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Early retirement: The extreme method


This is the first post in a three-part mini-series from Jacob, who writes an intriguing blog called Early Retirement Extreme.

Describing himself as semi-retired in his early 30s, Jacob lives an unusual lifestyle that’s partly funded from investment income, and partly from part-time jobs.

While I see certain echoes of his lifestyle in my own, he goes much further than I do – his approach won’t suit many! But his explanation of what he does and why will certainly make you think.

I am 34-years old. I have been financially independent since I was 30. That is to say, my passive income from broker and savings accounts has exceeded my expenses each year (except in 2008 where I relied on carryovers from previous years).

According to Monte Carlo simulations like FIREcalc, it will continue to do so for the next 60 years.

I no longer work for a living. I managed this through a combination of saving most of my income while I was working and figuring out how to spend very little money. You can read my story, but if you want to become financially independent and have your money working for you, it is better not to repeat some of the mistakes I made.

I did not make bank in the real estate bubble or start a successful company. Nor did I achieve superior investment returns.

In fact, I used to be an astrophysicist, a career that pays about as well as long-haul trucking, but which allows some paid travel for one to see the world (I guess the same holds for trucking), whereby the world I mean places like CERN, Princeton, Los Alamos, and other labs, universities and the occasional resort.

I worked in that field for nine years (four of them in grad school). It would be fair to say that I have retired from that career.

What I do in my early retirement

I spend time writing a book, keeping my blog going, and serving on the board of directors for a non-profit start-up.

When I am not being ‘productive’:

  • I crew on a 34-foot racing yacht once a week, working my way up to ocean racing. I recently crewed on my first short ocean race going under the Golden Gate bridge and onto the Pacific Ocean.
  • I practice shinkendo, which is applied Japanese swordsmanship, four hours a week.
  • I also repair bikes occasionally, helping out in keeping the fleet working for a women’s shelter and ‘marrying’ broken bikes into functional ones.

I’ve always liked writing. I used to blog privately on MySpace about anything and everything until I discovered the existence of public blogs – mainly personal finance blogs.

I thought I had enough material about personal finance to write daily, so I started my blog Early Retirement Extreme in December 2007 and I have been going at it ever since.

Early retirement: What’s in it for you?

I want people to take a step back and think about why they live as they do.

Today we are twice as productive as in the 1950s, meaning we could live a 1950s lifestyle with better technology and a four-hour work day as a single income family.

Yet people now seem to need two incomes just to get by, and apparently millions of dollars to retire.

So many life skills have been lost on the way to the mall to buy cheap junk and fake happiness. People own huge houses that they work so hard to pay off that they only have time to sleep in them or crash and watch TV. They drive expensive cars stop-and-go at 20mph to go to work, mainly to pay for the few hours they spend outside of work.

It could be very different. I want to show how it is possible to live happily without spending a lot and without using a lot of resources.

If the Earth was a pie, it is not growing bigger, and yet there are 120 million more people being added every year. We’ll pass seven billion within a few years. You can see that in greater competition – including wars – for resources, which is reflected in things like the price spikes for oil, metals, gold, and corn.

I think the point of diminishing returns was reached some time ago in terms of competition as a viable strategy to a better life. It is much more efficient to learn to live well on less than to waste time and energy competing for more.

In part two, Jacob shares some of the ways of living frugally that enabled his early retirement.

{ 30 comments… add one }
  • 1 laura@move to portugal April 8, 2010, 9:50 am

    Jacob is one of my favourite bloggers, and even though I’m not looking to retire early, {too late for that!} his site has had the biggest influence on how I view money and finance out of the whole blogosphere! Our worlds are completely different, but I love his extreme ways.

    When we eventually move his advice on keeping your expenses low, housing location etc, will be the advice we follow.

    Can’t wait for parts 2&3

  • 2 The Investor April 8, 2010, 10:19 am

    Thanks for your comment Laura. Agree Jacob definitely offers something different and unifies it all together a lot more coherently than most of the ‘frugal blogging’ crowd I think.

    Parts 2 and 3 are well worth waiting for! 🙂 One will appear next week, and the final one in a fortnight.

  • 3 ermine April 8, 2010, 12:19 pm

    Jacob’s philosophy was the second kick I needed to up my savings rate to about 70% of my salary. I am not convinced it will buy me 5 years of living after 2 years as he says but that is more to do with inflation and the state of the economy.

    How he manages do do it beats me. It is easy for me because I am in the last third of my nominal working life with a paid off house and I can bike to work so my fixed costs are low. I tip my hat to him doing it at 35 – I’m not sure I could have lived like that then 🙂

  • 4 The Investor April 8, 2010, 3:56 pm

    I used to save about 50% of my post-tax income but various business ventures and changes have done in that rate in the past 3 years (I’m in my mid-30s). There are various things that make it easier – not smoking, having a car, or having kids being chief amongst them!

