A Non-Expert’s Guide to Early Retirement

Recently, I clicked on the internet to check my e-mail, but was immediately distracted.  I saw a headline on the MSN homepage with the title:   “Want to Retire in Your 40’s?  It’s not impossible”.

ID-10091518I LOVE to see the financial independence/early retirement idea get publicity, planting the seed that this is a real possibility into the minds of new people.  I expected to see some of the bloggers I regularly read get some recognition or maybe learn of someone new taking this path for their life.  I clicked on it excitedly and ….. NOOOOOOOOOOOO!

After a discouraging intro about “sacrifice” and “the deck being stacked against you” we’re introduced to the “experts” (at least that is what we are to believe based on their fancy sounding titles).  So while there are many people who have either retired early or are approaching financial independence at an early age and freely share their stories about the path to “FIRE”, this author decided to skip over all of them and instead feature the ideas of two non-early retirees from the world of finance.  Ugh!

Who Are These Experts

The first expert was “vice president of financial advice strategy for Ameriprise”.  The next expert was an “investment banker from Nevada”.  I have no idea what makes them experts on the topic of early retirement.  It didn’t stop them from sharing their “expertise” on the topic in an article that was featured on the front page of MSN for millions of eyeballs to see. This immediately made my skin begin to crawl.

Why Do I Care?

When we were just starting out, we had no idea what we were doing with investing our money.  We really didn’t believe that the idea of early retirement was possible for a couple of average people like ourselves.

When we first found blogs like Early Retirement Extreme, Financial Mentor and Mr. Money Mustache I finally knew that what we envisioned for our lives was possible.  However, for every time we see someone like Mr. Money Mustache featured in a mainstream publication like the Washington Post, we have to sift through hundreds of mainstream media articles and features like this one with advice from financial salespeople posing as experts.  We are exposed to the financial industry coming into our universities, our workplaces and working their way into our homes to “educate” us on this same conventional wisdom that we see everywhere while selling us overpriced financial products that serve their interests before ours.

Let’s Clear The Record

I don’t mean to particularly attack the author of this article.  I’m sure he was just trying to do his job.

This article just happened to catch my eye and then my ire and so I’d like to correct some common misconceptions found throughout it.  As the irritating article suggests, “It’s not impossible”.  However, to build wealth, become financially independent and retire early you have to learn to block out this noise. You need to follow the paths of those who have actually done it.

I would like to address some of these common myths, and I’ll give you my solutions.  But first I should disclose fully, I’m no expert.

Myth #1

It is difficult to know how much you need to retire early.  “Expert #2” says that early retirement “requires seven or eight figures”.  So following this advice you need to have between $1,000,000 and $99,999,999 to retire early, give or take.  Despite being mildly vague, this advice is also based on complete nonsense.

He also states that, “It’s a general rule of thumb that you have to reduce your expenses by around 30% going into retirement.”  WHY???

The reality is that you have total control over how much money it will take you to retire, and it is based on what YOU spend.  The simple act of tracking your expenses allows you to know what you currently spend.  You can then make a pretty accurate estimate of what you will spend in retirement to continue this lifestyle or adjust spending up or down depending on what you desire.

You then need to simply figure out how to create streams of cash flow to cover those expenses.  A good starting point is to save 25X your annual expenses if investing in traditional paper assets.  You can then adjust up or down from there depending on the specifics of your personal situation such as investment philosophy, whether you desire to do some work or never again work to earn money, anticipated windfalls, etc.

Hopefully that is a bit more specific and actionable than the $1,000,000 to $99,999,999 estimate from the article.  But hey, I’m no expert.

Myth #2

You have to make massive amounts of money to build the wealth to retire early.  This myth is seen in quotes like “Expert #2” saying, “You have to be an entrepreneur, and you have to have a big win,” “There’s a lot of risk in that.”

This notion is in my opinion the most destructive myth in personal finance. It causes people to think that because they don’t have a million dollar idea or skill, they can never become wealthy. Because of low expectations of what is possible, people don’t even bother to try. They get trapped in the poverty mentality. They ignore the fact that most millionaires are not the product of a “big win”. Instead financial success is made by consistently having little wins, day after day, month after month and year after year.

If you really buy into this myth, then please check out Ed Mills’ site at The Millionaire Educator where he shares his story of working toward early financial independence on the salary of a couple of public school teachers.  Read the story of Chad Carson who writes about building the wealth to pursue financial independence at a young age as a real estate investor despite never having a normal 9-5 job with regular income and benefits.  At least that’s what I would recommend. But hey, I’m no expert.

