How much do you need in order to retire early (if you so desire)? You may not desire early retirement or be at a place to retire early but how much would you need to not have to work again? I can’t imagine anyone wanting to work in their 70’s, 80’s or 90’s unless they have a true passion for what they do.
Suze Orman has a very different perspective on the issue of how much do you need in order to retire early (if you so desire). According to Ms. Orman, anyone who retires at the age of 30 or 40 needs at least $5 million dollars on the low end, maybe even $10 million dollars. She also has this idea that retirement truly can’t occur until age 70.
Suze Orman misses the point of early retirement.
I completely disagree with Ms. Orman’s statement which is against the FIRE (Financial Independence/Retire Early) movement, a movement which encourages people to consider the idea of financial independence and early retirement.
Financial Independence, Retire Early (FIRE)
FIRE members are a unique group whose primary goal is to maximize savings and to reduce their spending. The members who have adopted this type of life do not want to wait until “normal retirement age”, aka, age 65 plus, to stop working. The best way they can achieve this is by living a very frugal life style and saving the maximum amount they can.
Financial Independence, Retire Early
I commend anyone who has a plan to retire early. The idea of spending less in order to retire early is a concept that I follow. I have never desired to work past the age of 57 and if I can stop working sooner than that I will.
I recently had a conversation with a Generation X-er who is already retired at the age of 47. She graduated from college in 1998 and worked as a software engineer until 2018. She saved, lived beneath her means, purchased four properties for cash, and supports herself 100% through her real estate investments and the money she earns doing intermittent software design products for a non profit.
Her way of life is proof that retiring early can mean leaving a job but also that you can set up a system to live off passive income. Her passive income more than supplements what she would earn at a regular job.
How Much Do You Need In Order To Retire Early: Start By Reducing or Eliminating Your Living Expenses
The best way to retire early is to reduce your expenses and to increase your savings.
If you are considering the retire early position, determine how much you actually need in order to live during retirement. While still working, work on reducing your expenses.
Mortgages and apartment rentals are probably the largest items from a budget. How much you need to retire early (if you so desire) would be, in part, based upon how much you can lower your living expenses.
The software engineer I interviewed was able to buy a few properties with cash. You may not have the money to buy a property for cash. She can now live off her rental income.
But you do have the ability to get a roommate, split the living expenses, and use the savings to either pay down your debt or add to savings.
The average monthly mortgage payment in America is $1,029. If you bought a home at age 30 and paid it off by age 45, you would be saving yourself $185,220 not including the interest over the next 30 years. That’s money that you could put towards your early retirement mission.
Let’s also assume that over the first 15 year period of you paying off your home, you were able to amass at least $500,000 in your retirement account and could put that money in an annuity that continues to grow for another 15 years. Why would you need to continue working?
How Much Do You Need In Order To Retire Early: Stop Buying Cars
I know that people have a tendency not to hang onto their paid for cars. If you have a monthly car note of $500, and pay that off over a 48 month period, you have paid $24,000 for that car. By keeping the car for another 8 years, and saving that $500, you can save $48,000.
You could retire early by investing your former car payments in a low index mutual fund.
How Much Do You Need In Order to Retire Early: How Much Money Have You Put Aside Outside of Retirement
People who have the concept of saving and retiring early already have pots of money they have set or are setting aside elsewhere. Those of us who reduce our expenses do so with the express purpose of saving what we no longer spend money on. You can almost guarantee that not only do we have a savings account, but we are also investing in mutual funds on the side and watching our money grow. Anyone who wants to retire early whether it is age 40, 50, or 60, has methodically planned and systematically thought out how they will make their dollars grow and stretch.
What Should You Do If You Want to Retire Early?
I would determine what retirement means for you. Just because you retire doesn’t mean that you have to completely stop working. You may just want to get away from the job you are currently on and do something different.
Maybe early retirement for you is age 58, or 55 or even age 50. No matter what age you determine will constitute early retirement make a plan, stick to it and commit to the sacrifices. Do the real numbers and determine what you will truly need in order to live for the next 40, 50 years or 60 years. Your ability to survive is not based on your current job or current expenses. There are a number of actions you can take to achieve early retirement and live your life to the fullest on your own terms.
Please read these articles in order to get more information about the FIRE movement.
7 Things You Can Learn About the FIRE Movement
Do You Need $5 Million to Retire Early?
Read about my plan to invest in a Roth IRA and retire early as well as how I was able to mastermind a 700k swing from debt to savings.