    My biggest expense by far is living in London. It’s a luxury I can’t really justify, or should that be a drug! (I don’t need to be here).

    Remember he assumes you’re living on effectively what you’re living on before you retire (i.e. 30% of your income) which probably isn’t a lot. Also, the Monte Carlo simulator can produce crazy results, and I don’t really trust it. You have to look at the worst case scenario.

    On the other hand, the true worst case scenario is you die! A good reason to do it sooner rather than later, and adapt.

  • 5 OldPro April 8, 2010, 4:01 pm

    All very interesting stuff and best of luck to him but don’t go turning Monevator into a coupon clipping site I pray — we can go to moneysavingexpert for that line.

  • 6 Evan April 8, 2010, 4:31 pm

    I am with OldPro…but I don’t think Monevator is changing anytime soon! I love reading Jacob’s stuff because he gives me an insight into a world that I can’t even beging to imagine. He spends less in a year than my property taxes and the cost of my cars (wife and mine), and he provides this insight with a great writing style.

    OldPro, Jacob doesn’t write about clipping coupons, rather he writes about changing your lifestyle.
    .-= Evan on: Make the Most of Unemployment =-.

  • 7 Evan April 8, 2010, 4:32 pm

    oops a few mistakes in that comment! Don’t judge me lol
    .-= Evan on: Make the Most of Unemployment =-.

  • 8 Strick April 8, 2010, 6:38 pm

    I don’t think you’ll find Jacob clipping coupons. Coupons are made for junk you don’t need and crap you shouldn’t eat.

  • 9 Simple in France April 8, 2010, 7:01 pm

    I agree with Laura on Jacob being one of the bloggers I find most inspiring.

    I found his blog right at a time when I was questioning the need to consume as much as we all do–and noticing that it wasn’t making me particularly happy. I find that cutting back on consumption can raise a few eyebrows, and it’s nice to know I’m not doing it alone. I’m not as frugal as Jacob . . . but I’m working on it 😉

    Looking forward to the rest of the series.
    .-= Simple in France on: Take that, French driving test! =-.

  • 10 MoneyEnergy April 8, 2010, 9:48 pm

    Jacob is one of the truly smartest bloggers I know – because of how strategically and critically he thinks. Everyone should read his blog because you will learn something about how to think differently about your situation, and where you can go from there. We all know we need to spend less, be more effective, etc., but Jacob is able to connect the dots, extrapolate, and present how all of our actions fit together and the consequences they have in the bigger picture.
    .-= MoneyEnergy on: The Difference Between Yuan and Renminbi =-.

  • 11 Little House April 9, 2010, 12:53 am

    I’m very curious to read the next two parts of your Early Retirement Extreme. As a teacher, I also want to add that today, with both parents working long hours, less time is spent with their children. Many of my students need additional home support to become successful readers and mathematicians (as much as a 3rd grader can be 🙂 ). However parents don’t have much time today to sit down with their kids and make sure they understand what they’re reading (comprehension skills) and how to solve word problems. Instead, many of them sit in front of televisions or video games and “veg” out for hours. Their parents are also too busy to pack them nutritious lunches and bring chips and candy for snacks! Technology today may not be positively benefiting these individuals! (sorry so long winded….I guess I really need to write a post on this).
    .-= Little House on: Tuesday Tips, Week 4 =-.

  • 12 The Investor April 9, 2010, 9:00 am

    Wow, I certainly didn’t underestimate Jacob’s blog or his message, but I DID underestimate his popularity in the blogging community. 🙂

    In terms of the crossover between Jacob’s writing and Monevator, as mentioned above I do live below my means, but I don’t live badly at all. (That’s part of the point of both blogs – what really matters?) I’m more conventional with my savings rate, though it’s higher than many when it can be and in my late 20s and early 30s would have been well over 50%.

    One difference is changes in my life circumstances in the past few years mean I no longer seek early retirement *entirely* as a goal. When I sold out of a start-up, I took some time off. I though it’d be great to have nothing to do but what I wanted. It wasn’t.

    A very wise part of Jacob’s message is having some goal or meaning in your post-work life, and preparing yourself for it. I’d say that’s almost the critical issue, because it’s also what gives you a positive target to aim for. I’ve discovered I like doing some productive and appreciated work for hard moolah as part of my activities, hence I’d hope to do a couple of days work a week ‘forever’. But it will soon/eventually be only on my terms, and what piques my interest.

    As for coupons, I sometimes use 2-for-1 restaurant offers and the like, and I do like to surf the temporary reductions on the shelves of M&S, but I’ve probably clipped about a coupon a year on average! I’m not even disparaging it, it’s just not in my mentality. I think it helps to think rich about your life, but live poor – which I know is the inverse of the traditional message – I think actions count, and feeling hard done by won’t help you.

