Happy Monday!! If you’re like me, that’s pretty much the last thing you want to read on a Monday, especially with my special addition of the second exclamation point. I seem to have a case of the Mondays every Monday, and so Sally and I are filling it to the brim with toddler-approved activities to help this day speeds by.
Meanwhile, I wanted to share a post Johnny and I wrote last week for DailyFinance. It’s about early retirement and where we stand on the issue. The title is The Early Retirement Fantasy: Why the Reality’s Not Worth It, which I think gives the gist of where Johnny and I stand on the subject. Admittedly, the article takes a strong stance and is a tad controversial because we wanted to stir up some good discussion on the subject.
We wanted to move the discussion over here to our blog to hear what you guys think on the subject. If you don’t have time to read the article, our opinion in short goes a bit like this:
- The extreme budgeting that early retirement requires is not sustainable in the long run.
- When you practice extreme budgeting for years and years, you can’t live in the present.
- Because you choose to retire early and can’t rely on compounding interest over the course of 40 years, it’s almost impossible to retire comfortably. And you don’t end up actually retiring.
- If it’s working for the man that you hate so much, keep working and spend your free time finding a way to work for yourself — rather than jumping to extreme budgeting and early retirement as the only answer.
All of this said, we don’t actually feel all that strongly on the subject, but we’re game for some good ol’ discussion, agreeing to disagree and all that. And maybe in the meantime, we’ll spice up this very Monday of Mondays.
I love a good controversy! But with that being said, here are my thoughts. Obviously, I really want to retire early – kind of. It’s not so I can stop working because I actually really like my job – it’s so my husband doesn’t have to work and so we have the flexibility to travel. Also, I’m a very “all or nothing” type of person, so reaching for an extreme goal like that really gets me fired up. Plus, I have to add that for us, it’s kind of a three-part process: 1) Get out of debt 2) develop passive income and 3) retire early. I hate how restrictive our budget is right now and you’re right, it does prevent us from living in the moment, which is why I started the blog. It gives us money to do things as a family and rather than wasting years restricting ourselves we can actually have fun as a family!
I think we could totally get behind everything you’re saying here. And like you, I kinda like working. “Retirement” or financial independence for me would likely still be working, but doing it remotely and (mostly) on my own terms.
I think there is a difference between retiring by 35 and retiring between 50-55’ish. I agree that being done by 35 is likely unsustainable, especially if you plan on having kids. Now, being done by 55? I can get behind that. It would most certainly require having a good amount of passive income coming in the door as retirement accounts can’t be touched until 59 1/2. You can still get the decades of compounding interest in those retirement accounts. Now, would I actually just stop working cold turkey at 50 or 55? Who knows, but I’d love to have that as an option before me if I so choose. I’m all about enjoying now and making memories with friends, family, and especially children. But I think this is possible while still living below ones means and giving yourself flexibility in the future.
Hear hear. 55 seems like a more realistic option for us, too. I certainly wouldn’t tell anyone to not shoot for a lower age, but knowing our own realities and plans for our family, the early (30’s-40’s) retirement is in the cards for us.
“Is in the cards” or “isn’t in the cards”, Johnny? 🙂 Think you meant the latter judging by your post
I guess my thought is that I don’t mind working for a while if it’s doing something I love. If you hate working so much that you put yourself to that much of an extreme to retire early, then maybe you should try another occupation?? I mean, I’d love to be able to retire early, and if my finances are such that I can then I certainly will. But I’m like you guys, I’m not going to kill myself for the next thirty years of my life just so I can retire early. Where’s the fun in that? 😉
Totally agree. My motivation for retiring early currently wouldn’t be to stop working. It’d be to have more control over when and where I work. Because truth be told, I sorta dig working. Don’t tell anyone. 🙂
Here are my thoughts, and I’ll use your 4 points as a guide.
1) Early retirement doesn’t necessary require extreme budgeting. To save more, you either have to spend less, or earn more. You can go about it any way you see fit. For some people, it is easier to reduce their spending on unnecessary items than to increase their earnings. Of course, other people can find ways to increase their earnings. Or someone could do both to maximize saving.
