I started this blog about 6 months ago, with a simple question: How to retire early? This question was just an itch a year ago, and has become almost an obsession as time went by.
The enjoyment I could get from my job dramatically degraded over the past 12 months, to a point where I’ve been wondering what would happen financially to my family and myself if I decided to quit soon. Sane people would just switch jobs. I decided to take a much radical stance, and see what I could do to become financially independent.
This blog is about retiring early. Not 5 or 10 years early, but, more like 25 or 30 years earlier than the average. It turns out, this goal is achievable by most people, provided that you put efforts into spending less and making more.
In the past 6 months, I have found that spending less is easier than making more, side income could be your key to early retirement, and in general, your friends and family won’t understand you if you tell them you want to retire early.
Over the past 6 months, we’ve made significant decisions with my wife, that dramatically increased our chances of retiring by 40: we chose a place close to my work so we wouldn’t have to own a car, we significantly reduced our large bills without any impact on our daily life (saving more than $2700 a year on phone and food alone after a few changes), and even started looking into the small stuff that easily adds up.
In parallel, I’ve started working more aggressively on my side business, something that I haven’t mentioned much here yet, but that I might end up talking about if people are interested. My side business represents close to 25% of my total income, so it is a very significant portion of what we are actually saving.
We are now saving about 53% of our “take home” income so far this year, up from 38% last year. Someone saving 38% of their money each year could expect retiring within 40 years (with the 4% rule). At our current 53% savings rate, this number goes down to 22 years. And that’s not counting the fact that over these 22 years, compounding of the money you save actually shaves off a significant amount of years, technically reducing the number to 17 years.
If I was starting my early retirement goals today, I would already be on track to retire by 50, which is not bad, but not what I’m looking for. Thankfully, I’m already halfway there (we started saving way before I decided to retire early, which is helping us tremendously at this point) so we are looking at about 9 years. It gets even better, as my income has significantly increased and should stay at that level for a few years if things go well, reducing the target date by as much. More importantly, I believe we will be able to save more than 53% throughout the year, as we had some big ticket expenses at the beginning of the year, which are skewing the data a little bit for 2015.
Things will evolve of course, but at the current rate, I’m on track to retire within 3 to 5 years. I’m 33 right now. At this point, retiring by 35 would be overly optimistic (it would rely way too much on my side gig’s income), but 38 sounds doable.
Can anyone achieve such saving rates? According to Mr Money Mustache, anyone could do that, and save up to 75% of their income. Everybody’s situation is different of course. Our household income is in the low 6 figures which definitely higher than average, but it’s not always been the case (Seven years ago we were making $40’000 and still saving money), and we now have 2 kids. Although I like to pretend kids are not that expensive, they do add to the equation, so for a double income couple with no kids, there’s no reason similar saving rates can’t be achieved.
Are you saving up to retire early? What does your saving rate look like?