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:
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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.
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!
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?