2) Philosophically, it depends what you call “living in the present.” If it is going out to eat with friends, going to movies, sporting events, drinking Starbucks, then you may give that up in order to save more. Sometimes, giving up extravagances makes you focus more on what you already have, or forces you to come up with other ways find enjoyment.
3) Not to harp on you, but you give no mathematical evidence of this. You don’t need compounding interest to hit a monetary target. It is just a benefit of putting your money somewhere that earns interest, or “money babies,” for an extended period of time. Consider compound interest as another way of earning money. At the end of the year, take your salary plus any interest you earned, and that’s your income for the year. Saving a portion of your salary or earning interest both reduce the amount of time it takes to reach your goal.
4) I think the true essence of early retirement isn’t a financial one, but rather to achieve freedom. Freedom from working for “the man.” Freedom to pursue activities as you please, whether that is a hobby or a different line of work. Too many people get caught up in the financial aspect of early retirement to truly look at it as a lifestyle choice. And since it is a lifestyle choice, it’s up to the person to decide if it’s right for them.
I enjoy your blog and having been reading for a while but don’t really comment. Keep up the good work.
I second Mark’s comments and add that your points are, excuse my french, hogwash. These arguments tend to degrade into what everyone’s definitions are for “early”, “extreme”, and “retirement”. But to discard the notion completely is shortsighted. I handle our family’s finances and have put us on the path to early retirement (read: passive income exceeds expenses) with minimal impact on our family, and I believe most households can do the same without extreme budgeting.
Working for the sake of accumulating additional wealth beyond a lifetime of need is extreme, in my opinion.
In a somewhat basic way, can you tell me how I’d figure out if I’m on the path to early retirement? AKA can you tell me how I’d figure out when/how my “passive income” would exceed my expenses? This is kind of a new concept to me. 🙂
Not sure if there is a real short way to answer it, and I would point you to some great sites like mrmoneymustache.com, jlcollinsnh.com, and madfientist.com, but I would say overall it comes down to your savings rate. That is your savings divided by your income. The higher the savings rate, the faster you will hit your goal. Early retirement goals are achieved with much higher savings rates than people are typically used to (think 50% or higher). And it can be affected by both earning extra income and/or reducing your living expenses. Put those savings to work and you get passive income and I would say the most popular strategies are through the stock market and with rental real estate. Many stocks pay out a dividend on a regular basis, or you can simply sell shares for income once you are retired. Rental real estate is pretty straightforward.
Once you build up enough and see your passive investments exceed your living expenses, you are financially independent. Again, there is a lot of great information out there to read up on, but no matter what stage you are at, if you can continually look for ways to increase your savings rate, you’re on the right track.
Danny—Thank you so much for your response! Right now I’m around a 30% savings rate, so I’m on the right track but have some work to do! That makes sense to me now, when my passive income/investments exceeds my living expenses…then financially independent. Thank you for taking the time to explain it to me! I will definitely make myself familiar with those blogs.
We love our hogwash piping hot in the morning! 🙂
The intent certainly wasn’t to degrade anyone or paint generalizations. It stemmed from an observation on our part of the ever increasing promotion of financial independence in less than savory ways. Many peddlers of the idea sell the “sizzle” without defining some of the realities. This was meant simply to be a counter argument. So sorry if it came off as a dismissal of the idea or a rejection of those who successfully (like yourself) pursue it.
And amen on your last sentence. Money is meant to be spent.
Thanks for the comment, Mark. Well-stated on all fronts. Here are a few responses.
1. Great point. In fact, when I’m pulling semi-all-nighters on some random side project or business idea, my alibi is that this is the time of life when I want to be investing those late hours — not my later years. So for us, more income (through more work) > extreme budgeting.
2. Also true. Our point here was that so many people focus on tomorrow and the lifestyle they’ll enjoy then that they forget to enjoy the now. For those who can maintain feet in both camps, kudos.
