Can You Afford an Early Retirement?

by Scott Sery on February 20, 2013

Early RetirementFor most of those who are working, the goal is to someday be in a position to no longer have to work for their income.  Most people would like to retire early if they possibly can.  However, if they actually sit down and calculate out what it would take to retire early, they will see that their goals are either too lofty, or their savings are not nearly enough.  In order to retire early, you have to have a plan and make sure you follow it carefully.

Those who are financially savvy know what it takes to live within your means.  Even people who do not do it will tell you that living within your means is just spending less than you earn.  That way at the end of each month there is money left over.  However, if you want to retire early, living within your means includes more than that.  Your means is not your take home pay.  But rather, your means is what you have left over after you save and invest.  By gauging your income on the amount you have after you have paid yourself, you will have a much clearer picture of what you can spend.

How does that actually measure up?  We are all taught to start young and save as much as possible.  However, some people feel that saving 10% of their income is enough.  Others will feel that they need to save 20%.  Unfortunately, most people just arbitrarily throw out a number and they hope that it will work for them in the long run.  Really, the math is quite simple if you want to determine when you will really be able to retire.  Mr. Money Mustache  has a great table that shows savings rates and the time it will take to will allow you to retire on your current income.  Let it suffice to say that if you are 30 years old and starting from nothing, you will need to save 30% of your income to retire by age 60 (see Mr. Money Mustache’s page for assumptions).

Many people want to retire early, but if you actually look at how much you need to save in order to do so, the numbers are probably quite a bit higher than you expect.  Most people do very little financial planning throughout their lives, in fact the average is less than an hour per year.  This is great if you have an excellent financial plan in place.  But if you want to retire early, you will have to adjust your means down to accommodate your after savings income.

You can retire early.  It will take planning and sacrifice to get there.  Of course retirement means different things to different people.  Some may quit working full time and just do what they love instead.  Social security, inheritances, and pensions will make it easier to retire early.  If you want to retire by a certain age, do the math and figure out what you need to save out of every paycheck.  Make your goal in 2013 to get to that savings level so you can eventually do what you love.

What kind of plan do you have in place in order to retire early?

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website Sery Content Development
  • I saved over half of my income for the past 10 years and was able to leave the corporate world at 29. I still work a little, but to me, it was about leaving the 9-5 job, and having enough passive income to cover the basics.

    • That is awesome Pauline. While I don’t work a 9-5 anymore I still work more than ever. I would like to eventually have that change.

  • I don’t know if I necessarily want to retire early. I want to be financially independent, but I always see myself doing something.

    • I am right there with you. I always need to be busy. It might sound silly but I would love to retire early and then just work the ski slopes in the winter. 🙂

  • I have found that in order to realistically prepare to retire early, I have sought out the “extremists”…you know who they are. In order to even have a chance of making ER work, it’s my opinion that you need to exaggerate the behavior. Thoughts?

    • I feel the extremists are the ones who want to retire by 30 or 40. I enjoy living life to it’s fullest to be able to do that. If I can retire by 55 I would be completely satisfied.

  • Retiring early is not really a goal of mine. I think some people strive for that freedom, but I have other goals. I don’t want to go to the extreme in order to save and not enjoy the money that I make.

  • I made my early retirement plan 4 years ago. I’m like Pauline and also save over half my income. Except I have only done it for 4 years so I can’t leave the 9-5 yet. I have enough money currently to do almost anything I want, but the problem is I don’t have the time to those things so I hope that by achieving early retirement some day I can spend more time doing the things I want 😀

    • As long as you still have enough free cash to be able to do the things you want then your plan is an awesome one.

  • We pretty much live on one income and the other income goes to savings and investments each month. We’ve worked our way up and it wasn’t easy but now it’s just a lifestyle which are more than happy with. Will we retire early? Who knows.. but the plan for now is to plan for tomorrow although what might be there is another story.

  • Although I see a lot of posts that have the same message as yours, I don’t think enough “early retirement bashing” posts take into account how most people continue to work in retirement. If you blog, or build houses, or do ANYTHING that generates money, you still have a source of income. You may need a certain amount to consider yourself “retired” but that doesn’t mean you can’t even make new money.

  • We’re starting to make some concrete calculations on when we’ll have enough assets to leave our jobs completely – and it’s definitely complicated, but looks possible.

  • “Unfortunately, most people just arbitrarily throw out a number and they hope that it will work for them in the long run. ” So true. I’m a financial advisor and it astounds how few people take the time to really plan for their retirement. They pick age they’d like to retire and hope for the best. It rarely works. 🙂 Retirement is so personal. Not only the age you want to retire, but more importantly – what are you going to do? Great post!

    • couldn’t agree more. In order to cut out the stress after you retire you need to be as thorough with your planning now as possible.

  • Simone Barton

    I enjoyed reading this article, but it really has reminded me just how much planning and what a huge goal an early retirement really is. I am a ‘hope for the best’ type of person, but that should probably change.

    • Thanks for the comment Simone. Honestly if you sit down for a few hours an run all of the numbers and get a good Target of how much you need to be saving each month you will be fine. The key is not to leave it and forget it. Spend some time every six months or so re-evaluating things.

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  • Kim

    If you look at calculators, the numbers seem very high and discouraging, but if you can build up passive income in some way, it seems very doable.

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  • Great post. Most people don’t really think about planning for retirement until it’s too late. With the cost of living going up so much these days, most people will have to work part time jobs past their retirement age. Another option is to move to another country where the cost of living is more affordable. I know a few people who have done this and are quite happy.

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  • Susan Brownfield

    I think early retirement is not in the cards for most people. With the new health care plan, who knows how much we will need to shell out for our insurance. It’s kinda scary and it might lead to people having to work much longer than they ever expected.

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  • Nick @ ayoungpro.com

    I am attacking this on three fronts right now. 1. Staying Debt Free 2. Growing My Career to Increase my Income. 3. Building a Real Estate Portfolio (Just started with our first rental)

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