Contrast that with the American spending habits of almost any time in the past, and I’d say this movement is on the right track. At a minimum, these people are amassing decades of living expenses. But honestly, is it really a big deal if folks are cutting it a little close?Īnyone living a life in pursuit of financial independence is changing the narrative on financial well-being. We are building our finances to account for now, with some cushion for if/when we get all soft and weak and want to spend more money. Is there space in your plan if your tastes change? Perhaps they are retiring on a frugal lifestyle appropriate for now, but might regret self-imposed spending limitations later in life.įor example, renting seemed more than adequate at age 28, but I love owning a home now at age 34. Yes, I do believe that a subset of folks in this movement are rushing to early retirement, framing their finances around an unsustainable level of frugality. Pulling the Early Retirement Trigger Too Soon The 4% Rule is potentially risky for retirement horizons of 60 years. However, for a retirement horizon greater than 30 years, you will want a safe withdrawal rate of likely 3.5% or lower. The 4% Rule is considered by most to be a safe strategy for a 30-year retirement horizon. In essence, so long as you withdraw 4% or less of your total savings per year, you will likely never run out of money. Screenshot from The Early Retirement Calculator at. How many years do you really need to work? It could be very few. The compounding effects of capital growth will provide, as they say, a perpetual money machine, allowing you to live off your investments for the remainder of your days if you so choose.Īnd you can get there much faster than you think. Using the method described above, let’s assume your family spends $40,000 per year and can generate a net worth of $1,000,000 through low-cost and broad-based index funds. The premise is to simply save at least half of your income and invest those savings.įor more on our extremely simple and lazy investing strategy, I encourage you to check out part 1 and part 2. This is not achieved through penny-pinching, executive-level salaries, or receiving massive windfalls of money. These funds are mostly held in long-term appreciating equities (stocks). The most commonly held definition is the ability to create a liquid net worth of at least 25x one’s annual spending. The math and historical market patterns indicate that our plan of strict early retirement would be successful, but why test it in the purest form? A Little Refresher on Early Retirementįor those of you new here, financial independence has multiple definitions and is mutually exclusive from early retirement. In the meantime, I’ll say this: we’re not going to be guinea pigs of the early retirement laboratory test. Other issues arise with further reflection: we will be bankrupted by unforeseen healthcare expenses without an employer-sponsored plan, the market won’t provide as it has in the past, or…you can choose your own adventure and finish this sentence.įair points dear critic, and I’ll probably write a post for all of them at some point. Some issues are obvious: we will run out of money, we will be bored, or we won’t be contributing members of society.
Some friends, family, and other less subtle internet enemies are quick to point out all that can go wrong. I think folks are generally okay with financial independence as a concept, but EARLY RETIREMENT IS SHORT-SIGHTED AND IRRESPONSIBLE. Lordy, Lordy, nothing gets people more riled than mentioning early retirement, especially regarding someone in their mid-30s.
And what was the bait? It was our story of a potential early retirement.
Alrighty then, let’s get back down to some brass tacks, shall we? I originally started this website in a heartfelt effort to get folks thinking about their finances.
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