How Can I Retire Early Without Robbing a Bank?
Here are two important, somewhat conflicting truths about modern life:
1. We live in an era where social media presents manufactured successes on a grand scale, warping our perception of what can be and actually is being achieved.
2. With the right plan and work ethic, almost anything is possible. This includes retiring in comfort at 55 (or even earlier).
I 100% endorse both points above. I think everyone should dream big and set exciting goals, even if it seems like the objective is unattainable. I also think people get tricked by influencers into believing a glamorous lifestyle is lying in wait and if you buy the right clothes and meet the right people, you’ll attract success like a magnet.
What Is the FIRE Movement?
The acronym stands for Financial Independence, Retire Early, if you weren’t already aware. It’s not a political party or anything, but it’s been gaining more and more traction in the world of financial consultancy and retirement planning.
Because of those two conflicting influences, many people come to me interested in and/or wary of the FIRE movement, asking the question: “How can I retire early?”. Some of the stories my clients have heard, such as people retiring in their mid-30s, sound too good to be true, and yet the sheer volume of these stories makes people assume there must be something to it.
If you’re skeptical, that’s a good thing. No one should assume early retirement and a life of freedom is easy in a society built around people working until they’re 65. However, the right tactics can set you up to leave the workforce and live off savings and investments for the rest of your days. I’ve seen it work and I can help you make it happen.
An important step in understanding and engaging in the FIRE movement is to acknowledge that there isn’t a silver bullet. For a dozen different people, there are a dozen different answers to “Can I retire early?” You won’t sniff around, learn a secret password, and suddenly have all the money you need to live job-free forever. Instead, you’ll learn of aggressive strategies for turning the money you have now into the income for your future.
First, you need to overcome one big hurdle:
Adjust Your Views on Retirement
Before you can get into the dollars and cents, you have to develop a practical vision for what life will look like if you leave your job early. I’m not saying you can never golf or take a vacation, but the idea of spending frivolously and living luxuriously doesn’t gel with an early retirement.
In order to make an early exit from the workforce, you have to view retirement as your new job. That might sound counterintuitive, and that’s exactly why you have to change your mindset if you want to really dive into the FIRE. If you’re married, you definitely need to get on the same page as your spouse, too – retirement planning for couples simply has to be a group effort.
I’d say the majority of successful FIREes use their new lifestyle as a platform to find new sources of income. Most articles and resources about the topic come from the people actively living out their early retirement, so they clearly haven’t quit being productive. It’s less about never lifting a finger again and more focused on escaping the daily grind that plagues most careers.
So, first things first: if you want to achieve the financial independence that can help you leave a job at the age of 35 or 40, you have to understand what that retirement will look like. As great a lifestyle as you might be able to lead, you can’t approach the endeavor with rose-colored glasses. It’s not a matter of “can I retire early?” but of doing so in relative comfort, with enough cash to do things like visit your family.
Now, on to the actions you can take.
Save Aggressively
The normal income model I pitch to clients looks like this:
● 70% on living expenses
● 10% to an investment account
● 10% to savings
This is a responsible, balanced approach to a personal budget. However, if you want to take part in the FIRE movement and retire while people with similar incomes still have to work, you’ll need to adjust things drastically.
At the low end of savings and investing, early retirees put away about 50% of their income. Half of every paycheck has to split between savings and investments, and that’s if you want to take the casual approach. If you really commit, you’ll only spend 30% of your monthly earnings on regular expenses while putting the rest away for the job-free times ahead.
Most people don’t fully realize how strict this spending plan is until they give it a go. For the very affluent, it means cutting expenses you’d started taking for granted. For those making low six figures or less, it means living on an absolute shoestring budget while investing every spare dime and putting money to work. It makes it very hard to account for unexpected spending, so it’s vital to go into this with an emergency fund.
The spending freeze forces a lot of people to rethink their retirement strategy, but I don’t think that’s a reason to avoid trying altogether. What is the FIRE movement if not something to inspire you to greater savings efforts? You can learn a lot from undershooting on a goal, and if you don’t end up retiring early but do spend $1,000 less each year on dining out or weekend getaways, that’s still a win for your financial future.
If you are able to tough it out and keep your eyes on the prize, you can start targeting a realistic retirement date. It might be a few years farther off than you expected, at which point you should consider quality of life. Are you shunning the exciting years of your 20s, 30s, and 40s just because you love the idea of retiring? As much as I love goals, I hate to see someone achieve something only to regret the journey that got them there. If I can retire at 55 while still taking a couple of special vacations while I’m young, I consider that a good balance.
It might sound like I’m hedging you away from the FIRE movement, and that’s not really the case. I love the concept and love helping people execute it, but it’s nothing that can be done on a whim. It takes real commitment and sticktoitiveness to avoid becoming discouraged and trading a lofty goal for an irresponsible financial backlash. If you have the willpower to limit your spending beyond what most people are capable of, then you can start dreaming about handing in that notice.
Invest Brilliantly
You don’t have to find a prophecizing market genius to become your personal advisor, but you have to avoid costly mistakes. One of the most common errors happens to even the smartest people, and that’s spreading money among index funds. You’ll see good averages and you won’t get hit too hard on the bad days, but these accounts can be misleading in how profitable they really are.
For starters, if you’re investing 50% of your income each month, you won’t notice many dips in your account because the inflow is so consistent. Each contribution will have your account’s growth chart looking very flashy, which makes it easy to ignore money lost to fees or slow growth caused by mediocre stock positions. With high-risk investing targeting big growth in a short window, too much diversification in your account can be a bad thing.
My recommendation is to concentrate your market investments into a handful of quality, dividend-paying stocks. Think about companies like AT&T, Amazon, Nike, and Apple. Should we hit rocky times, these stocks might drop with the rest of the market, but the companies are going nowhere, and a healthy investment in any of them will garner consistent dividend payments.
