The Secret Recipe to an Extremely Early Retirement

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Working in government, I have the benefit of a pension which makes it possible for many employees to retire at around age 55. The mainstream media always talks about how it’s impossible to retire so I counted my lucky stars that I would not only be able to retire, but retire at an early age. However, when I discovered the blogs, Early Retirement Extreme and then Mr. Money Mustache, where the bloggers wrote about retiring in their 30s, that sounded even better than retiring at age 55. (For purposes of this post, I’m going to say retire but I really prefer financial independence. Retiring doesn’t mean you stop working, just that you no longer NEED to work for money.)

Early Retirement is Simple

One of the most important blog posts I’ve read since learning about the possibility of early retirement is “The Shockingly Simple Math Behind Early Retirement.” Basically, it says that how long it takes you to retire depends on how much you can save. According to the math here, which assumes a rate of return after inflation of 5% and that you live off 4% of the nest egg in retirement, it will take 45 years to retire if you save 15%. However, if you save 50% of your income, you can retire in just 16 years! You can play around with the calculator here, but I think the early retirement/fi spreadsheet on Budgets Are Sexy is more detailed and a better predictor of when you can retire because it takes into account projected expenses in the future. Your expenses today may be greatly different from your expenses in the future, especially when some early retirees do so before they even have children.

Being obsessed with the Financial Independence and Retire Early movement (FIRE), I’ve read countless blog posts from various bloggers who have reached early FIRE or on the way there. While everyone’s journey is unique, you start to see some commonalities between those who are able to accomplish this awesome feat. Early retirement is simple…but it’s not easy! It takes discipline and dedication. Here are the factors that I’ve noticed in the journey of extremely early retirees:

Income

Now that the FIRE movement is getting more mainstream, the media has featured a good amount of stories focused on early retirees. Most people assume that you have to make an extremely high salary to retire so young. It cannot be disputed that earning a high income makes saving a larger percentage of your income easier. The gap between your income and your expenses are the two determining factors in how much you can save, and ultimately, how early you can retire. If you earn $100,000, it is much easier to live on half, compared to someone making $30,000 trying to save half and living on $15,000.

A couple of the early retirement bloggers are pretty transparent with their income in their explanation about how they reached early retirement so you can get an idea of how much they earned and how much they saved. Justin who blogs at Root of Good retired at age 33 and during his career, he made between $48,000 and $69,000 while his wife made between $40,000 to $74,000. Mr. Money Mustache started off making $41,000 and reached $125,000 while his wife’s income ranged from $44,000 to $70,000. Yes, they earned good incomes but many people earn this level of income or higher, yet live paycheck to paycheck and are no where near ready for retirement.

Resources

If you make a healthy income then you need to assess whether you are spending money on things that really bring you happiness, otherwise you probably have a lot of excess spending you can cut out to increase your savings rate. If you are not making much, then you need to work to increase your income or work on a side hustle. Here’s a list created by Mr. Money Mustache of jobs where you can earn over $50,000 which do not require a degree. Read it part 1 here and part 2 here.

Great Reads

Steve from Think Save Retire wrote a blog post titled Financial Independence is not Just for the Rich or Wealthy which really encapsulates the idea that high income isn’t the only way to reach FIRE.

The bloggers at Millennial Revolution have a couple posts breaking down how they reached FIRE which is very informative.

Also, listen to this Mad Fientist Podcast about Joe (aka Arebelspy a Mr. Money Mustache forum moderator) and his wife, who are both teachers and were able to reach FIRE.

Frugality

Having a good income is very helpful, however, if you don’t “mind the gap”, and constantly upgrade your lifestyle, you’ll never retire no matter how high your income is. Being frugal with your money is also an essential part of the equation. Some of the tips to save money that many early retirement blogs suggest are to live close to where you work to cut your commuting costs, bike to work, cook food at home rather than going out to eat, cut out cable and other excesses that don’t really add value to your life. The bloggers at Millennial Revolution argue that renting versus buying in overpriced housing markets is the key to retiring early.