    So I mean make an excellent meal for your friends, but eat it like you’re at the fanciest restaurant in town. 😉

    (And yes, go to the restaurant sometimes if you want to and can afford to, and are socking away huge amounts of cash already).

  • 13 Jason @ Redeeming Riches April 9, 2010, 11:22 am

    That’s great that you are living life on your own terms! I think retirement is that point in time where you have the freedom to choose whether or not you want to work or do other things you are truly passionate about!
    .-= Jason @ Redeeming Riches on: IRA Withdrawal Rules – When Can You Withdraw Your IRA? =-.

  • 14 Lemondy April 9, 2010, 1:54 pm

    Live frugally, avoid having kids, and invest wisely to ride into early retirement through a bull market backed by, erm, exorbitant consumerism? Hmmm. ERE is an interesting blog.

    Isn’t there a huge moral contradiction here: if we all tried to do this, it wouldn’t work, and/or modern society would collapse.

  • 15 The Investor April 9, 2010, 3:20 pm

    With the Earth’s population headed towards a truly terrifying 7 billion and most of those on more than a dollar a day committed shopaholics, I think we have some headroom. 😉

  • 16 Early Retirement Extreme April 9, 2010, 5:45 pm

    @Lemondy – Ah, the Kantian conundrum. Realistically, it’s no different from asking “what if everybody wanted to become carpenters or businessmen, wouldn’t society collapse?”. I got a big collection of “That’s nice but I could never do it”, so at least for now there’s still great resistance. What if just one nation did it? Well, they’d look a bit like China with its 50% savings rate. The problem here would be to unload the productivity. If there are no places to unload the quantity, the focus has to change to quality. Houses have to be built to stand 300+ years. Cars have to be built to last 100 years. Pots and pans would be handed down to the next generation. With a lot more time on people’s hands you’d see craftsmanship replace industrial design. Software development would take a different direction—we’d no longer need the equivalent of a 1990s supercomputer to surf the web. Landfills would not be filled up as quickly. People would no longer fill 5 garbage bags of clothes and shoes when they clean out their closets.
    .-= Early Retirement Extreme on: Guest post on Monevator about extreme retirement =-.

  • 17 FinEngr April 9, 2010, 8:19 pm

    Eye-opening interview! Thanks Jacob & looking forward to the second installment.
    .-= FinEngr on: Rooting Out The Devil: Kathy Kristof Interview =-.

  • 18 FinEngr April 9, 2010, 8:22 pm

    BTW – Nice reference to FireCalc!

    Its a great website, and through it I found Mike Golio who wrote Engineering Your Retirement (promise I had NO idea about the title when I decided on MY blog title).

    An interesting gent much like yourself, I’d suggest looking him up and giving him a shout. We’ve maintained a loose back-forth communication, and I’m looking forward to interviewing him & reviewing his book.

    .-= FinEngr on: Rooting Out The Devil: Kathy Kristof Interview =-.

  • 19 LeanLifeCoach April 10, 2010, 12:43 am

    Another fan of ERE here. While I’m not prepared to live with such a modest expense rate, Jacob has inspired us to cut back further. And we are not done! He is effective at making a person see things from other perspectives.

    @Little House – Agreed!
    .-= LeanLifeCoach on: Combat The Closing Technique – The Consultative Close =-.

  • 20 Financial Samurai April 10, 2010, 3:28 pm

    I think it’s great you are doing what you are doing Jacob. It gives a lot of us hope that if we wanted to retire early we can. That is the key attraction. Most of us won’t hang it up in our early 30’s because of various reasons, but it’s always good to know someone is doing it!

    Best, Sam
    .-= Financial Samurai on: Doing Anything You Can to Survive – Silence And Surprise In The Night =-.

  • 21 Len Penzo April 10, 2010, 7:20 pm

    Loved the first installment, Jacob! I am convinced for twentysomethings committed to following in your footsteps and retiring early, it definitely can be done. I think the key is for them to “level set” their lifestyles early on at an appropriate point that supports such a lifestyle. It’s very hard to go back once the line is crossed – especially if you go out, get married and have kids.

    Investor: Curious as to why you distrust Monte Carlo runs? I find them to be the most useful tool for predicting future performance.

    All the best,

    Len Penzo dot Com
    .-= Len Penzo on: Black Coffee: My Favorite Blogs, Money News & Opinions #41 (Guess Who Joined the Yakezie Edition!) =-.

  • 22 The Investor April 10, 2010, 10:37 pm

    @Len – It was a fairly flippant comment, but I do find some outcomes weird and have done with others. Perhaps I misunderstand the application.

    For instance, start with FireCalc with a portfolio of $1 million, withdrawing $20,000 a year, for 30 years.

