I have recently been introduced to a new concept which is very different than the traditional retirement plan. New to me because I have never heard or thought of it as a viable option for retirement, but the concept of extreme early retirement seems to be gaining some stream. I first read of it on the blog Mr. Money Mustache and again in a recent USA Today article. It’s pretty basic in nature, learn to slash your expense and save at least half of your annual income. This will rapidly build up your nest egg and allow you to retire much earlier than age 55-65. Once you have built up large enough savings you can leave your nine to five job and begin drawing a modest amount from it each year, only increasing the amount to adjust for inflation. That’s it. It sounds simple, but could you cut your current expenses by 50%? I know this would be difficult for my family at this point. We are 40 months into our debt repayment plan of $109K worth of consumer debt. $80k knocked out so far. In order to make an extreme early retirement plan work, you need to be carrying no debt. I believe the plan would work best for someone who is already completely debt free or just at the beginning of their career with lots of potential earning years ahead of them.
One of the only ways to achieve extreme early retirement is to cut expenses and save 50% of your income or more. Here are some ways to achieve this:
- Don’t subscribe to cable TV
- Drop high priced cell phones
- Live in a state with no income tax.
- Use public transportation or bike to work.
- If a car is needed only buy used and pay with cash.
- Don’t eat out.
These might seems like extreme measures, but cutting 15-20 years off your nine to five job and adding them to retirement might make the above suggestions easier to handle.
If you are able to cut cost and build wealth in a shorter period of time then a traditional 30-year career, becoming financially independent what are your next steps?
- Invest some of your saving to generated additional income
- Find other passive revenue streams – real estate, blogs, etc.
- Do something you love and get paid for it.
Having the sizable nest egg gives you the flexibility and freedom to do more of the things you prefer or make you happy. If they are not the right fit you can move on to something else. That is the goal of this plan. Breaking the traditional model of working until you are 55-65.
The extreme early retirement plan may not be a good fit for everyone. It’s certainly an interesting concept to be explored if the traditional career path is not a good fit for you. If you happen to take this path you need to be mindful of your investment risk, as well as long healthcare. Possibly change to health benefits may make it more affordable in the near future. This plan will take sacrifice up front and careful planning as you progress, but the results could be amazing. Obviously, this is just a quick and general overview and more research would be recommended before quitting the day job.
Does an extreme early retirement sound appealing to you? Could you save 50% of your income today and live comfortably?