What’s the Secret to Early Retirement?

When you ask most people about retiring at 65, many of them will tell you that it’s impossible because they simply don’t have the financial means to do so. The fact is however that it is possible to retire at 65 or even younger and many people have done just that, retiring at an age when the rest of us haven’t even gotten started.

A great example of this is the gentlemen behind the website MrMoneyMustache.com. After just 9 years he was able to retire at age 30 and, while he is certainly the exception to the rule, some of the thoughts and ideas that he has about early retirement can be used by the rest of us to do the same thing.

In order to figure out exactly how it works the best thing to do is take a look at the math. The numbers we’re going to show affect everyone, not just people looking to retire early. Even for people who think that they are too late to retire early the strategies below should help at least to improve their retirement financial situation.

Simply put, the age at which you can retire depends largely upon how much money you can save and how fast. If you’re only able to save the recommended 15% of the amount of money you take home, it will take approximately 45 years to retire if you are counting on a 5% real return after inflation and you live off of only 4% of your savings once you actually do retire.

On the other hand, if you are really committed to retiring early and get put away 30% of what you take home, you can retire in 30 years or 15 years less. Increasing that to 40% you can actually get down to about 20 years and at 50% you can actually start enjoying your “golden years” in even fewer than that.

This isn’t magic it’s basically the result of three separate factors. Of course if you save more the amount of money increases quicker. Secondly, and maybe most important, compound interest will work to your advantage the more money that you have put away. Lastly there is the fact that as your rate of savings increases the money that you need for living expenses decreases.

Now many of you are thinking that saving 30% or more of what you take home is absolutely impossible. While you may think that, the people at “Early Retirement Extreme” and other such websites including Mr. Money Mustache are people who earned more or less an average income but made retiring early a top priority.

Of course every early-retirement story is different and unique but most share a common theme or themes. Most people who have managed to retire early shy away from many of the expenses that the rest of us take for granted including expensive new cars, cable packages and new electronics. They eat out less frequently, purchase clothing on sale or at thrift shops and bike or walk to work. Many also are much more self-sufficient and handle things like home repairs and even car maintenance on their own.

The fact is simply that if extreme saving can help some people to retire at the ripe old age of 30, those very same methods and practices can help people in their 40s and 50s to retire by the age of 65. With retirement fast approaching for millions of baby boomers, and many studies showing that the majority of them are not financially prepared, extreme saving tactics like these may very well be the best (and possibly only) way to prepare.

10 thoughts on “What’s the Secret to Early Retirement?

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