How Anyone Can Retire In 10 Years (or less)

Just shared this article on facebook. Simply fantastic. I'm trying to "walk the walk" too, and as a 22-year-old who doesn't have a college degree, if I can do it, anyone can. And yes, I'm absolutely on my way.I'm excited I found this site. You found yourself another subscriber. :) 

Todd,

Great teachings. Now, for those readers who still doubt that Todd's teachings are doable, consider my personal example.

At age 22, graduated from college; Age 24, got married; age 25, bought our first home; age 27, first child; age 28, bought first income property; age 30, second child; age 31, bought second home, age 32, first retirement.

Drove my wife crazy at home ... you can only mow the lawn once a week and spend 1 hour per day on investments, if that much. So went and got a part time job. Age 34, moved back to the more expensive SF Bay Area; age 40, second retirement.

So you see, it can be done; lots of peanut butter sandwiches, my wife cutting my hair, and hard work fixing property and researching the investment markets.

Geez guys, why not just pick a very conservative money mgr. or a simple conservative service & stick with them for 10yrs., why torture yourselves with these arcane ideas?

Dan Ferris, 12% Letter!

Mark Ford/Tom Dyson, The Palm Beach Letter

I'm willing to bet that both of these letters will outperform most of your ideas w/o all the sacrifice you guys have to endure over the same 10 years!

Compounding has always been the best way to grow your wealth. Plowing back all dividends will make the test even more lucrative, trust me, I've managed money during the '80's!

Anyone can do this.
What were you living on when you were in college?

It is 2011 and I am a junior in college in the US living on approximately 10,000 a year. No, my parents aren't supporting me, I pay for all my living costs including a car and college tuition is paid for by scholarships. I have zero debt and this isn't going to change. Why increase my expenditures just because I may get a higher paying job later on?
I am living perfectly fine now and I will continue to for many years. The only necessary increase in spending that I foresee will be increased cost of living/inflation (which I can only hope my income will keep pace with)

I can see myself retired by age 35.
Thanks for the great read!

@Shaun I can relate to your comments regarding student loans, and would like to share my personal story.

In 2000 at the age of 30, I decided to change careers and pursue my lifelong dream of becoming a professional pilot. I left my job and moved to New Mexico to attend flight school and took out some fairly hefty student loans. When I graduated in 2002 the job market had completely fell flat due to 9/11 and I was unable to get a job flying. My total debt load was $72k (including my truck loan and credit cards).

I did get a job at a commuter airline a year later where I worked until January of 2010. My first 3 years at the airline I made less than $25,000 for the year (I know shocking isn't it?) which caused my credit card balance to rise; it is hard to live off $1200 a month when your student loan payments are $500 a month. I somehow managed to pay off my truck, but unfortunately, it died and I needed a new car in 2007. I bought a used one, but had to take out a loan for $14k to do it.

I also started making decent money in 2007 when I "upgraded" to Captain. I first paid off my credit cards, then my car, and just last month finally paid off my student loans. Admittedly, I really only worked hard on the student loans starting in the fall of 2009, but was able to pay them off 1 month ahead of my plan.

Unknowingly, I used the same basic principal that is at the heart of the retirement plan presented here. I lived on roughly 25% of my income and used the other 75% to pay off debt. Now, I didn't plan this, but I did scrimp and scrap to maximize my payments every month. Its true, it can be fun and is very rewarding to do. Getting out of debt was paramount for me, and I learned how to be frugal in order to do it.

With the success I've had in paying off the debt I now have a lot more confidence moving forward and am saving the money that was used for debt. Not sure if I'll retire in 10 years, but its nice to know that I could if I continue living as I have for the last 10.

Good luck!

Hi, Todd. Great post, great discussion to which I would like to add:

I achieved financial independence the "old fashioned" way, but that road is closing as we speak.

I earned a Federal government pension with annual cost of living increases and health care for life. I also invested in Real Estate. As I neared the time I would begin drawing my pension I pared down the investment real estate to one paid-off property making me $1000 a month (net).

My monthly income is almost three times my monthly expenses and my only debt is a small mortgage (<$70,000) on my primary residence. My total cost of housing (PITI) is under $500 a month.