Earning and reinvesting dividends is one of the fastest and best ways to grow a standard brokerage account. An index fund might look good on paper and plenty of FIRE starters have achieved their early retirement goal with this tactic, but investing large sums in quality companies still provides a quicker route to success. It might feel a little scary to dump $20K into Microsoft, with so many eggs sitting in one basket, but history tells us that’s a pretty good move.
Also, investments don’t need to be limited to the stock market. With the right resources and in the right location, you can flip a number of houses within a few years and bank a good amount of capital. While the general FIRE philosophy is to get as much money into a growth account as possible so you have access to the funds that eventually serve as your income, you have some freedom in the early going to play with alternative investments. Real estate and business investing can deliver big gains and, in many cases, a steady source of cash flow to live off.
Your instincts might push you to stick to the common path, and it’s hard to deviate when your retirement dreams are at stake. Just remember the FIRE movement is already a massive deviation from traditional investment planning. Your early-retirement algorithms might not like the idea of investing in real estate for a year, but when you reinvest the earnings from a home sale into solid market shares, you’ll see what a savvy move that can be.
Earn Impressively
Can I retire early while working a minimum-wage job 9 to 5? The chances are indeed slim. This is the element of the movement that frustrates and discourages people. There’s no sugar-coating the fact that you can’t retire decades before most people unless you make a lot of money while you’re working. In some cases, “a lot of money” is relative, but when it comes to the FIRE movement, you can’t really join the conversation until you’ve bankrolled over a million dollars.
The amount you save will dictate your retirement lifestyle. Some people place a free schedule to spend time with family above all else, in which case retiring early but spending less each year makes sense. For those who want to enjoy early retirement without obsessing over frugality, a bigger cash reserve is required. We’ll do a deeper dive into these details in the next section.
First, for some perspective: if you make $75,000 a year and save around 35% percent of your money, it’s still going to take about 25 years before you’ll have $1.5 million saved. That’s a target number for many FIRE participants, as it allows you to withdraw $50-60K each year without touching your principal balance. So, if you’re 40 years old, making $60,000 annually, and only saving 25%, you have some work to do.
Luckily, earning more money isn’t impossible. There are two obvious ways to go about it:
● Increase your salary
● Find a side hustle
If you feel overwhelmed by both approaches, you’re not alone. However, joining the FIRE movement takes incredible perseverance and commitment, so if you can’t push yourself to make more money and achieve this goal, early retirement might not be in the cards for you.
As far as salary goes, you can start by asking for more responsibility and a raise at your current job. Apply for every promotion and show that you mean business. If you’ve got the gumption, throw together a PowerPoint showing how much you impact the financial stability of your company and ask for a salary that reflects that. Don’t demand more than your worth, of course, but don’t settle for a paycheck that’s beneath you.
If asking for more money doesn’t feel right, you can start scanning the job boards in search of a better-paying position. Sometimes the simple act of seeing what else is out there will motivate you to make a big change and increase your earnings. The bottom line is that you don’t have to feel stagnant, waiting for a raise that might not be coming.
All that said, I recognize that many jobs simply can’t afford to pay more and you might love the work you do and don’t want to leave. If that’s the case, a million part-time careers await. Whether it’s driving for Lyft at night or working as a personal trainer on the weekends, you can continue making money when you leave the office. If you turn a hobby into a source of income, you might even have fun while padding your savings account.
Saving over a million dollars feels daunting to a lot of people, but if the FIRE lifestyle was easy everyone would do it. You’ll have to work hard to join this movement, and as long as you commit to the effort, you can find a way to make it happen.
Fat or Lean?
This final section will actually be your first step. The FIRE movement has two schools of thought: retire as early as possible and with the minimum needed to get by, or build up the savings needed to live somewhat luxuriously for the rest of your life. The first is the Lean FIRE approach, and it works beautifully for those who reside somewhere with a low cost of living and enjoy the challenge of minimalism.
Option two, the Fat FIRE approach, means you work harder and longer before you retire, then live a more accommodating lifestyle once you tap out of the workforce. If you live in a city, it’s pretty likely you’ll need to think Fat in order to cover housing and the other expenses that come with the metropolitan experience.
Over-simplified math says a lean person will need $40,000 each year, while the fat FIRE pursuer wants closer to $80,000. That’s a difference of $1 versus $2 million in initial savings. From one perspective, double the savings sounds like twice as much work. From another angle, if you’re already hustling, why not keep on trucking and go for gold? There’s a momentum with earning and saving money, and you might find yourself encouraged to work for another couple of years in order to make your retirement that much grander.
While choosing between fat and lean is an important step, a lot of people change their minds in the early going. You have no choice but to live on the cheap while you’re saving, and that experience will show your true colors: can you actually live on $40,000/year, or will you be miserable being that stingy? Should you still have children at home at your target retirement date, that’s probably not a worthwhile goal. If you decide you need to save $2 million or more to enjoy your retirement, let that be your goal and adjust accordingly.
Back to the original question of whether or not the FIRE movement is realistic. Can you retire early? What do you think? Personally, I think it’s absolutely attainable and an awesome choice for many people. It requires diligence and a clear strategy, meaning the help of a financial advisor might be necessary, but anyone with the right attitude can make it happen. It won’t work for some, but that’s just the way these things go.
If you’re interested in achieving the type of financial independence that allows you to retire early, I encourage you to read every article you can find online and then start a savings plan. If you need a little assistance, my team and I are always eager to help people turn exciting dreams into fruitful realities. If you have the drive, we have the tools to help you enjoy retirement while you’re still in the prime of your life.
Make it happen!
Taylor & Megan Kovar
The Money Couple
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