3. This point centers around making one’s money work smarter, not harder. If money goals can be hit without the assistance of tax-advantaged investment accounts over time, all power to you. But it’s also worth mentioning to those exploring the waters of early-retirement that this idea of traditional retirement investing/saving with the benefit of tax-advantaged accounts is likely off the table.
4. I can get behind this.
You’re making some pretty big assumptions by using the word “extreme”. We’re currently on track to reach financial independence around 35-36 years old and we certainly don’t feel like our $50K/year spending goal is austere or preventing us from living in the present and enjoying our lives now. And it should also be plenty (inflation adjusted) to give us freedom to do things like slow travel and explore different areas of the world as locals would because compared to much of the rest of the world, $50K/year is a king’s ransom!
“Early retirement” is about figuring out what brings value to your life and putting your money there. There doesn’t have to be anything “extreme” about it.
What’s funny is that “extreme budgeting” referenced in the article is a pretty accurate description of our current budgeting. So we’ve lumped ourselves into our own fringe camp. 🙂 Because this was directed at a general audience that doesn’t necessarily know our background on spending/saving/budgeting philosophies, we made some assumptions on what “extreme” budgeting might be for a majority of people. But like you mentioned at the end, the focus should really be on what constitutes a happy lifestyle for each individual, whether it breaks the norms of society or not.
Don’t forget us “working-for-the-weekenders” when you’re living the dream at 35-36. 🙂 We always love (and also envy) reading about your progress toward that goal.
We have a goal to retire early, so when I read this post I was all “Hey! What’s wrong with that!?” Controversy, engage! But what I call “early” is between 50 and 62 though (not 67 like the projected retirement age for our generation re:Social Security).. I agree with you on retiring at 30. Sheesh, that sounds like trying to sprint a marathon! Controversy, averted.
I’m really loving these replies.
Johnny and Joanna its great you both don’t feel as strongly and were like you said being controversial to stir up a discussion.
Because yes most of these sound like statements with no actual backing. Though I don’t disagree that change is hard and can be unsustainable but by no means does that mean its impossible.
My main motivator is being able to be a stay at home parent. But I am not waiting to be a better parent until then. It sounds like you get to spend lots of time at home with your little one, but how different would your day be if you didn’t have to work at the same time. To me that idea is worth the sacrifice but if to get there all I have to do is not go out to eat at crappy restaurant and learn how to make thing at home like empanadas well that’s no sacrifice at all
Mrs pop I totally agree with you that it seems how certain words are being defined is a big factor
Oh, believe you me. My greatest motivation for working is so that I can eventually have the choice to choose to work at home with Joanna and Sally, or not work period. Definitely agree there.
As for the other points, a few of my replies above address some of the things you mentioned.
Yep, you can put those virtual boxing gloves away. We’re seeing eye to eye, J.Mill.
My goal has never been early retirement. I started out living off of about 50% of my pay my first year out of college and as my income increased, I’ve been banking my raises and bonuses, so now I’m saving about 75% of my income. I’m partially going for freedom and maybe an escape route from the male-dominated industry that I work in, but mostly just saving the earnings that I don’t need.
I’m with PoP here – it’s all a matter of perspective. I spend about $40-45k/year and don’t really feel like I’m denying myself much, even when I watch my friends with similar incomes and all the more “stuff” and “trips” they spend money on. I’m happy with my life!
That’s an awesome savings rate. So great. And we agree on the issue of perspective. We’re actually in the exact same boat, so we lumped ourselves in the “extreme” crowd. And we feel like we’re living like kings right now. No complaints here.
I’m looking into early retirement but not by extreme budgeting. I like to have fun sometimes and enjoy a few things in life. My goal is to reach it by making more money so I can keep my lifestyle and be able to save more money. I love what Mr. Money Mustache has to say, but oh boy he’s ways are too much for me. But hey, it works for him.