Another assumption that many outsiders make about the FIRE movement is that these early retirees are living like paupers so they can save up enough money to continue living like paupers. They argue that they would rather continue working and “living” their life, buying nice cars and a big house, and filling that house with big screen TVs, and going on vacation once a year when their employer allows them to do so. What they don’t understand is that frugality has nothing to do with depravation and sacrifice, and everything to do with finding what is important to you, and living a rich life. A rich life doesn’t have to be life filled with consumption and spending. Clearly they need to change their mindset.

Great Read

Check out this great post by Mrs. Frugalwood explaining that frugal living DOES NOT mean deprivation: Frugality is not Deferred Spending.

Low Cost of Living Area

Living in a high cost of living area is probably my biggest obstacle in reaching early retirement. It is harder to have a high savings rate if you live in a location where everything is more expensive…especially housing. Of course, the reason most people live in high cost of living areas is because the income is often higher. The reason I live here is because it’s where I grew up and where our family and friends live. Because of the higher income in high cost areas, there are many early retirees or prospective early retirees who there, but most of them move or plan to move to lower cost of living areas after they retire.

The bloggers Mr. and Mrs. Frugalwoods lived in Boston, but moved to a homestead in Vermont. Jeremy and Winnie from Go Curry Cracker used to live in Seattle, but now travel the world, and often live in low cost areas in Southeast Asia and in Mexico. Kristy and Bryce from Millennial Revolution lived in Toronto and also now travel the world. The bloggers at Freedom is Groovy credit their move from Long Island, New York to Charlotte, North Carolina as one of the main reasons they were able to reach FIRE.

There are also bloggers who live in low cost areas and continue living there. Mr. Money Mustache lives in Longmont, Colorado and Justin from Root of Good lives in Raleigh, North Carolina. There is a common misconception from many people who live in high cost of living areas that moving to a low cost area means taking a significant pay cut and having to worry about the availability of jobs. They also picture low cost of living cities as some rural town in the middle of no where with nothing to do except going to watch high school football and the local bar. That’s just not true. There are many cities in the U.S with vibrant economies, a plethora of entertainment activities yet a much lower cost of living. According to Investopedia, a couple of cities with high paying jobs with a low cost of living are Houston, Dallas, Charlotte, Denver, and Austin. For instance, a good unit in an apartment complex in Austin, Texas will typically cost between $850-$1,000 per month to rent.

Resources

The blogger at The Frugal Vagabond created the website The Earth Awaits which is a great tool to find great cities you can live in based on your budget and you can filter based on other preferences like crime rate, pollution, and lifestyle.

For those living in high cost areas, check out my post Is NYC Really That Expensive? and the Frugalwoods’ post The Ultimate Guide to Frugal Boston Living.

Kids

Deciding whether to have kids and how many kids you want to have are very personal questions. While the cost of children may not be as expensive as some may have you believe ($241,080 or $446,100 in the Northeast), having children will no doubt add to your expenses. Having kids will also affect the amount of time you have to work on side hustles or to work overtime. However, having kids may also motivate you to reach FIRE at an early age. Mr. Money Mustache states that he and his wife wanted to retire early so they could be there to raise their child.

Great Reads

My wife and I love kids and always knew we wanted to have them. The delay in reaching FIRE because of those little ones is fine with me, but if you are not sure about having kids, you shouldn’t let societal pressures make that decision for you. Also, some parents feel like they should have a second child so the first child has a friend. Read the following posts if you’re struggling with those decisions.
Great News: You’re allowed to have only one kid! from Mr. Money Mustache
Why My Wife and I are Choosing to Remain DINKS from Think Save Retire

And if you think children are expensive, check out this post from Mr. Tako Escapes:
The Myth of the Expensive Child

Smart Investing

Stocks

Having a high savings rate is very important in determining whether you can retire early, but no matter how high the savings rate is, you’re not retiring if you stuff your savings under a mattress. You’ve got to let your money work for you. The early retirees who got there through investing in the stock market are mostly proponents of index investing. A lot of people probably assume that trading high flying stocks or that trading options or other complex investing strategies is the way to riches, but more often then not, you’ll likely lose more money than you’ll make.

