As of this blog post, I am on pace to retire at age 37. Specifically, that’s 11.84 years from today. But who’s counting?
All my life I’ve been told: go to school, go to college, work for 40 years, retire, be boring, then die. What if there’s another way?
Personally, I plan on cutting the working portion of that story in half. Instead of sitting in a stifling office, watching yet another beautiful day go by through the freshly windexed glass of my corner office prison, I plan to take advantage of the weather. To enjoy the park on a Tuesday, because I don’t have any conference calls stopping me. To go grocery shopping during the week, when the parking lot is empty. To unplug my alarm clock and never have to wake up to the shrill, groan inducing sounds of another interrupted sleep again.
Life can be about more than debt, bills, and morning commutes. Life can be about complete financial freedom, and 11.84 years from today I hope to tell you all about it.
If you’re skeptical, that means you’re capable of critical thought. I don’t blame you. Paradigm shifts never do come easy, and I was Skeptic #1 when I read about these people achieving absurdly early retirements:
- Jacob at EarlyRetirementExtreme.com is perhaps the founder of the movement. A PhD’ed Astrophysicist by trade, his book chronicles his adventure and how, by prioritizing the important things in life, he was able to drop out of the rat race completely by age 33.
- Mr. Money Mustache was a software engineer who reached complete financial independence at age 30. He promptly quit his job and started a side construction business as a hobby. He now spends the majority of his time doing whatever he feels like while raising his 9 year old son, thanks to his wide open and career-less schedule.
- GoCurryCracker and his wife reached financial independence in their thirties, and the two now enjoy traveling the world year round.
These people did not hit the lottery. They did not have huge inheritances or rich parents supporting them. They didn’t even have hot-shot, high salary jobs. Simply put, they prioritized what was truly important in their lives, they set a goal, and they achieved it.
In their 20s, they had that Edward Norton mid-life crisis that most don’t experience until their 50s: Working a job you hate to buy shit you don’t need is not on anyone’s recipe for happiness.
Think about your happiest moments. The long lasting, truly happy moments. Do they involve the fleeting rush of a new purchase that soon fades to apathy, a desire to upgrade, or worse… buyer’s remorse? Or do they involve spending time doing things that you love, with the people you love?
My happiest times are when I’m completely free. Free from the worry of money. Free to choose what to do with each day. And free to avoid doing things that make me unhappy during our precious limited time here on earth.
“When You Come to a Fork in the Road, Take it.”
Granted, I’ve been on the retirement kick for longer than most. When I was 16, I opened my first investment account and proudly declared that I was saving for retirement. But until I discovered an alternate path from the “9 to 5 grind till you’re gray,” I considered it a long distance pipe dream. Seeing these real life examples changed my world, and my motivation in earning, saving, and investing was pushed into overdrive.
Keeping these priorities in sight, I made a few changes to my life. I decided I’m not going to listen to what those new car commercials are telling me. It turns out; an expensive car won’t actually make me any happier. I decided to cancel my monthly money drain that is a cable TV subscription. I survived. I’ve even forgone the granite countertops in my apartment. I know, the horror! But surprisingly, my life hasn’t been the slightest bit different. I just get a little less countertop glare while I’m cooking.
The result? These small savings add up. It’s hard to imagine, but coupled with the beauty of 5-7 percent stock market returns, a string of these small decisions over the last few years have left me as a 25 year old with $101,000.
What’s Your Plan, Exactly?
Well, my savings are currently on autopilot. I am saving around $33,000 per year, or about 60% of my salary, into a mixture of broad market, low fee index funds.
I like to keep things conservative, so we’ll assume I never get a raise again. As I keep dumping $33,000 per year into these low risk investments, the beauty of compound interest needs just 11.86 years to snowball that pile of cash to $750,000. At which point I can use The 4 Percent Rule to live comfortably off about $30,000 per year, forever. I currently live off of less than $25,000, so I am happy with the wiggle room there.
What about kids? A new car? What happens when I buy a house? When I have to save for a child’s college? Unexpected medical expenses?
All valid points, and all very real expenses. (except for that sneaky new car suggestion… you car salesmen are relentless)
Never mind the extremely conservative assumptions I’ve built into my model: That I will continue to earn my fresh out of school recent college grad salary forever; that I will never get a raise; that any potential spouse will never save a dime; or that I will never find a single way to earn a dollar in my 40+ years of retirement.