Sounds like a plan, Aldo. I would say Johnny and I are on the same page. And by early, we’re thinking maybe our 50s. More power to the super early retirement folks out there, but it’s not for us.
I do not think it is fair for you two to only address the con side of early retirement without acknowledging the pros. You sit in a position of influence over people seeking financial advice. Why rain on a parade based purely on your opinions of boredom or sustainability without noting the facts on the the matter? Countless research has proven that over time, 4% is a safe withdrawal rate. That means, in order to retire early, one must have 25 times their living expenses saved. If you save 75% of your take home pay, you can retire in 9 years (thanks to a little interest in the saving period). If you save 50%, you can retire in 17 years.
Full disclosure: I am a Ph.D. seeking graduate student making a 20k stipend per year. My husband has his bachelor’s and makes $40k. We comfortably live off my salary alone–saving every penny of his. This includes luxuries like three major vacations, cable every month, and smart phones. How we save is by eating every meal at home, picking up cheap hobbies like tennis and hiking, and evaluating the happiness each purchase will bring into our lives. That is a 66% savings rate. We plan on buying a house and starting a family when I am out of school. This will increase our annual spending, but I hope my big-girl job will come with a better salary than my stipend to offset that. We should be able to retire easily in a little over a decade. I can dream of multiple volunteer opportunities and vacations to occupy us throughout retirement.
Do you mind if I ask where you live. I am not asking to be nosey; I am researching moving to a cheaper part of the country! Thanks
I live in Arkansas, where the cost of living is super low. From what I can tell, staying away from the coasts and large metropolitan areas is the key to a low cost of living. Mr. Money Mustache (whom I feel this blog post might be aimed toward) lives in the greater Denver area with a family of three for around the same amount as I do, so it is possible even in higher COL parts of the country. If you are looking for some tips on how to cut costs, I’ll happily point you to his blog.
Thank you. I live in S. Florida to be closed to my family, but it is just too expensive. I love. Mr. Money Mustache!
Fair point. We wrote this for AOL in large part because we had seen a number of articles preaching the pro-side to early retirement, so we wanted to provide some balance. We don’t take lightly the fact that we have (with some lucky breaks) stumbled on a platform to discuss financial topics with readers. And it’s for that very reason that we wanted to caution those who read other articles/sites that preach financial independence without discussing some of the realities.
Per your disclosure, our percentages align fairly well to yours. And while our retirement goals might be different, I think we’re on the same page as far as spending and saving goals.
I’m not sure we’ll retire early, but for me it’s the draw of flexibility. I might want to be a SAHM once we have kids, or I might be going stir-crazy by the end of maternity leave; I won’t know until I’m in the thick of it, but I prefer to be prepared so that we have the flexibility for me to stay home, work part time, or take a lower stress/pay job based on what’s best for our family instead of what’s best for our income/budget. Of course, we’re far from extreme- most PF blogger budgets (including yours) make us look like giant spendy-pants, and we have more gradual trimming to do in order to make those options comfortable.
Yes, I totally feel where you’re coming from. Saving as much as you can for the purpose of more options/security/flexibility in the future is a great goal. Even just getting our 3-6 month emergency plan in place gave us a lot of peace of mind and flexibility for the future.
Interesting. I hope that people can make “early retirement” be whatever they want to make of it. The rampant acquisition of stuff and things is why most can never stop working. If you want to break that cycle, do it. If you keep your expenses low and save at a high rate that should be a recipe to make your “early retirement” be exactly what you want.
30? 35? 40? 45? 50? 55? Why not? What if you worked 6 months and then took 6 months off every year? What if you worked 1 year and took 1 year off?
I often read posts on LinkedIn about how foolish early retirement is. Many never even consider it an option. They rarely save. Pile up debt. Live for the moment. With that scenario, they really can’t even consider it. For me that is kind of sad. My perspective has changed so much from 23 to 43. It is a good change, but it makes me wish I’d done things differently in my 20s and 30s.