Resources

To learn more about index investing, go to the Bogleheads wikipage which is investing advice inspired by Jack Bogle, creator of index funds. You can also get the book The Bogleheads’ Guide to Investing

I also recommend reading the Stock Series on Jim Collins’ personal finance blog or get his book The Simple Path to Wealth: Your road map to financial independence and a rich, free life

Real Estate

Investing in rental properties and living off the income produced by them is a great way to reach financial independence. Admittedly, I am a lot less familiar with this avenue but I am learning more about it and bought my first rental property a year ago. At first, I thought investing in real estate would be intimidating but the more I learned and the more I saw the benefits in the use of leverage and tax advantages, it became clear that investing in real estate is a viable path for many to reach FIRE.

Resources

Paula Pant who blogs at Afford Anything has a lot of posts relating to real estate investing. She has a fantastic post answering the most frequently asked questions about real estate investing, she has monthly income reports, and recently launched a course about this topic.

Another excellent resource is the Biggerpockets website and they also have a free beginner’s guide to investing, podcasts, blog, calculators and a plethora of other useful tools at your disposal.

Others who have used the power of real estate to reach FIRE are Chad Carson, Eric Bowlin, and Joe (aka Arebelspy).

Smart Tax Planning

Saving a large percentage of your money is great and so is investing it wisely, but if you can keep Uncle Sam from taking a big chuck of your money away, that is another big win. Taxes are definitely not an exciting topic and many people avoid it like the plague but not strategically planning your taxes is ignoring big savings. Make sure you do your best to keep your hard earned money!

Great Reads

Definitely read $150,000 Income, $150 Income Tax and Never Pay Taxes Again.

Also check out the Mad Fientist’s blog posts: HSA-The Ultimate Retirement Account and How to Access Retirement Accounts Early.

Work in Retirement

What? Isn’t the point of reaching FIRE to NOT work? No, it means that you don’t need to work but you certainly are welcome to work on things that you are passionate about and that are fulfilling. Since most early retirees are still young, capable, and intelligent (you’d have to be to reach FIRE early right?), it is likely that they may continue to do some type of work, and sometimes they will earn income from it. Mr. Money Mustache likes building things so in his retirement, he has earned some income building/renovating houses…he’s also earned a good amount of money from his very popular blog.

If you are as excited about the FIRE community as I am, check out the following lists of bloggers who have reached or on their way to FIRE:

Early Retirement Blogs for Everyone created by Joe from Retire By 40 and The Secret Fire Cult- And Why You’ll Want to Join It created by Julie from Millennial Boss.

Are you on the path to early FIRE? What other factors do you think are common among those who reach early FIRE?

33 thoughts on “The Secret Recipe to an Extremely Early Retirement

  1. Done by Forty

    That’s a great breakdown of the key similarities. I, personally, think frugality gets too much play in the FIRE community, while we tend to gloss over income, because we like the idea that anyone can achieve FIRE. It’s a nice idea, and you can find examples of lower earners who achieve this goal. But it sure seems like the majority of these bloggers are college educated and earn higher-than-average incomes. No problem with that, of course, and I’m one of them…just wish we ‘owned’ that part of the story more.
    Done by Forty recently posted…Viceland, Payday, and the HustleMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Having a good income is absolutely important and you’re right that sometimes many bloggers don’t “own” that part of the equation. But I think many people who read personal finance blogs, especially ones about FIRE, do have good incomes themselves. There are definitely many factors in play and having a above average income is one of the most important factors.

      Reply
    2. Femme Frugality

      Agreed times 5,000. I’m not on the path to FIRE, and a large part of that has to do with income early in my career, and now my partner is staying at home. Also, I never really set it as a concrete goal. And I’m okay with that. I’m comfortable with the level of balance in my life, though I do have a lot of respect for people who pursue FIRE.
      I’d also argue that the reason so many people reading in the PF space are middle- to high-income earners are because those are the people we largely write to. It’s challenging to create profitable content geared towards lower-income earners without turning into high-interest product slinging scum. But it IS possible.
      Femme Frugality recently posted…Punk Rock FrugalityMy Profile

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  2. Chad Caron

    Thanks for including me in your post in the FIRE with real estate section! It’s an honor.

    I love the concept of this site and your article that you can live rich without spending like everyone else in society. It’s really a mindset and a value adjustment, like you said. I agree with the idea in the prior comment that many of our perspectives are a little biased because we’re college educated, have good incomes, and probably don’t struggle with problems of poverty like many other people in the world. But that doesn’t take away from the fact that the opposite extreme – running on a treadmill of consumption your entire life will make you happy.