If we’ve learned anything from the early retirement forefathers before us, it’s that spending is almost entirely in your control. You don’t have to buy the most expensive house some shady banker promises that you can “afford”. You don’t need to upgrade cars every 5 years just to impress your friends. And you don’t need to trade years of your life working a high paying, stressful job just to buy stuff that isn’t making you truly happier.
The Road Less Traveled
Maybe I’m way off base. Maybe my estimations are far too optimistic, or far too conservative. I could be blindsided by unexpected expenses (possible), the market could crash at the perfect time and delay my net worth goals considerably (also possible), or I could hit it big and retire even sooner (far less possible). On the bright side, if I’m off by 10 years, I’ll still retire a full decade or so earlier than the few Americans who are actually planning for retirement.
Happiness is what you make of it. Personally, I prioritize my freedom over material goods. Maybe you don’t. If you keep reading this blog, maybe I can change your mind. Hey, worst case scenario? I make for an interesting sideshow.
I believe time is the most precious commodity, and I choose to save my money in an effort to one day make the greatest purchase possible: my freedom.
It’s great you’ve already got a plan for early retirement 11 years out! I think you’ll get there, but there is this “one more year syndrome” which you may have to deal w/.
I write an early retirement blog as well at Financial Samurai, but few folks really see it that way for some reason. I left corporate America at age 34.5 after 13 years in finance. Original plan was to work until 40, but decided to negotiate my severance instead.
Cheers,
Sam
Assuming you don’t have a major life change, I think you can do it but then again I’m skeptical since I had similar ambitions as you until I got married, bought a modest home, and had a few kids. It’s amazing that you can save $33k a year. Sadly I can only save $27.5k a year and still fund kids college funds.
I am happily surprised to see Sam reply because I’m trying to follow Financial Samurai methodology to retire at 55. Unlike you guys, I took the non-traditional approach to college and went on and off for seven years before graduating with lots of student loans.
Look forward to following both of you guys and seeing how things work out in the next few decades
Regards
Vit
I’ve gotta say that retiring early has been absolutely WORTH IT! The health benefits alone are priceless. But there’s so much opportunity to do other cool things that can actually make you plenty of money as well.
The FEAR of running out of money in retirement is completely overblown, especially if you retire early.
Sam
Hey Sam, thanks for stopping by. I am familiar with your site, your exit was an inspiration. 🙂
Really cool to hear your thoughts on the running out of money debate. I can only think that actually having free time and life energy will make earning some side incomes even easier.
I agree that the health benefits of financial independence/early retirement are alone worth it. It’s amazing what waking up everyday and having a choice how to spend your time can do to your health!
Hey,
Really like all the information and strategies you describe. Here is the hard part: what to invest in safely to secure those 7% per year gains? Don’t just say low cost ETFs. There are hundred or thousands of those funds. People like me are ready to save and invest, but we hit a road block when it comes down to actually buying an investment. Could you look into writing on that?
I’d definitely recommend low cost ETFs. 🙂
For a specific, it’s hard to go wrong with Vanguard’s Total Stock Market ETF. Ticker symbol is VTI. I plan on writing a more step by step guide for beginners in the future.
Schwab has a great one with way better yield and highest quality companies. No transaction fees. SCHD is the contract. I think investors should put their cash in multiple broker funds. If all your money is in Vanguard and they have some issue like what happened in ’08, you could be completely screwed.
Schwab does have some awesomely low fees, I’ve even seen some lower than Vanguard.
That said, I’m comfortable having everything in Vanguard. Remember, I’m not investing in Vanguard, I’m investing in the thousands of companies that comprise Vanguard’s fund. Vanguard is just the manager of the funds, which hold Apple, Coca-Cola, and thousands of other companies. Even in ’08, Vanguard was alive an well and nobody got completely screwed. If Vanguard somehow went bankrupt, the funds are all held as separate entities anyway, so investor money would stay safe.
Hello,
This was a great read. I hope to retire by age 40. When you usually discuss this topic with anyone they make it seem impossible to retire that early. I have read about the 4% rule and Vanguard low fee funds quite often. When you refer to the 4% rule based on the $750k is this considering investments are in a non 401K account? I ask because in a regular 401k account you are subjected to early withdraw penalties before a certain age. I just wanted your insight on the 4% rule. I look forward to reading your blog.
Hey Dante,
Congrats! You’ve found a place where nobody will think you’re crazy for trying to retire by 40.
I plan to access my 401K before age 59.5, without penalty, using what’s called the Roth IRA Conversion Ladder. It involves transferring money from your 401K account to a Roth IRA, waiting five years, and then withdrawing the transferred money penalty free. The key lies in minimizes taxes owed on the transfers and having investments to live on during the 5 year waiting period.
