Author: J.D. Roth / Source: Get Rich Slowly
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…
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