Myth #3

Saving money is a major sacrifice and you can only have the essentials to retire early.  Expert #1 used the example of saving $100 every month and then had the nerve to suggest that saving this amount sounds like “a lot of Ramen noodle meals”.  Expert #2 adds, “You can reduce your expenses to really minimal amounts to just have the basic necessities to take care of.”

I have written a sarcastic take on our life as one of “extreme frugality”.

If you really believe that saving for early retirement involves “a lot of Ramen noodle meals” check out our friends’ food budget over at “Our Next Life”.  I’m pretty sure there are few Ramen noodle meals in their house.

If you think being an early retiree means just sitting around all day in your tiny house being bored, check out the blogs of GoCurryCracker for ideas on a lifestyle of world travel or ThinkSaveRetire for perpetual domestic travel while pursuing their passions.

It is also a popular misconception along this same line of thinking that you could never do this with kids.  If you really buy into that, check out the blog of an early retiree at Root of Good or that of a couple of aspiring soon to be early retirees at Slowly Sipping Coffee to see how they’re doing this with multiple children.

Finally, if you think that early retirement means hoarding all your pennies and being a miser, I would highly suggest checking out the Bare Budget Guy who gives over 10% of his income to charity while pursuing the path to financial independence.  I would suggest that almost all of us in the “FIRE” community are driven by this desire to do something bigger with our lives than simply continue on the standard work to consume cycle.  But hey, I’m no expert.

Myth #4

You can assume that you will get market returns on your investments. “Expert #1” uses the classic example of assuming a 7% return to show the effects of compound interest.

When you read these assumptions, you never hear anyone explain that investors almost never get market returns on their investments. Index fund investing is designed to give you as close to market returns as possible, but even these funds have small fees and tax implications. Investing in funds as this “expert’s” firm sells that are characterized by initial sales charges, ongoing high annual expenses, and high taxation and fees due to frequent trading inside the funds all but ensure that you will never see anything close to the market returns.

To retire early, you must control fees and taxes on your investments. If you do not understand this concept I beg that you please check out our friend Jim Collins’ “Stock Series” before you invest one more dollar of your money with these high fee firms. If you desire to go even deeper, check out our other investing resources. But hey, I’m no expert.

Conclusion

If you are new on this path to early retirement, I hope I’ve been able to shed some light on the process, start to steer you in the right direction and give a bit of actionable advice to get started.  However, for full disclosure, I feel I need to reiterate, I’m no expert.  I’m only learning and living this every single day!

Am I overstating how harmful the conventional wisdom is?  Do you want to scream when you see story after story about how hard it is to make it with advice from people who have never done it or even tried?  Have you been a victim of buying into this conventional narrative?  Share your thoughts below.

*Photo courtesy of imagerymajestic and freedigitialphotos.net

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38 comments on A Non-Expert’s Guide to Early Retirement

  1. You are correct, sir. No ramen noodles in this house! Though we are now spending less than we were when we wrote that last grocery post. 🙂

    I think the underlying misconception in all of the “you can’t retire early ” articles that crop up, which goes mostly unacknowledged, is this bias that people have of thinking of “early retirement” as being somehow synonymous with “living a life of fabulous wealth.” Like if someone starts some meteoric startup and sells it for $100 million, no one doubts that that person can retire. And most of the early retirement stories portrayed in mainstream media are like that. So if you try to talk about just an average joe early retirement (nevermind dirtbag millionaires!), it just doesn’t compute. They can’t get past the baller wealth bias, just as the researchers in the Millionaire Next Door couldn’t get past the preconception that millionaires coming to their focus group would want to eat caviar and drink Bordeaux. (Really they just wanted soda and sandwiches.) I’m convinced that so much of the bad advice out there around early retirement is supported by this completely erroneous and maybe even completely unconscious thinking.

    1. Should we be looking for an “extreme couponing” post from ONL? 😉

      As for the rest of your comments, I couldn’t agree more. I actually had a line in my original draft about not wanting to attack the writer because he was likely financially clueless like most Americans. Mrs EE took it out as we try to keep a positive tone. My point was not to be a jerk to him but trying to say that most people, even those who write about personal finance, have a very warped view of what wealth is, who wealthy people are and how they become that way. It is deeply entrenched in our society. I love your reference to the Millionaire Next Door and I consider that book required reading for anyone with an interest in building wealth.

      Hopefully as more people share their stories as you and others featured in this post do, we will gradually begin to change perceptions. I think we’re facing an uphill battle though!