But none of that happened by accident; I made a plan and worked it. I have a considerable amount in cash but it superfluous in my case because of my monthly income. Still, it feels good somehow to know it is sitting there and readily accessible.

I also have a publishing business and do some coaching and conduct seminars which add even more income streams; again, all part of the plan.

But what I figured out a few years ago is that what most people are after is not total financial independence. The real issue for most of those unhappy with the daily grind of the five-day, forty-hour workweek is too much work.

The answer to that issue is not financial independence. I mean, it could be, but it is unnecessary. THE ANSWER IS LESS WORK. I have termed that answer to the less work issue the four-day weekend. But like achieving FI, the sticky wicket even when you are working three days a week remains health-care.

Although we have health insurance, we do not have dental insurance. The best answer is preventative care to avoid the typical expenses in that regard. But sometimes, you need a dentist, regardless. My family and I live close to Mexico and we have a dentist there in addition to our dentist here.

Our US policy does cover routine dental exams and two cleanings a year. For those, we go to our US dentist. When she told my wife she needed two wisdom teeth extracted, we first got an estimate from the US dentist she referred us to and then from our Mexican dentist.

The US price? $600 per extraction. She had it done in Mexico instead: Total cost? $90. We do not live close to Mexico by accident; yet again, all part of the planning process. Keep up the good work!

I can do better than this. How about living in a cardboard box under the bridge and eating out of the local Taco Bell's tash bin. Heck, I could retire right now if I do that. What a useless article.

Hi Todd. Nice article. I've been reading Jacob's blog for years, and I find him inspirational, though I'm not pursuing extreme early retirement myself. (I don't hate my career as much as he did.) Jacob's blog is great for keeping me frugal: it reminds me that there's a LOT more room on the frugal end of the spectrum, even if it sometimes doesn't appear that way when I look at the people around me.

(FYI, I think you mean the argument is "moot", not "mute".)

Wow, I am reading a lot of doubt through these comments here. I believe that if you really want it, it can be done. Maybe it's 10yrs for one person, and 14yrs for another, but it can be done. I know that it's hard to stop being a consumer. Driving that new truck definitely feels good, and so does eating out several times a week. Who doesn't want to be waited on? But all that will prevent you from being free. I no longer want to be a slave to the lender.

I have already cut my cable down to $15/month, I have completely cut out my Internet service and land line, eating out is very rare, my son wears hand me downs, I buy my clothes at WalMart because I refuse to pay $15 for a sweater, my grocery bill is less than $100/week and yes we do eat about 90% fresh organic food, I assign a job to every dollar I bring home, and I use cash because it hurts more to spend and it's easier for me to track my spending, etc etc etc. Each small change you make will help.

I won't lie, it does take a lot of sacrifices. Our vehicles are paid off and the only debt we have is our mortgage. With these sacrifices I am hoping to be mortgage free in about 15yrs, or less. You can do it, but you have to want it really bad.

I can totally agree with this concept. I am 37, married, no kids, living in SE Asia. We have been out here about 5 years and am making a good salary and saving nearly all of it. Actual expenses here are $3k a month (we bought our condo in cash) and that is living pretty large. I make $270 - $350k (depends on the variable bonus) a year so am living on 10 - 12% of our pre-tax salary. After tax salary is about $180k - $240k so living expenses are 15 - 20% of take home pay.

The job is incredibly difficult and I'm finding it easy to burn out- manage a company of 700 people and am working 12-14 hours a day, with weekends generally off.

We have a net worth of $2.5 million, with $250k as the value of the condo, and $250k in 401k investments. The remaining $2 million is in different cash accounts earning between 0% - 1.5% interest a year.

Using your formula I think we can easily retire with a draw down of 3%. What I worry about is the following:

1. Losing principle if investing in stocks.
2. Losing principle if investing in bonds unless I hold them to maturity.
3. Seems good to keep cash handy to deploy it into an opportunity with some upside
4. Fear of losing my skills- a 55 year retirement is quite daunting
5. Fear of not having skills to earn a good salary while having inflation / market disruptions eating away at our principle.

Any advice would be appreciated.

Best regards,

Jack.