Retirement at 37 means you will have the opportunity to fund 100% of your Health insurance plan for 28 years. You are from MN. How about those individual health plan premiums? I estimate that the annual increase will be over 4%
Good luck!!!!
Although Minnesota currently has some of the lowest premiums in the nation, you’re right that things are looking messy. Hopefully they get it sorted in the next 10-15 years, but worst case scenario, there’s plenty of other beautiful states in this great country, and even other beautiful countries in this world.
But to the point of your question: Most early retirees benefit from the Affordable Care Act. A family of 4 can have a modified adjusted gross income of nearly $100K and still receive health insurance subsidies, and most early retirees are reporting premiums of $200-500 per month for a family under the high deductible plan. Here are a few interesting articles on the subject: 1 2 3
This is a good strategy, but it leaves out probability. The probability right now with the market trading near historically high valuations means that it’s likely that in the next few years a major correction or even recession will hit. Those working outside of healthcare are likely to be unemployed. It would be good to branch out from VTI and find better yield that is not just in the S&P. VTI yield is so pathetic at 1.95% you can’t get decent income from that thing with less than 2M. I suggest learning to swing trade will get you much better and less risky returns, and a lot faster than just buying these passive funds like a clueless retail investor. They can take 50% hits just like the SPY. If you don’t have 50% cash on hand to take advantage of it, then you can’t really lower your average enough.
With VTSAX/VTI, I’m betting more on appreciation than the the dividend payments. If another crash happened, I’d just live more frugally, try to find a second job, and start pouring more money into the market.
Swing trading isn’t for me. Have you had success with it?
A market correction soon would even be beneficial in the long term scheme, when using a dollar-cost averaging method. It would allow the normal yearly amount invested to buy more units of the same funds, thus lowering the average price paid.
In this way, a large drop and then rise of stock prices back to the current high is more beneficial than stock prices being static for the same period.
Well said Jack.
Inspired by your story, keep up the great work! What kind of accounts are you saving your money in? taxable vs taxed?
Thanks! Check out my net worth updates for a breakdown of where I’m saving my money.
Loving the personal finance blog, keep it up.
As a side note, have you included inflation into your retirement predictions? (although you can probably assume a annual pay rise equal to inflation for your most conservative estimate perhaps).
Say 11 years from now at an average of 2% would be around $930,000 required to live of $30,000 in today’s money.
I use inflation adjusted stock market returns in my predictions, so the final number spit out will be in today’s dollars. I’ll be addressing this in more detail next week.
I just found your blog…. My big question to you and others is what you are going to do with your health insurance? We can retire right this second but what holds us back is health insurance costs…. With dh’s heart issues we just gotta have good coverage… So we continue to work. Currently looking at retiring in 2 years but then again the cost of health insurance… We don’t want to wait till we are 65 to enjoy it (PS: I will retire when he does but I am younger than he is )…. Have you written about this yet? If so point me in the right direction….
Early retirees are usually covered under the ACA. I haven’t written on this yet, but other sites have done a pretty good job:
http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-month-health-insurance-plan/
http://www.mrmoneymustache.com/2013/10/28/obamacare-friend-of-the-entrepreneur-and-early-retiree/
I haven’t followed the recent politics, so I can’t comment on the latest news here.
Just came across this. If you are living comfortably on $25K, then you do not have a wife or kids, and you must live somewhere like Kansas or Nebraska.
I love what you say about buying junk, trinkets, impulse stuff. Almost impossible to avoid when you have a wife a and two daughters.
Minneapolis here. I lived in a higher cost of living place, but moved once it started getting out of control relative to my pay.
Getting the whole family on board is definitely key.
Dear Money Wizard,
Excellent start !!
Just one thing I’d suggest is to set explicit savings goals (beyond just retirement) that account for change in your family status – 1 or more kids, spouse etc will bring on additional expenses in transportation, college education, vacations, utilities and housing. Its never too early to set aside some money for those – so you can handle those post your early retirement effectively. Maybe, you have done that already. Sorry, if I missed it.
-M
Thanks for the advice!
Right now I’m hoping that accumulating as much as possible. Hopefully stashing away $35,000+ per year will cover some of those expenses without specific planning. I’m sure I’ll get more specific targets in the future. I do plan on setting up a 529 or similar plan once I get closer to kids.
