining your lifestyle cost and increase your savings rate to 30% you can retire in 30 years. If you can go bonkers and figure out how to save 40% then your retirement date is now within 20 years. Do something as nutty as saving 50% you are in early retirement bliss in less than 20 years. The reason it works is as your savings rate rises you have found a way to live your life at a lower lifestyle cost meaning it will take less to support your retirement lifestyle.
Your portfolio benefits from the increased contributions but also the power of compounding returns. Anything above the normal savings rate decreases your time to retirement (Math courtesy of MrMoneyMoustache). I was only able to save in the 10% to 15% range until our debt was paid off which decreased our lifestyle cost. It was only when I was 40 years old that I was able to ramp up savings to the 50% range. Dual income households have a huge opportunity to make early retirement happen by cutting waste in your lifestyle budget and living on one income. Here are 8 things to help you get there.
#1-Understand your net-worth.
You have to get knowledgeable about where you are financially so you can develop your Strategic Retire Early Plan and goals.
- List all of your debts. If you have a Mortgage list the balance and your home’s market value. If you can, list the balance owed and interest rates for each loan and credit card you have.
- List all of your saved money. Separate them into one of three buckets that apply: 401K/IRA, ROTH IRA, Savings/Brokerage Accounts. The three buckets are treated differently by the government as far as taxes and penalty if you retire before age 59 1/2 so tracking this way can aid in your early retirement income strategy.
- List any Pension or other monthly retirement payment you may receive including when you are eligible to receive it.
#2-Get intimate with your budget:
You have to get down and dirty to every monthly cost to understand what your lifestyle-cost is and where you can cut waste. If you haven’t been living a smart frugal life then you need to do so now. The best way to decrease your expense- footprint is to know exactly how and where you spend your money.
List your monthly income from jobs and other things you do that earn money (eBay sales, tips, etc.). List both the before tax deductions, medical insurance, 401K etc. amount and then also list your take home amount.
List all of your monthly bills and other things you pay to do every month. This includes your rent or house payment, monthly loan/credit card, utilities, insurance, etc. Also include your discretionary spending. Even though I grab $40 cash out of an ATM, I usually spend it doing the same things every week. You can get a close idea of where your money is going.
Totaling It All Up
Total your monthly expenses and total your monthly take home pay. Subtract your monthly expense from pay and hopefully you have a positive number. If your number is negative then retiring early isn’t your most immediate issue.
Create a Smart Frugal Plan
If you want to retire early then a smart frugal lifestyle plan needs to happen. Decide from your expenses what you can give-up. Smart frugal means finding a balance where you have eliminated waste, concentrate on what really makes you happy, and don’t live a life where you feel you are deprived. Know your personal frugal threshold so your plan can be sustainable. The idea is to cut or lower expenses.
Example, look at your mortgage to market value. Do you pay mortgage insurance but now your ratio is 20% or better so you can drop it? Do you have a cell-plan you really don’t need and could drop it down to a lower cost plan? There are many ways to trim your budget.
You don’t have to make a lot of money to have waste in your monthly budget that can be cut. If you are making less than your bare bones expenses you must take immediate action unless you want to become homeless. Time to find a second job or a room-mate.
#3-Paying yourself first is mandatory.
Look at your paychecks and list any amount you may have going pre- tax to your 401K or maybe you just have money diverted to a savings account. Divide your savings amount by your pre-tax total pay to get the percentage you are saving today. This is where you have to decide how early you want to retire or retire at all. The minimum recommended is 10% even when you have debt to repay. If you have no debt then ramp this savings rate way up with all of your budget savings.
#4-Pay Off debt:
Once you have trimmed your budget, and pay yourself 10% you now put any extra money toward paying off your debt. Make a plan, either go after the smallest credit cards or loans first to make a dent or concentrate on the highest interest rate loan first. Do whatever will keep you motivated to stay on your strategic retire early plan. Do whatever you can and still live a smart frugal life.
Once you have your debt cleared you should ramp up your savings rate. If you are saving an impressive percentage of income now then retiring mortgage free and debt free is the greatest condition to be in. Paying off your mortgage needs to be looked at with both an emotional and financial perspective.
#5-Know your Social Security benefit.
If you are retiring early you will have to think about paying for it all on your own before Social Security and then the added positive impact with Social Security after you become eligible and when you decide to start it. Go to the Social Security on-line site to get your estimate.
#6- Calculate how much savings you need to give you the income you need in retirement:
Based on your smart frugal lifestyle budget (include medical insurance) and any travel budget you see adding to your retirement life, use the financial adviser’s little rule of 25 times that amount. Example: If your yearly budget is $35,000 then estimate your needing $875K to withdraw 4% a year from it and have a great chance of not outspending your money. If you have a pension of $24,000 then you only need to have 25 X $11,000 ($275,000) in savings to meet your $35,000 budget.
It looks daunting without a pension to try to save over $800,000 but it can be done if you start maximizing your saving and investing early and remember this is a quick estimate based on a 4% withdrawal rate. You can calculate the impact that your Social Security will have even if it’s a small amount so that you can have less in savings and even with a slightly higher than 4% withdrawal rate in your early retirement years to still come out OK.
Be sure to run your numbers against the Firecalc retirement calculator where you can get a good measure of what your funding requirements will be and see my page Do You Have Enough to Fund Early Retirement. It may take less money than you think.
#7- Consider the Retire Early and Often Lifestyle:
Changing your mindset to a passion-driven one from a career-driven one may help you get there sooner.
- If you have enough to retire early, pursuing opportunities of interest just adds to your retirement funds. You can take time off to recharge and then seek opportunities that are fulfilling and rewarding. You retire on your terms and work on your terms. Perfect freedom.
- If you are close to or need a few years to get to your financial independence number but your current position is not for you anymore, then go and find that opportunity of interest that you can be passionate about (unless you are waiting to reach pension eligibility). If you are passionate about more family time and you want reduced hours, more flexibility, etc., run the numbers and see if you have enough saved to support your retire early and often lifestyle with a smaller income. If not then take your time while working to find that passion-driven full-time job you can love while you are still on plan.
- If you are young and discouraged about the career opportunities available and the low pay you are getting after finishing a college education, why not follow your passions and do something you will love. You can live a “retire early and often” passion-driven lifestyle now while you budget, eliminate debt and save toward financial independence and early retirement. Don’t spend your whole working life miserable.
#8-Invest in low-cost funds and get help if you need it.
If you haven’t a lot to invest, it may be difficult to find a financial planner to help you. Many financial planners will take 1% and up to help you with your investment plan and funds. There are ways to invest on your own. I am not a financial planner nor licensed to give investment advice so I hope you aren’t disappointed.
If you have enough to invest and want a financial planner, look for one who is certified as a CFP fiduciary. They must have your best interest in mind. If you go it alone, look at places like Vanguard, Fidelity, E-Trade, Loyal3, etc. Google for low-cost funds or investments and see what is recommended. The idea is you need an investment strategy in line with your risk tolerance and at a low fee or cost.
If you came directly to this page you will benefit from the following pages I have that provide links to Social Security, retirement calculators, funding retirement from 401K or IRAs without penalty, etc. and other details.
- Strategic Retire Early Plan
- Saving and Investing
- Spending Discipline
- Do You Have Enough to Fund Early Retirement
- Funding Early Retirement
- Defined Pension Plan
- Early Retirement Medical Health Insurance
- Using your 401K or IRA to fund early retirement without penalty
- How I Fund My Retirement
- Retiring Early and Often
- Retire Early to Increase Wealth
- Early Retiree Interviewing Tips
- Early Retiree Resume Tips
- Picking a Financial Planner