I'm a new reader and little confused by how you can live indefinitely on 3% spendable interest with an inflation average of 3-4%. Even if they are both set at 3%, the cost of living (initially 15,000/yr, say) will outgrow the interest income because that first year it already eats up your interest income and from then on out it becomes more than your interest income. so at year 10, the living expenses are around 20k/year after rising 3% a year. your nest egg is already down to 490k and decreases exponentially down to 0 at year 35. (ie. after the first year your nest egg grew to 515k, but then you use 15450 of it). unless you are earning more interest than cost of living, isn't it a losing battle over the long haul?

Excellent article - actually, the tendencies of human behavior in general across most disciplines is reflected in your article. Losing weight, quitting smoking, anything that requires consistent discipline can be difficult for many people. I've followed ERE and the Early Retirement Board (started a long time ago when I read Terhorst's book). The math for short times is consistent, as you say. Most people are not willing to make the sacrifices - or are unwilling to find other ways to obtain the lifestyle for less money. The book "Your Money or Your Life" says it all - money is a way of quantifying your time in terms of 'banking' it for present or future needs/desires. If you are willing to trade having money with using your time, you can find ways to do things....however, you need to have the time. A simple example, I haven't purchased a book in a year. I use my library for books, DVDs, books-on-tape, CDs, etc. Sometimes I have to wait awhile for a 'newer' item, but that waiting allows me to enjoy that piece of entertainment for free (yes, I know, our taxes pay for it-therefore I don't pay for it twice when I use the library). There are many resources available that allow you to become creative with your time to gain lifestyle benefits.

With the above, one could argue that what you 'make' or spend in money in a year doesn't necessarily reflect your lifestyle - looks are deceiving.

Thanks for taking the time to write the article and the blog - I enjoy reading it.

I believe you mean to write "the argument is moot."

I find it ironic you dwell on the math without showing some simple plots (cost basis, future monthly income, etc. for a range of inflation and savings rates) and discussing the potentially catastrophic consequences of chance events. Not having a good buffer is costly; focusing on the mean is dangerous.

Nice article. I've been reading the extreme early retirement blog for a few months now. It is in alignment with my personal values. I'm 45, have two young kids and make around 55k a year. I'm approaching living off of 50% of my income living a middle-class lifestyle in Phoenix. I drive a car and own a home. I have student loans and health insurance as well as the responsibility of two young kids. It can be done if you are willing to get creative with your life. It even can become fun.

Regarding the health insurance issue, my personal belief is that the best health insurance is to be healthy. Few Americans take the time to eat right and work out enough to be really healthy. It takes time and discipline but little in the way of money. I have catastrophic health insurance for myself and my two kids that cost around $200 a month.

I have been reading this blog for quite some time now and I have noticed that the demographics of the followers seem to be in the middle to late stages of their careers looking for financial freedom. I might be incorrect on this but is my guess based upon most of the responses. I only bring this up because some of my considerations/hurdles to become financially free are quite different and are never mentioned on this site. This is due to education costs.

My generation is currently sitting with a lot of student debt and is probably the biggest obstacle to becoming financially free. I know people that are paying $1000/month for student loans and are struggling to make it. So trying to make it on 20% of your gross income is never going to happen because it does not even pay your student loan…let along living expenses. In my opinion this is going to be the next sub-prime mess in our country because the younger generation is going to just stop paying their student loans.

Hypothetically, imagine having $80k in student debt making $45k a year or imagine having another mortgage on top of your existing one. That is the kind of pressure that is placed on the younger generation.

Todd, I think this would be a suggestion for you next book in your other blog request for help.

Frugality, as you point out, this may not be for everyone. That said, there are at least some who can save 80 percent of pre tax income for over 20 years. I have a sibling who has done this on a middle six figure income.

Love the concept, but how the heck do you do this and still pay for health care in this country? Seems like most of the ERE folks are young and do one of two things: ignore it or live in a country that has socialized medicine. I've done the work, I've saved the money, but I'm unwilling to go "naked" with regards to health care. Sure there are high deductible policies, but how does one afford decent healthcare on 1200 a month?

Good article Todd, I enjoyed it.

