How to retire at 40

I started this blog with an itching question that had been going through my mind for a while: “how to retire at 40?”. I started a plan to retire before I turn 40. More specifically, to retire within 7 years of the start of this financial independence quest.

How to retire at 40? Can it be achieved?

Being able to retire at 40 is extremely achievable if you start early enough. We’ve established before that someone with a full paid house and a million dollars can retire comfortably in the US. Mr Money mustache retired at 30 with $600’000 in invested assets.

These numbers are just estimates, you have to set your own target. My own target is above a million dollars, but I don’t have a home (so I’ll have to either pay a rent or some mortgage for quite some time) and we have 2 children. Your own situation might impact a lot on your financial target, but a million dollars is a good ballpark estimate.

The next question people will then ask is “how do I accumulate a freaking million dollars???”

It really depends how early you start. Someone saving $2’000 a month for 20 years will accumulate a million dollars, assuming a 7% return rate. $2’000 a month is a significant amount of money of course, but again the numbers can be tweaked: It is likely that you’ll be able to make more money in your thirties after a few years of experience, increasing your savings speed.

Alternatively, people shouldn’t be afraid of the “million dollars” target. Again, some people have retired with $500’000 or less. If you have a full paid house, it is possible to live on $20’000 a year. There’s lots of flexibility for you to set your goals.

The two key factors on retiring early, that most financial sites forget to mention, are to increase your saving rates, and find side sources of income.

Saving more, by making small changes in our lifestyle, has helped my family go from a 38% savings rate to a 53% savings rate in less than 6 months. This has dramatically reduced the number of years I will need to work before I reach financial independence.

In parallel, side gigs that bring additional income are not only helping me save more, they also reduce the amount I will need once I quit my day job. Imagine you need $40’000 a year to live. This means you need a million dollars in investments. But add any money from a side gig, and all of a sudden the money goes down significantly. Find a way to make $300 a month ($3600 a year), and all of a sudden you now only need $36400 of additional income to reach the $40’000 threshold. That requires an investment of $910’000 instead of a million.

How to retire at 40 – the key points

The summary is the following:

  • Make a budget to understand how much you will need each year. Multiply this amount by 25, that’s your theoretical “nest” amount. (e.g. if you need $40’000 a year, you’ll need an egg nest of 1 million)
  • Try to find ways to reduce your expenses. It is easier to save 10% more than to get a 10% raise at your day job!
  • find ways to make money on the side. Side gigs can dramatically reduce the amount of money you will need in your egg nest for retirement

At the end of the day, the question is less about “how to retire at 40”, but how soon can you retire? People who save aggressively (75% of their income) can theoretically retire within 7 years.

Also keep in mind that there is no law preventing you from retiring early. As crazy as it sounds, I have heard plenty of people telling me I “couldn’t” retire at 40, because the government would not give me any social security. This is the whole point of being financially independent people: so that you can do whatever you want with your time, and do not have to rely on a company’s paycheck, or a government, to support you or your family.

2 Comments
  1. Our Next Life
  2. Mortgage Free Mike

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