    This article does a great job of giving an overview of the entire FIRE movement and definitely presents an excellent recipe. Keep up the great writing!

    Reply
  3. EL

    So many variables to reach FIRE, but focusing on the big expenses is a sure fire way to reach it. So many good links mentioned above Andrew, and I think I’ve read 90% of them. One of the smart ways you can get ahead to reach FI is to start early, aka let compounding do the work for you. I started investing at 19, even though I am still working it will help me down the line.
    EL recently posted…What is the Secret to Becoming Rich?My Profile

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    1. livingrichcheaply@gmail.com Post author

      Yea, I started investing at a young age as well but am also still working. Maybe it’s because we live in the Northeast! It’s too expensive here.

      Reply
  4. DC @ Young Adult Money

    I’m impressed at just how comprehensive this post is! Clearly you’ve read and observed many others who have pursued and achieved FIRE, and I think everything you laid out makes a lot of sense. I personally always end up going back to the income part of the equation. If you can command/create/receive a higher income, FIRE becomes much more realistic much quicker. I think there is a bit of a dark side to FIRE as it can drive you to work more and more as you try to get that increased income (and, in turn, increased savings and investment amount). Overall I think it’s a positive thing, though.
    DC @ Young Adult Money recently posted…How to Set Boundaries at Work – Both at a 9-5 and With FreelancingMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Thanks! Yes, I am pretty addicted to reading about FIRE! I know what you mean about the dark side of FIRE…I can see it as an all-consuming goal. You still have to enjoy the journey…I think the MadFientist has a post relating to that as he experienced that during his pursuit of FIRE.

      Reply
  5. Jordi

    Thank you for your very interesting post.

    I’m from Spain and my english is not perfect but I have a question, I hope I explain it well.

    I’m close to reach my Financial independence but my future wife is very very far away to reach it.
    I am in an existential crisis because I could stop working but I would feel bad to do it if my wife has to continue working for 20 more years.

    Is there someone in my situation?

    Thank you.

    Reply
    1. livingrichcheaply@gmail.com Post author

      Thanks Jordi! Your English is excellent…also my wife always talks about wanting to go to Spain…maybe one day! As for your question, I’ve seen a few bloggers who have reached financial independence or about to reach it, where the spouse continues to work. Generally in those cases, I think the spouse enjoys the job and doesn’t want to leave it. If that is the case with your future wife, then that is fine. However, I don’t know if it will work if she wants to join you in “retirement.” In that case, you have to work as a team so you can both be financially independent. I think it would be tough on the relationship and there will probably be some resentment if you stopped working and your wife continued to work even though she does not want to.

      Reply
  6. Biglaw Investor

    The FIRE movement really is starting to take off and become more mainstream. I think the election is a good indication of that – so many people want out of the current system and that’s why they are attracted to FIRE since it allows you to decouple income from work.

    For me, the real message is that we’ve had all these gains in productivity over the years but we’re working more than ever. All those economists in the 1920s who thought we’d enter into a leisure stage of civilization where we were only required to work 10 hours a week got it wrong because they didn’t anticipate the our desire for consumption could increase so much.

    But the FIRE blogs are showing that if you opt out of that increased demand for consumption you really do have enough money to set yourself up to live a great life. I think the challenge is figuring out how to communicate the frugality message, because frankly frugality is the wrong word. The connotation is one of deprivation and rationing. I doubt we’ll be able to take the word back and I’ve yet to find the right word to describe one’s choosing to get off the conspicuous consumption train.

    That’s why I’ve always loved the name of your blog, since “living rich cheaply” is really what it’s all about.
    Biglaw Investor recently posted…5 Step Financial Checklist for New LawyersMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Thanks. I actually define frugality as living rich cheaply. I know that word frugal seems to have a negative connotation but it shouldn’t…too often it is equated with being cheap which I think is very different. But you’re right that it’s hard to take the word back and you’re also right about opting out of the consumption train. However, with the leisure stage of civilization…I think it’s true that society’s desire for consumption has definitely increased but I think that wage stagnation/employment opportunities, increased costs as related to health care/child care/education, etc, have a lot to do with many people not reaching this stage. Also, I think this election is more of an indication of these issues rather than decoupling income from work. Like Done By Forty said in his comment, sometimes those FIRE or PF bloggers don’t “own” the part about our high incomes.