I might work until our kids are all in college. Or possibly wait until they are all out of college. Or I might quit next month. Or next year. If you have options, then no path you choose is really wrong. I look forward to reading the comments.
Great points. I’m sure you know we aren’t bringing up these cautions about early retirement because we love stuff. Or because we have debt, spend recklessly, etc. Instead, we wanted to present a rebuttal to the many blogs/articles that make early retirement seem like a walk in the park.
In the end, we do what we do (budget, stay out of debt, etc.) so that we’re empowered with more choices. And in the end, early retirement could very well be one of those choices.
Sorry, I have to be honest. There’s something disingenuous about writing an article just to stir up a little controversy when, you admittedly, “…don’t actually feel all that strongly on the subject.”
That was probably mis-worded. We don’t feel strongly about how or when people choose to retire. In fact, early retirement is a fantastic pursuit for many people, including many readers on our site that are making it a reality. It might not be in the cards for us (for many of the reasons stated in our article). But we DO feel strongly about articles/sites that preach early retirement without discussing some of the realities that we mentioned.
We don’t write things to merely play devil’s advocate. And given the discussion that’s taking place in the comments on this post, I’d say the net results have been positive. Our own opinions have been altered as a result.
Early retirement discussion today, eh guys? Well here’s my take on it. It’s not all that cut and dried. It works out ok for some but sometimes not so well for others. Here’s why:
Many folks concentrate on only the financial issues needed for early retirement. That’s however just the beginning. For you young dudes and dudettes out there consider demographics. As time passes people are living longer. Improved living conditions and heath care are having an impact. So what you figure may be enough to save up to retire on may fall short if you live longer than you expected to. So depending on that point, depending on your planned retirement lifestyle (and what that will annually cost you), depending on your types of retirement investments (and you can be very sure that we will definitely experience another 2008 meltdown or two before we finally kick the bucket years from now), you may or may not have saved enough by the time you decide to retire early.
Next consider that if you retire early it probably means that you will live longer in retirement than the time you spent “working for the man”. And all that’s fine and dandy – but – consider this: you won’t be happy unless you set some specific retirement goals for yourself – things to do, things to learn, etc – not just a financial goal. You see, ya gotta keep busy in some way all throughout your life. Travel, golf, bingo is one thing but after awhile they all can tend to get a tad booooring!!! Not to mention that whatever you do, it probably should involve your partner for somethings and just yourself for other things (so as to give each other some individual space). And then consider that down the road, either you or your partner may no longer be around much (thru death, chronic illness, or perhaps divorce – yes, it happens!). Do you know what you will do each day then to keep going?
So, yes, early retirement can work but be properly prepared for it, in more ways than one. My wife retired in her mid 50’s (to stay home to take care of her elderly mom) while I retired later at 66 (I could have stopped earlier but I was by then coasting at work, earning at the peak of my income so why quit early). Anyway, that’s my take on retirement timing, for what it’s worth to anyone!
Been there – doing that, as we speak 🙂
Always love hearing your perspective, Rob. You make some really good points and some great considerations for those considering early retirement! Even if we had all the money in the world, I don’t know that Johnny and I would retire because, like you said, ya gotta keep busy!
Gosh… interesting discussion here. As a person who “retired” at age 39 (I’m 47 now) I have to say that I pretty much disagree with everything you’ve said! 🙂
Of course, my definition of “retired” and your definition might be quite different. By some people’s definitions, I’m not retired at all, just self-employed. But since my income is largely passive, I don’t really think of myself as “working” – even though I’m still earning more money than I need to live on and putting money away in savings and retirement accounts every year.
I have mixed feelings about the idea that “extreme” budgeting is required to achieve financial independence. I never really earned that much money (probably around $45K annually at peak) but was able to live quite comfortably on less than half of what I made. But I’ve never actually followed a budget.