    It tells me:

    Here is how your portfolio would have fared in each of the 109 cycles. The lowest and highest portfolio balance throughout your retirement was $1,000,000 to $7,490,625, with an average of $3,378,423. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

    I just don’t understand that. Couldn’t a bear market have halved my portfolio even in the first year, to reduce it to $500K?

    I must be missing something obvious, I realize, given the popularity.

    More generally – fear Black Swans! 🙂

  • 23 Early Retirement Extreme April 11, 2010, 3:43 am

    @The Investor – MC simply uses historical return rates and inflation rates and increases and decreases the portfolio range based on that. It uses all the 30 year ranges possible (1900-1930, 1901-1931, …… 1980-2010) under the assumption than the market behavior over next 30 years will be like some of the periods in the past. What I’m concerned about is not mean outcome, but how many cycles failed. Over 60+ years (I’ll probably be dead after that), none of my cycles fail. This means that if the market of the future experience a great depression, a couple of world wars, an oil crisis, a period of inflation, the mass production of cars (the death of horse transportation), the decline of railroads, the portfolio will live through it.

    Naturally, this prediction is not a guarantee, but I’m fairly certain that as long as there is a free market, capitalism will survive.

    I suspect a lot of people stay in their jobs because they don’t trust the market. I trust the market more than I’d trust “at-will” employment.

    (I’m more concerned about political changes.)

    Actually, my main black swan is getting run over by a bus. In terms of relying on a portfolio to provide my income it is not much different from relying on a job income. What if they get fired? A person is much more likely to lose their job than I am to take a 50% hit on my portfolio.
    .-= Early Retirement Extreme on: Guest post on Monevator about extreme retirement =-.

  • 24 OldPro April 11, 2010, 10:30 am

    Hairy muff!

  • 25 The Investor April 12, 2010, 10:37 pm

    @EEE – Absolutely agree about jobs, and about income from investments and the market. I’m a freelance and I’m looking ahead to an income orientated portfolio for exactly that reason. (Worth people noting that income from investments is usually more stable than capital values – the last couple of years are unusual in that not being true).

    However I still don’t get it with Firecalc, even after your comments. As I say, I start with £1million, with those numbers given, and it says my lowest portfolio value was $1 million. That just blatantly can’t be true – markets have fallen loads of times, so if I started with $1 million and it halved at some very early point in the cycle, it should be saying the lowest portfolio was $500,000 (or whatever).

    It’s not – and I don’t understand why. As I say I’m probably missing something obvious…?

  • 26 The Investor April 12, 2010, 10:38 pm

    (Basically, I think it’s a bug. It’s easy to get negative values etc using different starting variables).

  • 27 Early Retirement Extreme April 13, 2010, 1:41 am

    I think it’s a bug too. It didn’t used do that. Anyways, it is “easy” to run your own MC. You can get the historical data from yahoo finance. In my view, consider that many things grow at 3% real rates (trees, populations, …) I think a 3% withdrawal rate is good regardless of what one invests in. Also, my strategy is to be flexible enough to survive whatever the money does. IOW, I think my ability not to spend on stuff is worth [a lot] more than an extra million bucks in the bank.
    .-= Early Retirement Extreme on: One more year before comfort =-.

  • 28 Concojones April 23, 2010, 1:04 am

    Quote Jacob: “Today we are twice as productive as in the 1950s, meaning we could live a 1950s lifestyle with better technology and a four-hour work day as a single income family.”

    Brilliant comment!! We’ve lost perspective as a society…

  • 29 Steve April 26, 2010, 8:24 pm

    Working for “The Man” may or may not be riskier than the stock market. Most people are less nervous about risks they feel they have some control over – however small, or even illusory that control; and regardless of the risk post-control still being higher than an uncontrollable, but small risk. Compare the risk of dying in a car crash vs. a plane crash – a large risk but since everyone thinks they’re an above-average driver, they think they are less at risk than average; vs. a very small chance of dying in a plane crash, but with zero control over it (other than how often you fly.)

  • 30 jisan2005 September 22, 2010, 7:09 am

    Have been following jacob’s web-site for quite some time, wish i had found the web-site a lot sooner, ERE provides a way of thinking -insight if you will- that is not commonly found elsewhere.

    Regarding people who worry “what if every body started following ERE”,
    think of this world or life as a car & people folowing ERE as the brakes and poeple living the consumer life-style as the accelerator. You can consider them the other way round also.

    You press the brakes all the time, the car will eventually come to a stand-still.
    You press the accelerator all the time, the car will eventually come to a stand-still (as in a crash).

    In the same way, this world or life will continue with both the brakes and the accelerator being used, never only one by itself. What Jacob rants about 🙂 is at the basic level an insight which people should be aware of along with whatever other things they’r passionate about. After all there’s no point in digging a well AFTER the house catching fire.

    Personally though i am rather envious of jacob’s lifestle 🙂
    Just my 0.02 cents

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