      Reply
  7. Mrs. Groovy

    We’re honored to be mentioned in such good company. Thank you.

    We’re totally for reducing car dependency (if possible). My nephew bikes to work and he doesn’t even have a car. It’s amazing what you can save if you don’t have car expenses.

    Obviously we’re big fans of geoarbitrage. Our quality of life shot up when we relocated, and our costs went down. FYI, Mr Groovy’s salary went down when we moved to NC, but that was because he changed his career to do something that excited him more. That option would not have been on the table in NY. Totally impossible.
    Mrs. Groovy recently posted…Obamacare Here We ComeMy Profile

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    1. livingrichcheaply@gmail.com Post author

      No problem, I often dream about geoarbitrage! It’s so expensive up in the Northeast!

      Reply
  8. James

    There are lots of ways and components to retire early with good amount of savings. I maximized my contributions to IRA, invested in mutual bonds, and managed my expenses well. But, I think one of the most important strategies is to be frugal in everywhere you can because this would enable someone to maximize opportunities in growing his money like in stocks.
    James recently posted…Heads Up for XTrade Traders: Look Towards IcelandMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Great that you maximize your IRA contributions. Mutual bonds are a little too conservative to me though.

      Reply
  9. Millennial Money

    Assessing your income and tax obligations will lead into what sorts of investment decisions you will make. Saving enough money for retirement is usually about pinching luxuries and feeding multiple streams of income into investment accounts. Thank you for this breakdown for the retiring early movement.

    Reply
    1. livingrichcheaply@gmail.com Post author

      Just read your About Page and saw that you reached FIRE at 30. Will be checking out your blog!

      Reply
  10. Dominique

    Some really good resources listed in this post. I think FIRE is achievable if you have the right mindset, and to have the right mindset is only up to you. Anyways, great read, as always.

    Reply
    1. livingrichcheaply@gmail.com Post author

      Great point! Having the right mindset is very important and is absolutely in your control.

      Reply
    1. livingrichcheaply@gmail.com Post author

      Awesome that you’re looking at rental properties as well…I’ve been very interested in real estate lately.

      Reply
  11. James

    Start at an early age to save to invest later on. I think investing is just one way to reach those financial goals such as early retirement. I started investing at the age of 28 years and I just wish I had started earlier. But, when I think of that most people don’t invest, I am just thankful I do.
    James recently posted…Hoes Does Leverage Work In FOREX?My Profile

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    1. livingrichcheaply@gmail.com Post author

      Yes it’s better to start a little later than not to start at all. I started early but wished that I have ramped it up earlier. I thought I was a rockstar for contributing 5% in my 401k to get the match.

      Reply
  12. Mustard Seed Money

    There is so much in this article and I love reading every minute of it. You are absolutely correct that income is a huge driver. In some ways you can only cut your expenses so much before you need to increase your income in order to hit your goals.

    I live in the DC area and as you know it’s not the cheapest place to live. It’s no NYC or San Fran but nonetheless still pretty expensive. I would love to hit FIRE and move but we live so close to family that I would hate to move just to hit FIRE.

    Personally working a couple of extra years in order to stay around family is well worth it :)
    Mustard Seed Money recently posted…The Upside-Down Wedding CakeMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Thanks! I think we are in similar situations, living in high cost of living areas really makes it difficult to hit FIRE but it is also hard to leave when your family and job are here! How many years is a couple extra years??

      Reply
    1. livingrichcheaply@gmail.com Post author

      Thanks! I’m glad there are so many people in the FIRE community who are willing to share their stories of how they did it. It definitely is inspiring!

      Reply
  13. Pingback: Strive For FI Or Take It Easy? | Living Rich Cheaply

  14. Matt

    Good post. ‘ve always been a natural saver -some people say I’m stingy but I like to think of it as frugal. I personally would rather stress less and live a simpler life. I also live in a low cost area.

    I enjoy simple activities- keeping healthy and active especially playing pickleball (which is socially fun and also pretty inexpensive to play- especially compared to sports like golf)
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