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Can You Become Financially Independent and Retire Early?

Updated: Apr 15, 2019

Do you think you could retire early? Have you thought about it?

The fact that Celia and I are striving to become debt free, or achieve financial freedom, isn’t a surprise to most people (except for Celia’s hairdresser who seemed offended that we would sacrifice anything to pay off debt—yikes!). But did you know that we are also striving to become financially independent? In other words, that we plan to “retire” early?

(See what will get us to financial freedom: The Most Important Financial Advice)

“But, Tim, you guys have $24,000 of student loans to pay off! You make less than 40,000 as a private school teacher! You guys don’t even have a positive net worth! Your family throws away $900 every month on rent! You guys just don’t make that much money! How on earth do you expect to retire early?”

Oh, we know! We are well aware of all of this. So, if this update about our “retirement “goals sounds a little weird, crazy, presumptuous, or even impossible, just hold on tight. You might become just as crazy (and on FIRE) as us!

(I’m currently in the busiest, most hectic two weeks of my life: completing my master’s thesis. Below, I’ve tried to provide the basics—hopefully just a taste of something that you will be craving for your life, too! And we will continue to update and bring you more valuable info as our journey continues!)

What is F.I. or F.I.R.E.?

To be F.I., or financially independent, means that you have enough money (assets) to live on without working for the rest of your life. For most people, this is known by the term “retirement,” because it is usually the case that people work toward a retirement time/age at the end of their long working careers and will not be fully financially prepared for the rest of life’s expenses until then. Financial independence brings the financial status of retirement to a radically earlier time of life—for more retirement! Thus, F.I.R.E. stands for “financially independent, retiring early.”

When can I really become FI?

Let’s take one of the most well-known examples in the personal finance space: Mr. Money Mustache. His story has been featured in the Washington Post, The New Yorker, PBS, etc. He retired, or became financially independent, at age 30. To retire at 30 seems extreme, even impossible. Did he just fall into a pile of money from his family, from stocks, from the lottery? No. He simply saved way more than he earned, and that’s the shockingly simple math behind early retirement.

In a previous post, Bradley LaBrie spoke about the importance of savings rate. Savings Rate is the percentage of money you save from your total income. MMM (Mr. Money Mustache) provides a shocking chart in one of his most iconic and inspiring posts. It all depends on how much you save*:

If this doesn’t motivate you, I don’t know what will.

*These numbers assume a couple of things: that you get an average of 7% return on your investments after inflation, that you will live off 4% of your savings/retirement, that you will not be making large withdrawals of that money. Times of financial depression would mean an adjustment of how much you live off for those years, but the math has been widely and thoroughly studied—you’ll still have it!

To reach financial independence, using the 4% safe withdrawal rate, is to reach 25 times your current or projected yearly expenses. So, if you plan to spend $30,000/year out of pocket in retirement, you will be financially independent at about $750,000. This 4% rule has been backed with extensive research and historical analysis. Here are a couple points from Michael Kitices that should give us confidence in its security:

  1. “The [4%] safe withdrawal rate actually has a 96% probability of leaving more than 100% of the original starting principal!”

  2. “Over 2/3rds of the time the retiree finishes the 30-year time horizon still having more-than-double their starting principal.”

Check out a bigger discussion on the 4% rule here.

The Biggest Threat to F.I.: Lifestyle Creep

This isn’t the creep who has been photobombing your bachelorette party pics. Lifestyle creep is when your lifestyle becomes progressively more expensive as you make more and more money. It’s important to prevent the creep of higher spending and lifestyle choices from the beginning. As many of us who have been adjusting to more frugal lives can attest, it is much harder to get rid of something from your life after it has become a normal and habitual, than it is to say “no” to it at the very start.

Why should I retire early? I want to do something with my life and don’t want to watch tv all day.

Is MMM truly “retired”? Not really. He still works—writing, YouTube, speaking and doing conferences, real estate—but he can now freely decide what he does and doesn’t do, because he doesn’t absolutely need any more money. Most people, once they become FI or retire early actually keep working. But the work changes. Rather than working for the primary need of income, it is now based solely upon what you truly want to spend your time and energy working on.

Celia and I have begun our plan toward financial independence and early retirement. This doesn’t mean that we won’t work. But we won’t work for the primary purpose of making money—to make sure we can take care of our living expenses each month. We will be working with infinitely more freedom, determining for ourselves what work we will do, how we will do it, how much time we will spend on it, and when we will do it. We will have the freedom to spend as much time as we want on our kid(s), our family, our exercise and recreation, volunteering, and whatever “work” we choose to do. We will be more free to fully pursue our passions and take risks.

We’ve made the choice to choose FI and retire early. We don’t make a lot of money. Someone with a higher income could become FI much earlier than us. For the majority of those reading this—becoming FI and retiring early is truly a choice. Is that a choice for you? Do you want to work on your own terms? Do you want to freely pursue the work of your dreams? Do you simply want more free time for kids, family, travel, and life? The years are ticking away. What is your choice?