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How to Retire by 45: Early Retirees Weigh in

Smart strategies to save up and secure your financial well-being.

ideldesign / Shutterstock
ideldesign / Shutterstock

For many working adults today, retirement is so far away that it feels like it will never arrive. And in an era of snowballing debt and diminishing social security payments, many workers are questioning whether or not they’ll even be able to retire at all. But despite these concerns, there is a growing movement of people trying to amass wealth early on in their careers so that they can exit the workforce far sooner than projected.

Whether you’re on Reddit, Quora, Facebook or Twitter, followers of the financial independence, retire early (F.I.R.E.) movement can be found in nearly every corner of the internet. Devotees believe that with some careful planning, saving and investing, retiring in your 50s, 40s or even 30s is entirely within the realm of possibility. But what exactly does it take to get there?

We spoke to three early retirees to hear how they pulled it off — read on to learn their best tips!

Live Below Your Means

One of the biggest misconceptions about early retirement is that it’s only achievable for top-earning professionals. But often, your ability to save is even more important than your income.

Kim, founder of The Frugal Engineers, shares that she and her husband will be able to retire by 35 thanks to the fact that they save one of their salaries in whole each month.

“We decided early in our relationship to live off of the smaller of our two incomes and save the larger income (plus any extra earnings from freelancing). In reality, this looked like us driving older, paid-off cars, furnishing our house with hand-me-downs, cooking at home, opting for a low-budget wedding and taking road trip camping vacations,” Kim says. “If you’re making a low income, find ways to enjoy that lifestyle.”

“Don’t compare yourself to people making the same amount you are making and thinking you need to keep up with them or do anything to impress them,” adds Stan Kimer, who retired from his corporate job one month before he turned 55 and now runs a diversity and career development consultancy called Total Engagement Consulting by Kimer. “Perhaps look around for people making 20 percent less than you are [and] see how they are living. Can you live that lifestyle? Try it and start saving.”

Continuing to live a modest lifestyle into your retirement will also help you stretch your money further.

“You don’t need a highly lucrative job to retire early. Yes, you will get there faster if you can save more, but the calculation is based on how much you will SPEND in retirement,” says Stephanie Xenos, a former engineer who retired at 32 and now runs a financial advice website called Money Muse. “You need 25x your annual expenses. If you plan on taking advantage of geographic arbitrage, you may not need that much to retire.”

Invest Wisely

If you want to be able to retire early, it’s not enough to just save your money — you have to put it to work. Investing your earnings ensures that you can receive the passive income you will need to live comfortably without depleting your savings over time. And if done the right way, investing doesn’t need to be inconvenient or burdensome. One simple solution is to set aside a fixed amount each month in your retirement accounts.

“We prioritized investing for retirement above spending money today, so we treated our 401K, IRA and HSA contributions like a bill that had to be paid before anything else. This automatic investing process made it easy for us since we didn’t have to think about it every payday,” Kim says.

“If you want to retire early, start investing at least 20 percent of your income into retirement accounts (or brokerage accounts) today, and don’t stop. Ignore market trends. Be a long-term investor. Save as much as possible,” Xenos advises.

You can also turn to outside help for investment advice. Many people consult with financial advisors and coaches for help meeting their retirement goals. You might even gain enough knowledge from them to be able to manage your own finances over time.

“Step by step, I learned more about investing, first having a financial advisor, then picking my own mutual funds, then hiring a broker to pick stocks and finally doing all my own stock picking,” Xenos says. “It was extremely lucrative for me, averaging a 19 percent return over the last 10 years.”

Another option? “Take advantage of free or employer-paid networking opportunities in your area. If you’re interested in growing your income, The Small Business Development Center (located in most major cities) offers free training for entrepreneurs that could help you both in your day job and if you want to explore self-employment,” Kim says. “Also, never underestimate the wealth of knowledge and entertainment available at your library. Our family uses our library card more than our credit cards, and I certainly credit this habit to our ability to build wealth.”

Transition Gradually

You might be eager to retire as soon as possible, but easing into retirement over time will likely be more sustainable in the long term.

“Think about working part-time to supplement your retirement income, but make sure it is something you thoroughly enjoy. Work because you want to,” Kimer advises. “It is great to have so much more control over a majority of my time. Even with a part-time business (I work 25 hours per week) it is so much more relaxing than the old 50-hour weeks.”

A gradual transition was also key for Xenos.

“I arrived well adjusted at my early retirement because I didn’t do it abruptly. I had quit my job once before (when I moved to Europe at 30), had consulted part-time immediately after I left my full-time job and then finally pulled the plug for good,” she says.

Not only will this transition period help you financially — it can also help you adjust to leaving the workforce. After all, an abrupt departure from the working world can be quite a shock to the system.

“There are a lot of people on Reddit forums using words like ‘depression’ and ‘meaningless’ after early retirement. It can be scary to look into the void and be solely responsible for filling your time and making meaning,” Xenos adds.

The good news? Retirement is entirely what you make of it.

“We’re not going to the beach and playing golf every day. We’re raising a school-aged kid and volunteering in our community. We still plan on taking on occasional contract work if it’s flexible and exciting, and financial freedom enables us to take on lower-paying gigs that we’d have previously turned down,” Kim says.

Deciding whether or not to retire early is, of course, a very personal decision — and ultimately, you may decide it’s not right for you. But even if that’s the case, there are valuable lessons you can take away from the financial independence, retire early movement.

“Even if you love your job, saving for retirement can give you flexibility. Perhaps your work situation changes and you get a new boss that mistreats you, or maybe a family member gets ill and needs you to move close by,” Kim points out. “Having money in savings gives you the ability to downshift your career and make room for the people and activities that mean the most to you.”

This article was originally published on Glassdoor.


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