I dunno… at some point early on I just made some sort of a mental shift and stopped measuring wealth by the things I own and started measuring it by how much freedom I have. Money in the bank, lack of debt, and ability to spend my time as I see fit – all these things make me feel wealthy beyond compare. Plus, it’s not like I don’t enjoy certain luxuries. I have a huge screen TV, and a carbon fiber road bike, and a pile of cool guitars, and a bunch of photography equipment, and the most spoiled fe-lions on the planet. I just don’t spend money on things that I either don’t need or that don’t bring me real joy.
Yes, I have hideous avocado green shag carpeting, and a kitchen that dates to the 1950’s, and a car that’s 25 years old, and I live in a section of town that makes most (white) people uncomfortable, and I don’t have a smartphone, and I only eat out a few times per year. But I don’t really view any of those things as sacrifices – because I get to go for 50 mile bike rides several times per week, and sleep in as often as I want, and spend as much time as I like pontificating on blogs like this one!
So I guess I think it’s all a matter of perspective! 🙂
Haha. Best intro ever. This is a fantastic response and, assuming you know just a teeny tiny bit about us, we see eye-to-eye on almost everything you’ve said here. While we don’t view our budget as “extreme,” it doesn’t reflect the norms of spending in society. And we wouldn’t have it any other way.
Thank you for sharing your always insightful perspective.
I live in Boston and spend roughly 17500 a year including everything, stocking away 75 percent a year in after tax income. It’s not that hard. It may seem like sacrifice at first but i’m way happier than I was before.
Looking back in my journal, it’s clear that a lot of big purchases in the past were a symptom of dissatisfaction that brought only short term happiness. The so called sacrifices will be pretty easy to forget eventually. I’ll be retired by 32 at this rate. I’ll play music, write, and own a coffee shop. It’s going to be awesome.
Wow-I’m from Mass and moving back from PA to MA this week. Reading your comment is very inspiring! I’ll think of you and your comment as I continually aim to live on less and less of my income. Good luck and I’ll come visit your coffee shop when you open it! 🙂
Way to go on your spending. As long as it’s making you happy, keep on keepin’ on. I love your goal of retiring early, doing what you love, and owning a coffee shop. Good luck in your plans!
So we are super fortunate to be a DINK couple with good salaries, managing to live a fairly low cost lifestyle, and renting in a super ridiculously overpriced housing market (no keeping up with the Jones’ to burden the budget with!).
Having said that, my husband walked away from a very bad work environment last year, and was out of it for 6 months for personal reasons. We managed to still save about 10% while living on my salary alone.
When he found a job after a good two months search, he managed to get a nice raise, and at the same time I changed jobs for a small raise as well. We stuck to the same budget, and while expenses went up a bit with him working again, we are still living on one salary essentially. Great saving %, but it’s always at the back of my mind that he might run into problems and need time off again.
At the time of the job switches we were living a good hour away from work. Since we’re renting, we just moved closer for both $$ and time savings. Not always an option, but highly recommended if you can find it. It took us 2 months of rental searching to find something decent that didn’t cost an arm and a leg in rent, but so worth it now.
So tldr; version – imagine what you would do if you had to live on one person’s salary. You may need to do so in the future. What is worth cutting, what can you not bear to let go of? Cut the stupid expenses, keep what you find worth spending on. Any raises you get go straight into Mr Investment, not Mr Cupboard. ??? Profit!
During my career, early retirement was equated to Freedom 55. Until I started reading PF blogs this year, I had no idea that people were trying to retire at 35-40-45. I’m not against it, I’m just quite amazed but know that it is possible, but you really do have to work at it and have a very good salary. I’m just sorry that I will miss my 55 year retirement by 5 years, and it’s not through lavish spending by any means.
Hi! New reader!! Our goal isn’t necessarily to retire early, but to get to the point where we don’t “need” to make money. Quite frankly, what do retired people do?!?! While I would love to travel the world and sleep in til noon, that’s just not conducive every day! I like working and enjoy being productive with my days, as does my husband. We’re currently both self-employed with a two-year-old and a one-year-old, so I’m counting my blessings!! While we may not quite yet be “financially independent,” we are happy with what we’re doing and making our own way!