  2. EE,
    Great read…I also share your frustration with the mainstream coverage of extreme early retirement. In order to maximize revenues via fees, the financial services industry needs lots of worker bees laboring for 30 to 50 year. God forbid that everyone take control of their finances…what would brokers and financial advisors do if they couldn’t saddle up and ride investors’ assets? The system must be protected at all costs!

    EER individuals also have the tendency to optimize, minimize and eliminate their taxes, mortgages, and all of their living expenses. How will Uncle Sam, Mr. Banker, and Mr. Madison Avenue make a living if we all gave them a good stiff arm? Because it threatens the status quo, EER is truly revolutionary. This revolution is still in its birthing stage and is likely to keep growing.

    In our case, EER has led to 1.) a sense of control regarding our finances, 2.) increased freedom due to our growing financial independence, and 3.) a realization that we now have many more life options. We are so glad that we finally saw the light!

    Great post…I look forward to reading more of your articles. Ed

    1. Thanks for the positive feedback Ed. I agree with all that you said whole heartedly. I’ve enjoyed first hearing your story on The Radical Personal Finance podcast and then more recently on The Mad Fientist Podcast. I would encourage any of my readers to give these a listen and check Ed’s blog out if you relate.

      Cheers!
      EE

    1. Really enjoy doing it, but it takes time so will probably go in spurts and then breaks. Thanks for the positive feedback.

  3. Great article and counterpoints! Myth #3 that you have to ‘sacrifice’ is the one that chaps my bum the most. Granted we make healthy salaries now, but I always shocked at the looks I get at work when I mention we live on less than one salary… people think I am crazy! They don’t understand why I would choose to do that. And I think we live quite lavishly! I’ve realized so many people never even look back on what they are spending to realize the excess – that the $300 cell phone bill adds up over the year, or the cable tv package, or even the amount of dining out. I work with so many people who likely spend close to $350 on just eating out lunches per month! There is an easy $300/month to start saving, with out living miserly. Even as a graduate student on a $1500/month stipend where $925 went to rent, I saved money – and felt like I was living the good life!

    1. We also get “the look” if we share that we live on only the Mrs’ part-time income and I would agree that we live pretty lavishly. The primary thing that limits us from doing anything we want is time. We actually still feel that we are too busy and need to eliminate not to save money but our sanity.

      You also make a great point about learning to save money early even when you make little. We had that same experience and when you start to make a professional salary, it really does make saving extremely easy because you have already established good habits.

  4. It’s so annoying trying to sift through loads of BS articles trying to sell you something (especially from the mainstream media)! I was just watching “The Wolf of Wall Street” last night and seeing how ruthless the financial industry can be, it’s no wonder why the majority of people won’t be able to retire early and think of it as the exception rather than smart planning.

    It really does boil down to tracking your expenses to know what you need in the future, saving & investing now, and then live your life on your own terms! Simple.

    1. I’ve been wanting to see that movie but can’t quite seem to get around to it. I’ll have to give it a look.

      Keep it simple and thanks for taking the time to comment!

  5. Great approach on this subject. I also see those articles and roll my eyes at the ridiculousness of it. So many random arbitrary “expert opinions” that are so vague they’re useless. I’m assuming the “reduce your expenses by 30%” is meant for people whose lifestyle inflated with their salaries. Currently, when we enact our Lifestyle Change, we will have a fair drop in our living expense, but that is due to no more daycare and no more mortgage being in the budget. Some other convenience items as well, but we will pretty much keep living as we do now, just somewhere that’s not Houston.
    Our number for what we would need for our Lifestyle Change comes from tracking our spending, and assuming future costs for things like cars, repairs, home upgrades, health insurance, yada, yada, yada… It is close to 25x what we spend now, but that’s with a security/safety factor cushion added in, and not assuming we may have any side hustle income.
    I could go on and on, but these articles do more to dissuade people from trying to retire early because “experts say it’s really hard.” It’s too bad, because like you pointed out, across this PF/FIRE blog realm there are people in all kinds of situations, income levels, etc… that are all working towards the same goal, early retirement/financial independence. Thanks for the shout out!
    As often as I rail against Ramen, we do have an occasional pack lying about when I get nostalgic about foods from days of yore. 🙂

    1. When we would ask our financial advisor we heard that 30% rule, and sadly didn’t even know to ask the follow up Why? at that time because we thought he was the expert. Stupid us!!!

      I think our plan is pretty similar to yours which I would consider pretty conservative. I think if we were childless I would be much more willing to live a more extreme lifestyle and maybe not even have a home, but with her we crave some stability and increased margin for error. The beauty of this is that there is a lot of freedom and flexibilty b/c it really isn’t all that hard or complicated.

