I think we all dream of that first day of retirement.  That first day of sleeping in until 10, watching afternoon soaps in your unders, and reveling in the fact that you answer to no one.  You can while away the afternoon on the beach.  You can wrestle your dog for hours on end.  You’re retired.

How old did you picture this future retired you?  Were you of the standard retirement age, in your 60s?

What if you could pass the time doing all of those leisurely, happily-retired-person things in your 30s or 40s?  What would you do to make that dream a reality?

(begin “The Final Countdown” by Europe)

Introducing the idea of EARLY RETIREMENT!

Early retirement comes from saving enough money in your 20s, 30s, 40s, or even 50s, to live off of your investments for the rest of your life.  It’s retirement planning…on steroids.

So how do you achieve early retirement?  I’m glad you asked!

Just by changing your behavior in a few ways, you could retire within 15, 10, or even 5 years!  Here’s how you do it:

1. Spend less than you earn

You cannot retire early if you are living paycheck to paycheck.  So how do you get out of that stressful cycle?

You either need to increase your income, decrease your expenses, or a mixture of both.  Let’s go into those a bit more.

Increase income

1. Get a raise or promotion

Use those negotiating powers!  Get yourself a raise!  Or go out on a limb and ask for a promotion.  The more you make, the more you can save.

2. Get a new job

They say the easiest way to increase your earnings is to get a new job.  Generally speaking, it is much harder to get your current company to fork over more money than to go to a new company who will pay a premium for your skills.  Read this post by Millennial Boss to learn more about salary negotiations.

3. Get a side hustle or two

Side hustles are extra jobs you do outside of your full-time job to bring in a little extra cash.  Try babysitting, dog-walking, reselling things on eBay or Amazon, or any of the 200+ side hustles listed on the Side Hustle Nation website.

4. Create passive income streams

Similar to a side hustle, you can create extra income on the side…but this time with minimal long-term work.  Passive income is income that comes from something you probably have to work really hard on for a short period of time…but then after that point, you work maybe a few hours a week and just rake in the cash.  Some examples would be real estate investments, publishing a book, or even starting a blog.  Check out Pat Flynn’s passive income ideas here.

Decrease expenses

1. Keep away from the Joneses’ (lifestyle)

Throw away all of your ideas about status and what you should or should not buy, according to society.  In fact, do the opposite of what normal society does.  If normal people can’t even pay a $100 bill without going into debt, do you want to be normal?  No.

Live in a smaller house.  Buy an older car (and pay cash).  Bring your lunches to work.  Turn the lights off and the AC down.  Get Netflix and ditch your cable.  Don’t buy the latest iAnything.  Use coupons.  Buy used clothes or furniture.  Utilize credit card bonuses to pay for your travel.

I think you get the idea.  You may not want to do all of these things, or maybe even most of these things.  But the more you cut back, the more you will be able to save each year.  Go out of your comfort zone and try being a “cheapskate” for a while.  You might find that you like it.

2. Ditch debt ASAP

Pay down your debt with the snowball or avalanche method, and don’t go into more debt!  Just think, that credit card payment you are making each month could be going straight into your savings account to pay for a future of freedom, instead of paying interest for something you bought 5 years ago.  Ditch the debt and be done with it forever!

3. Track your spending

Whether you use an online service like Mint or Personal Capital, a self-made spreadsheet, or a giant receipt pile, you need to be paying attention to where your money is going.  Tracking expenses keeps your money on your mind.  If you see that you spent $400 last month on work lunches, you are less likely to do it this month.

Sometimes money just flows out of our pockets with no thought (especially when you use plastic).  Bring your brain back into the mix and see where you are able to scale down.

2. Invest the rest

Once you’ve increased your after-tax income to $80,000/year and decreased your expenses to $30,000/year, you’ll realize that you have $50,000 left over.  What to do with that $50,000?

Arguably the best place to put it is in the stock market.  Low-cost index funds (like VTSAX at Vanguard) could potentially give you returns upwards of 7%.  This means that your saved money will start making you more money!  Woohoo!

*For more on investing specifics, check out this post.

3. Calculate your numbers

You’ve done the hard parts!  You’ve changed your earning, spending, and saving.  But now you need a goal.

For most people, it’s hard to save just for the sake of saving.  So how about you try to save for an early retirement?

You can easily calculate how much you will need for retirement with the following calculation:

Annual expenses X 25

Yep.  It’s that easy.

But how does that work?  Some geniuses in the 90s calculated that if you can live on 3.5-4% of your investment portfolio, it will last until your death, in most situations*.

*The original study said 30 years (you can read a summary here), but other geniuses have figured out that if you live on 3.5%, your assets will almost definitely outlive you.

If you’re not really into clicking on my billion links, let’s make it simple:  I’m assuming my portfolio is going to get an average return of 7%.  Inflation is about 3% every year.  That leaves me to pull out 4%, and possibly not even take a chunk out of my principal balance.  That 4% is all growth and dividends, son.

Of course, nothing is 100% certain.  But you can check out this post for our fallbacks if the 4% isn’t working for us.

Real life early-retiree hopefuls

So I’ve mapped out a fairly simple path to early retirement.  It sounds easy on paper, right?  But what about real life?

My husband and I are on the path to early retirement (who saw that coming?!).  We are doing all of the things above, plus optimizing in other areas (read this for some more ideas).  Here are some of our numbers from right now, June 2, 2017:

Monthly expenses goal: $2,000 (I just did our budget yesterday, and it looks like we may actually only spend $1,500-$1,800!!!  More on that to come.)

Annual expenses goal: $24,000

Early retirement goal: $600,000

Early retirement timeline: June 2026

Current net worth: ~$25,000

Current income: Frugal Merman – $65,000, Frugal Mermaid – $?

As you can see, we have 9 years left to grow our portfolio by $575,000.  That means, not factoring in returns, that we need to save a little less than $64,000 a year.  My husband is currently making $65,000, and we obviously can’t live on $1,000 a year (challenge NOT accepted).

But I don’t have a job yet.  Because my husband is making $65k, I just need to make enough to cover our $24,000 in expenses, plus enough to cover taxes (grr), and we can save my husband’s entire salary.  Challenge accepted.

Early retirement can be accessible to everyone.  You may have to make a few changes in your life, but it will be worth it when you retire 30 years before everyone else.

What things are you willing to change to retire early?

2 thoughts on “The NEW Retirement”

  1. Great post Frugal Mermaid! I enjoy the optimistic tone and practical/straightforward advice. Working towards financial independence is a worthy goal for anyone, and I’ve found that even just getting into the habit of more consciously living within my means and saving/investing the excess results in a certain empowerment that’s intoxicating. Looking forward to following along with your blog!

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