For most people, the 'spend what you make' principle is 100% accurate - as incomes rise, so do their expenses, many times over the expenses - for the group with that mentality, the concepts presented in the article are unbelievable.

I have always believed people will find the money for what they really want (I was in sales for a short time and saw it firsthand) - likewise if you are 100% committed to early retirement, you will find a way to make it work.

I have a co-worker - never married, lives modestly (although not at the levels described above!) enjoys travel, etc. But he is ready to retire very comfortably right now at age 43!
I have a family and am not in his circumstance, but proves it is very do-able!

Thanks Todd for another great article. I wholeheartedly agree you can retire in 10 years (or less). The reason this does not seem possible for many is because most confuse "wants" with "needs". In other words, what we think we "need" is most often a "want". Basically, like you said, "lifestyle choices".

I like the idea. But it seems unrealistic. Unless you are fortunate enough to be in a dual income family with each member having a decent paycheck, or single with extremely low expenses, this seems darn right impossible.

You don't mention some very important considerations, such as inflation adjusted costs of living, and insurance (medical, dental, home, vehicle, life) costs. Also, I've never met anyone with a family that is able to live on 10-20% of their take home income, unless they are banking oodles more than everyone around them.

I absolutely endorse saving as much as possible, and understand that many people desperately want to leave the workaday world, the sooner the better. But I think creating an expectation of being able to live on so little may set your readers up for disappointment, unless, as I have said, their incomes and lifestyle are conducive to this type of extreme frugality, or they have a decent amount of economic outpatient care from friends and family.

Pat S.

An interesting number on that list is 50%. If you just started a family, that's how much you'd have to save if you want to retire when your kids head off to college.

Here are the results of my formula above:
Savings Years
10% 42
15% 37
20% 32
30% 26
40% 21
50% 17
60% 14
70% 10
80% 7

If anyone wants to calculate how many years Y it would take to retire on a given savings rate S, here is the formula I worked out:
Y = ceiling(ln((1-S)/(3%*S)*8%+1)/ln(1+8%))

I believe the strong naysayer comments perfectly illustrate your point as to why so few succeed at this. It truly does come down to personal values. I am fully aware that this strategy is not suitable for most folks, so some dissent is expected. However, please don't immediately jeer at the ideas presented here and cite your belief that they won't work for doing so. These ideas may not coincide with your personal values, but that doesn't mean the ideas aren't valid. They will work if you WANT them to work. If your reaction to them is "Hogwash!" or something similar, they will not work for you. The cool thing is that these ideas working or not working for you is neither right nor wrong. That said, I encourage people to be receptive. After careful consideration, you don't have to agree, but please be receptive.

I enjoyed your post, agree with most of it. I believe that percentage of income saved dominates the financial success equation (even for entrepreneurs). I understand that $14,000 per year was just an example, but given that health care expenses in this country are more than $8,000 per person and that for people over 50 it is worse than that, I really doubt anyone could live on $14,000 and be adequately insured at the same time. The plan to go with no (or insufficient) health insurance might work for someone without any savings (they can use Medicaid), but for someone trying to preserve assets I do not think this is very wise. Even if this retiree could find high deductible health insurance in the individual market for say $5,000 per year at age 50, by the time they are 60 their premiums would likely be well over $10,000 per year (or $20,000 for a couple). I have saved many times more than a $14,000 a year nest egg and keep working only because of the health care issue, even a frugal person can’t get around the fact that health care is hugely expensive and not something they can really opt out of.

While I appreciate the article, pray tell... how do you find EIGHT percent return in the "new normal" world???? Only by taking risks... which may well lead to 2008-style returns.

Good article, but deficient. And I already DO live very frugally and save more than $2k/month. Let me know where you can find that guaranteed 8%.... is the author willing to give me 8% a year????

Life is too short to live a "poverty lifestyle". Plus, how much fun can you have on $15,000 a year! Sure if you were living on the beach in Philippines you might get by, but in America, more specifically California. Rent alone in a low income area is minimum $12,000 a year. That's not frugal thats just cheap.

Here are some journals/progress reports from people who are pursuing FI. Most are just getting started, so you can see how it works in the beginning.
http://forum.earlyretirementextreme.com/forum.php?id=9