      Finally, stay away from the Ramen! Those things will kill you with all that sodium (though I confess I’ll still cook some Kraft Mac & Cheese which was my food of choice from the “glory days”.

      Cheers!
      EE

  6. Testify brother!

    What is more frustrating to me is hearing people I know personally parrot the same arguments. Impossible? You are looking right at the early retired Lizard King. You watched me do it! …Yeah, but…

    *sigh*

    1. I agree that is frustrating. I haven’t told a bunch of people about the blog or our ER plans but of those I have I would say maybe 10% have shown any genuine interest and are making any changes. I really thought once the lightbulb went on in my head I could just write/tell people, everyone would feel the same, and I could “fix” everyone financially. I still think that people don’t buy it.

      *sigh* is about right my friend.

  7. You hit the nail on the head–these articles are frustrating because they help foster that mindset that the average worker could never afford to retire early. So many people just don’t even try because of that misconception. My husband discovered Mr. Money Mustache a few months ago, followed by you and several of the bloggers you mentioned, and we’re making huge changes in our financial life, which may free me up to be a stay-at-home mom for a few years and definitely will grant us more freedom in the future. Whether it leads to early retirement or just taking more risks in general (moving overseas for a few years, following dreams of working for ourselves, etc.), we’re really excited about the possibilities. Now when we try to share our plans and suggestions for our friends to do the same, most of them scoff and say some form of the excuse, “well, I just couldn’t do __.” We want to encourage others to believe that financial independence is really possible. Thanks for being one of the voices crying out, giving the “average” worker hope!

    1. Wow! Thank you for that comment. I’m humbled and honored to know that I’m helping to teach/inspire you to make those changes. These types of comments keep me going. As for your friends, see the comment above as I think that is pretty common. I think all we can do is continue to share our stories and set an example and people will have to choose to follow or choose to keep thinking it is “too hard”. Hopefully, the more they see something different, the more they will know it is really possible.

      Cheers!
      EE

  8. Mr EE,

    this is a great article pointing out a lot of misconceptions that exisist with the average Joe out there.

    Myth #1 is one that took me quite some time to disguise. Whe I started to plan about 2 years ago, I came up with an amount higher than I need now. It took a lot of reading and perseverance to understand what my spending might be and what income could be derived from a nest egg once you enter FIRE.

    Myth#3 is one that makes me smile. I once had a friend that told me I need to upgrade my lifestyle to match my income. I was not sure I needed to do that, as I was having all I needed. I did not have the need to spend more, or to dine in more luxurious restaurants, or a fancy BMW or Mercedes.

    Myth#4 assumes you are also willing to take the market risk. Most people do not want this. My asset allocation guarantees me less than the markets return, with hopefully less volatility.
    The point of the costs is relevant as well…

    AT

    1. I agree that we also took a long time to make the simple connection that the amount we needed to retire is based on what we spend/want to continue to spend and has nothing to do with what we make. This assumption comes from the fact that most people spend whatever they make, but the simple understanding that the two don’t have anything to do with one another is huge and freeing.

  9. How I wish I had learned this when I was young! We will be fine, but we could have done so much more if I knew at 30 or even 40 what I now know in my 60s. I thought 15% was saving (and giving 10%) was extreme.

    You all keep going and continue to inspire others!

    1. Better late than never.

      I would love to say that we knew what we were doing all along, but we just sincerely never cared about most consumer crap as sold to us by marketers and made above average salaries and as a result stumbled into a high savings rate. We were clueless on the details of personal finance like investing and retirement planning until we got away from mainstream conventional sources of information and into the world of reading FIRE blogs. Our blog is just a way of paying it forward, and we will do what we can to inspire others!

      Thanks for the kind words.

  10. I’m very similar when I read a headline for ER might give the FI world a little more mainstream love and then boom I’m reading about how it’s impossible to save and invest.

  11. I’ve often had several similar questions about the “experts” who write about this stuff. If they were so good at it, why are they still working? That’s actually what helped me overcome the fear of writing about my ideas, as well. I mean, why would anyone listen to me? Unless you have already retired early, who are you to tell someone else how to do it? But the thing is, at least we’re trying. It’s more than most of these “experts” are doing. At least we can document our journeys and lessons along the way and be open with our experiences. That would give readers much more insight than an “expert” spouting off about what he thinks, but has never tried. Reminds me of Roosevelts “in the arena” speech.

    -DP

    1. Great points. Along those lines, I would encourage anyone who hears this kind of advice from “experts” to ask why they are trying to sell you products? Someone who truly had that skill would have people lining up for their services!

