Here are some thoughts from the great personal finance book Grow Your Money!: 101 Easy Tips to Plan, Save, and Invest. They list secrets of successful early retirees as follows:
-
Successful early retirees have their eyes on the early-retirement prize for decades in advance.
-
Modest lifestyle -- before and after retirement. Being able to retire early almost always requires some financial sacrifice both before and after retirement. A high savings level, often as high as 30 percent of income, is required during the working years. A modest lifestyle continues after retirement, but by then, you'll be used to it.
-
Aggressive investing. You can't afford to be conservative if you're amassing a portfolio that may need to sustain you for five decades or more.
-
Part-time work in retirement.
Here's my take on these suggestions as well as this issue as a whole:
1. Yes, you need to save for a long time in order to retire early (unless you win the lottery, but that's unlikely.)
2. In order to save what you need, you must create the greatest gap possible between your income and expenses. So, of course, this means making the most of your career and other money-making ventures as well as keeping your expenses as low as possible. Sounds familiar, right?
3. You don't necessarily have to live a modest income, but the more modestly you live, the faster you can retire. For instance, let's say you make $200k per year. You spend $100k and save $100k. Now living on $100k is not "modest" by most definitions, and you're saving 50% of your income. I know this is an unusual example, but it can be done (I have friends that have numbers similar to this) -- if you grow your income and keep expenses relatively in check.
4. I'm not sure how much we all can count on "aggressive investing." I think we've all seen that high-risk investments can disappear pretty quickly. Besides, time is more valuable in investing than return (so plan for a longer investment period -- something you can better control -- versus taking on risky investments to hit a target.)
5. Personally, I plan to work part-time in retirement -- I don't see myself becoming a couch potato. But the difference between working at something you want to do (like refereeing soccer games, working for a non-profit you like, etc.) is HUGE compared to taking a job you HAVE to have in retirement (like working at a fast-food place, selling newspaper subscriptions, etc.)
This is what I've done (roughly) and I'm on track to retire before 60. Yes, I could have cut expenses even further and retired a few years earlier, but what's the fun in that? You have to enjoy life while you're going through it, right? And even with that philosophy, I'm still looking at early retirement in 10 to 15 years -- sooner if the market gets its act together. :-)
I would say "aggressive investing" are poor choices of words. If it means "aggressively contributing to your investing" then I would agree. However, if it means, "To invest in an aggressive manner" then I would agree that that's not always a good idea.
Overall though, they're not really bad advice....
Posted by: Eugene Krabs | October 05, 2009 at 04:17 PM
Pretty simple advice on retiring early.
I like #2 - modest lifestyle. There really is no limit on the amount of income you can save, which means there is no limit on how early you can retire.
Most people do the minimum and get the minimum.
Posted by: RJ Weiss | October 05, 2009 at 04:56 PM
I plan to quit at 55. I only make a little over 50k a year. I only spend about 22k a year. I have no dept. own my house and car. don't have any kids. So ... i think I can do this. Only drawback...health care. I'm looking for cheap, high deductable insurance. With a little luck...I may be able to do this.
Posted by: Phil | October 05, 2009 at 06:06 PM
You're right about starting decades early if you want it to happen.
Posted by: John DeFlumeri Jr | October 05, 2009 at 11:12 PM
i immensely enjoy what i do and i really dont think that i will ever want to retire. maybe its the youth and money talking but i am working towards having this option in the future. i dont want to have to work at 70 out of necessity but out of a simon-pure passion for my work. i choose aggressive investing and building businesses and increasing my education on as much as i can. nice post btw
Posted by: kenyantykoon | October 06, 2009 at 01:37 AM
FMF,
In your example about someone making $200K per year, this must mean after taxes right? Because $200K gross would work out to about $120K a year after taxes....
Just saying because I am one of those heavy savers and for sure my biggest expense on gross income is the dreaded t-word.
-Mike
Posted by: Mike Hunt | October 06, 2009 at 02:44 AM
...sooner if the market gets its act together"
This can be the brutal factor in retiring early. Some people retired with a 40% loss.
I want to have enough money to live my lifestyle regardless of the stock market.
The facts you presented is good, if one keep a steady income stream for decades.
A job loss can also make you short in reaching your goal
Posted by: Moneymonk | October 07, 2009 at 01:22 PM
I couldn't agree more with the comments about 'aggressive investing'. I hope that we have learned how much this can hurt. The only thing worse than a 50% loss within a few years of retirement is a 50% a few years after retiring. Time really is your best ally in investing.
Posted by: Evolution of Wealth | October 08, 2009 at 09:44 AM
I would say "aggressive investing" are poor choices of words. If it means "aggressively contributing to your investing" then I would agree.
Posted by: fa | October 08, 2009 at 01:39 PM