Dear Money Wizard,
Congratulations and good luck with the your journey and destination. In your opinion, how do you think I am doing? I am 32.5 yrs old with a fiance but no kids. I have a Vanguard stock portfolio worth $280,000 and retirement account worth $55,000. I earn around 4000 a month (after tax and retirement savings) from wages and 1200 a month (after tax) from dividends out of which I spend around $1800 a month. Do you think I am doing ok?
Shaquille,
I’d say you’re doing just fine! Keep it up!
You’re saving 55% of your take home wages, which is very impressive. $300,000 in savings at 32 is solid, and you’re living a pretty inexpensive lifestyle. It looks like you’re in a position to max out your retirement accounts, if you’re not already, and also consider automatically reinvesting those dividends.
Overall, very nice so far and keep it up!
Thanks Money Wizard, you are one of my inspiration. Lets see how far I can go.
Is buying a house a part of your plan? If so, how does it fit with your early retirement plan? I ask because I’m curious about how others regard buying a home – I bought one and I’d like to retire early 🙂
If I stayed single forever I’d have no problem renting forever, but I plan on getting married and having kids, so I recognize the stability benefit of owning a home. I hope to get a reasonable enough home that the mortgage is slightly less than my rent, allowing enough room for maintenance, insurance, etc. to keep the overall out of pocket cost similar to rent.
At some point, having a paid off home will be a big boost towards the early retirement, because your monthly fixed expenses (rent) will decrease significantly and you’ll only be left with the unavoidable living expenses like property taxes and maintenance.
Hi Money Wizard,
I hope you share your views about my financial situation. I am 32.5 yrs old with a fiance but no kids. I have a Vanguard stock portfolio worth $280,000 and retirement account worth $55,000. I earn around 4000 a month (after tax and retirement savings) from wages and 1200 a month (after tax) from dividends out of which I spend around $1800 a month. ALSO, I have 139 dollars in credit card debt only and renting at the moment. Would appreciate your feedback.
Money Wizard, so what would you say are the chances of success if someone invests or day trades in Penny stocks? I am not talking about dilution-machine penny stocks but promising ones and day trading ones that have momentum, good news, etc.
It is highly risky but I suppose you never considered this as a part of your strategy? Currently invested in MGTI at price aver 0.92, it’ll be interesting how it turns out. Also day trading various stocks.
Thanks, Daniel Watkins
I’m an indexer, so they’re not really my style.
In general, I think the penny stock industry is ridden with pump and dumpers, but it might hold a little more opportunity to beat the market than trying to pick large caps. That said, I don’t personally know of anyone who has successfully been able to outperform through penny stocks, and I haven’t seen any compelling research for it either. Has it worked for you?
Well, when I first started I had about 64 grand. I saw a stock, PRGN, now PRGNF running up and poured it all in and my account was at about 100K when I sold (peaked to 140K or so, dumb me). But, then I felt invincible and from a previous/pending hardship of mostly a legal kind, I felt the world owed me something. So of course I went into greedy mode, chasing stocks that had just peaked. Didn’t take time to research the market, typical rookie mistakes.
At one point, was down to 18K. Now i’m working my way back up with a lot of research of trends, momentum, technicals, short interest. I won’t buy a big stock usually, because it is very slow moving. TSLA would have been great when investors were scared of the Solar City acquisition.
I am a member of 2 groups that chat on Discord about the market, giving out alerts, discussing swings, shorting, etc. Ascend trading and EnhancedInvestor. Winningtrades4u is yet another. Just something to see what the traders are talking about, to see what is trending.
I’ve learned that if you properly weigh risk/reward and be patient for the obvious opportunities, should be easy to make good returns with penny stocks.
The stocks that are dilution machines of course are really trash. DRYS for example!
I’ll give you an update when I break even ;). First waiting on news from MGTI to push it back to $1+, then sell. I’ll be at $30K+ then. Then wait.
SKLN is looking good to go Supernova if/when the CE mark news from it’s Streamway system is gained.
You’ve got a higher risk tolerance than me. If I lost $82,000 trading stocks I know I wouldn’t be able to keep going.
Be weary of stock tips you hear online. I see a lot of people hyping up trades or lying about their performance in hopes of getting others to buy in and pump up the price of their investment. I’d also argue there are no obvious opportunities, and beating the market is very far from easy. There’s always a risk and the market has usually already priced in any of those opportunities.
Good luck getting back to break even. I think your best bet to do so would be through an index fund.
Getting to retire at age 37 should be too good, unfortunately in the country that I live in, it is becoming more and more difficult, and the social security factor is also in a great moment of transition.