  12. LOL. Nice post!

    How are all those finance folks supposed to make money if we stop believing we need millions to life FI? Dude, you’re hurting their paychecks!

    It’s definitely easier than we’re lead to believe by the media. I’m personally quite happy to be off the perpetual hamster wheel.

    1. No doubt that the finance industry is interested in making things as complicated and overwhelming as possible. How else to justify their excessive fees?

      Congrats on being set F2P!

  13. I’m 100% with you here, but I think you misrepresented some of the points in the article.

    The MSN article says:
    “With compounding, even the small sum of $100 a month, becomes $80,957.36 over 25 years at 7% yield. You’re not going to retire on that, but the more you put in, the more you’re going to get out. At first, that might mean a lot of Ramen noodle meals, but as you get older and make more money, it’s going to be easier to save more and increase your overall yield.”

    Based on your comments, you seem to think this is ridiculous. The person admits that $100/mo isn’t a lot in the long run — “you’re not going to retire on that” — but they’re talking to people who just started working and have decades of compounding ahead of them here. $100/mo may very well mean someone making $30,000/year may have to eat some ramen noodles for a while until their income goes up. The point is to start early even if you have to make sacrifices (whether it’s eating ramen or moving in with a roommate). Wouldn’t you agree with that statement?

    It also says:
    “However, he’s also quick to point out that how you define retirement matters: “Does retirement mean no longer working at all and just pursuing activities that have no economic benefit, or does it mean pursuing things that have economic benefit, but not needing the economic support provided by it?” That makes a difference in terms of how you save, but also in terms of how you plan for retirement.”

    That looks pretty similar to your comment that “You can then adjust up or down from there depending on the specifics of your personal situation such as investment philosophy, whether you desire to do some work or never again work to earn money, anticipated windfalls, etc.”

    I get your point that mainstream articles don’t always portray the right/whole early retirement picture (and I agree!), but I think you misinterpreted some of the statements in this particular article.

    1. Fair points Ashley. There are several points that bothered me about her statements. I understand that she was using the $100/month example to prove the point of compounding and not stating that this is all that you need to save. However, you constantly see examples like this where they just assume that all investors magically get X% yield, when in reality in makes a massive difference how you invest. You never see that spelled out in these types of articles. I started out investing with Ameriprise and fell prey to hearing these types of examples repeatedly. In reality costs and taxes are massive and completely under your control but create conflicts of interest for these high fee firms. Poke around here, for repeated examples of this from my own life. Finally, saving $100/month as you state while making $30,000/year is a 4% savings rate. Savings rate is the single biggest factor in being able to retire early. Most ER examples I’ve read save 40%-75% of their income. Don’t you think this is a bit more useful info if teaching someone about early retirement. Second, I just don’t buy the idea that saving = sacrifice. It is the same as a crash diet. You won’t stick with it. If you want to retire early, you must reject this way of thinking or you’ll never make it. As for the second guy, I’ll be honest after his 7-8 figure requirement and some other statements, I pretty well tuned out.

      All in all, I think I represented the tone of the article very well. Early retirement is possible, but highly unlikely for most. I respect your points though. Thanks for the comment. I always welcome positive and negative feedback.

  14. “I have no idea what makes them experts on the topic of early retirement.” Let’s be frank: what made them ‘experts’ is that they or their employers paid for the mention and link in the article you read! 🙂

    Thanks for busting the myths!

  15. Enjoyed your counter to the original article. It’s always funny when I see early retirement articles from the mainstream media because in general they are horrible and much like this one. From your excerpts of the article I pretty much gather the gist of the article was “it’s not impossible, but yeah don’t bother going for it”. Plus what’s the worst that can happen if you go for FI? You end of saving diligently for 10 years or so and then decide that you still want to work your same job until you die. Except now you have a huge portfolio that can/will help if you decide you want to travel more or donate to charities or have the likely layoff once you reach retirement age like has happened to so many baby boomers.

    1. Agreed that it is a no lose proposition once you can shift your mindset from one of saving as sacrifice to one of saving as opportunity.

      Thanks for the comment.
      EE

  16. Great take on this! It is unfortunate that the “normal” is over spending and working for 40+ years to support a life that probably doesn’t fully full fill you.

    The advice always tends to be – you shouldn’t push yourself too hard to try and save money so you may as well just spend it. Instead, don’t spend money you don’t need to and get to the point where you no longer need to rely on others to survive. That idea alone should push everyone to try and achieve FI.

    1. Agreed. I think it is sad how often we must listen to how hard it is to make it when it is simply a matter of doing just a few small things different that can have massive impacts on the quality of your life if you can just learn to block out this negative noise.

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