Which country do you live Lazaro? Always cool to see where readers are from, especially the international ones.
Just curious, assuming there are no major changes in this country pertaining to health care, how do you intend to cover your medical expenses after you retire at 37? Are you planning on rolling the dice and hoping that nothing happens until you are old enough for Medicare coverage to kick in? One bad medical episode could wipe out your savings if you don’t have insurance. I too hope to retire early, but this is the one thing setting me back… Looking forward to your thoughts on this.
This question was asked a little earlier. Scroll up a little bit to see the original question. Here was my answer:
”
Early retirees are usually covered under the ACA. I haven’t written on this yet, but other sites have done a pretty good job:
http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-month-health-insurance-plan/
http://www.mrmoneymustache.com/2013/10/28/obamacare-friend-of-the-entrepreneur-and-early-retiree/
I haven’t followed the recent politics, so I can’t comment on the latest news here.”
I wonder if it would be worth it once you achieve your goals to retire to Canada? …. cheaper health care or as some others do … relocate overseas to low cost health care destinations for a while … the main thing is you will have choices … God Bless, Beijing, China 🙂
Interesting thought. I moved to Minnesota a few years ago, so Canada wouldn’t be too much of an adjustment!
Check out my book review of How to Retire at 35. The author has lived overseas for decades.
Like you said, it’s all about choices!
Hey Money Wizard,
Congratulations on your journey and the planning that you are putting into it. I have been coaching a 31 year old son along similar savings and investing strategies since he was about 14 and started to take an interest. (He is doing fine, but likes his work too much to retire!)
At your age, you may find your goals continue to morph, but the high savings rate and prudent investing strategies will make many things possible!
Cheers,
The Wease
Thanks! And I agree, I’m often asked for a bullet proof, step by step life plan with every moment planned out. But that seems impossible, and no way to live life anyway.
Like you said, my goals may continue changing, but I’m hoping to surf the high savings rate and smart investing through any changing seas.
I recently retired at 60 and am financially set for my life. I used a similar buying decision to your formula. I would look at a potential large purchase new car (I always purchased used), laptop etc and would compare the cost of the product to what the future value of the money would be if invested.
One thing I can say is that this process limited my purchases. One other fact your readers should know is that you do not need as much money to retire as the financial community states. They are a self serving industry. I actually was part of that industry in the past.
I would like to wish you and your readers good luck.
I applaud you. But I believe that inflation, health insurance , and life changes will eventually alter your plans. I am 44 with 1.5 mil and think it would be gone in less than 15 due to the reasons mentioned above. The key is that if you can hit a mark where you can live off the interest and never touch principal. It’s my opinion that my generation will have the largest amount of poverty than prior generations . Mainly for the reasons you mentioned earlier of buying more stuff.
Thanks. I didn’t have time to get into the details for this post, but the idea behind the 4 percent rule is that you’re withdrawing less (4%) than the account is gaining (7%) each year – in other words, living off the interest.
You said “As I keep dumping $33,000 per year into these low risk investments, the beauty of compound interest needs just 11.86 years to snowball that pile of cash to $750,000.”
May I ask what interest rate you are expecting? A simple interest savings calculator shows that investing $33,000 per year at 12% for 10 years results in only $640,000. And 12%(!!!!) every year for 10 years in a row is extremely optimistic already! Is it realistic to expect these returns when you’re just investing in index funds??
I typically use 7%, which is the historical after inflation returns of index funds.
Remember that I’m not starting at zero. When I wrote the article I had less, but if we take my current net worth of $217,000 with $33k of additions for 10 years at 7%, we get a future value of $882,000.
What do you plan to do if you end up needing a 24/7 long term care facility or full time nurse in old age? This event type of thing is very common. Your 30k allowance per year would be gone in 3 months
If the average return is 7% a year which is quite doable seeing past years, he is only taking out 4% every year out for his expenses. So if he retires at age 37 as he plans with $750000 and requires aged care at age 75yrs to 100 years old and with the assumption that his site does not generate any money or for 38years he does no side hustles part time: he will still end up with $2.3 million generating at 7% $161,000 a year. I have not included inflation or any pension plans.
This was a great article. I found it by searching “retire at 37” because I was looking to read some inspiration. What’s funny is that I also plan on retiring at 37 and I’m currently 27. It’s been 2 years since your article was posted which means we are around the same age. Just commenting to say that I really enjoyed your article. Here’s to a nice retirement for both of us in (hopefully) 10 years!