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Do you want to retire early enough to save 75% of your income?

Take off and fly into early retirement

If you want to retire early, then as this final article by Jacob from Early Retirement Extreme warns, you’ll need to do things differently.

Having introduced extreme early retirement and outlined some ways of living frugally, Jacob now concludes by suggesting you rip up the rulebook.

I saved around 75 per cent of my income in order to retire early. Sometimes more, sometimes less.

My budget is slightly over $500 a month. Almost half of that is rent, but I could decrease that by moving out of California. You could make that kind of money with a part-time job as a burger flipper or a greeter, if you wanted to have more time to do interesting stuff right away without saving to retire early.

In terms of the recession, I did lose some dividend income, but I quit my career right at the market low in March 2009. It does not concern me.

It would not take much effort for me to cover my expenses, even if the market crashed to zero. I would have to get a job, but if the market crashed so would a lot of other people who decided to retire early. And I don’t need to compete for high-paying jobs to live the good life.

Think different to retire early

The major mistake most retirees make with early retirement is to listen to mainstream advice.

  • Most advice and financial products are tailored towards working for three decades or more – 30-year mortgages, for instance.
  • A savings rate of 15% – which is considered high by mainstream standards – is far too low to retire before you’re 60.
  • Even tax laws are designed to have people working for as long as possible.

If you want to retire early, you have to start listening to someone else.

For instance, I think a big mistake is ignoring health or thinking about it in terms of health insurance.

People need to be more proactive. Health insurance is something that pays money to solve problems once things go wrong. However, little is done to prevent the problems from occurring in the first place.

Many of these problems are lifestyle-related. They come from a stressful job or a stressful lifestyle, perhaps due to debt, bills, and keeping up with your neighbours. They come from too much sitting and too great a reliance on cars and electric gadgets to do things. They come from poor eating and exercise habits.

Another problem is a lifetime of neglecting everything else but work. Many people find themselves unable to enjoy life without being employed. They have no interests that can engage them all day outside of work. No friends, or not enough friends outside of work. Maybe they are no longer fit enough to be active.

Preparing for early retirement is not only about accumulating money. It is also about getting interests and connections, and staying healthy enough to enjoy them.

Be the change you want to see

In terms of frugality, I think the main mistake retirees make is looking at the little things first.

They’ll clip coupons but keep a second unused car parked in the driveway, “just in case”. Or they’ll turn down the thermostat or bring an egg timer into the shower but ‘keep’ three extra bedrooms that are mostly unused.

Another big mistake is buying stuff just because it is cheap or on sale – again “just in case”.

Always remember: Anything that you own but don’t use is costing you money in some way, whether that is storage or heating costs or lost returns if you had invested the money instead.

I hope you enjoyed this series as much as me (reads parts one and two if you’ve not already), especially if you plan to retire early. My thanks to Jacob for his splendid contribution to Monevator. I’d also welcome new readers who came here for Jacob’s posts to stick around. My aims and methods aren’t quite as extreme as his, but my heart is in the same place!

(Image by: Ana Cotta)


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{ 15 comments… add one }
  • 1 Financial Samurai April 23, 2010, 1:53 pm

    I don’t understand why people think saving 15% of their gross income is acceptable either. MAYBE 15% after they put $20,000 a year in their 401K and IRA MIGHT be OK, but still, it seems too little.

    All people have to do is do the math on 15% a year for X amount of years, and they’ll realize it’s not enough.
    .-= Financial Samurai on: The Good Times Are Back Again – The Indulgent List Of Things =-.

  • 2 The Investor April 23, 2010, 2:55 pm

    Surely it depends on your income though, Sam? It might be optional for the likes of me and you, but for the average working person, there’s not a lot of spare cash about. Having money spare after the first 20K has been socked away is fantasy land stuff for them.

    Of course the message of Jacob’s posts is your cut your cloth until you can afford to save massive amounts…

    I fondly remember my days of 50%+ saving rates. My stashing of cash has dropped precipitously in the past couple of years I must admit, due to a drying up of lucrative work in the recession plus 10-20 hours spend blogging instead of earning more immediate moolah. Hopefully the latter will pay off (and pay into my long-term savings!) eventually, even though I reiterate blogging is a truly appalling business model (my breakeven is around 2013, and that’s assuming blogs don’t become irrelevant or similar by then!)

  • 3 Roshawn @ Watson Inc April 23, 2010, 6:08 pm

    Certainly, 15% is certainly a good start for most people, especially if they have a ton of debt and other expenses (i.e. some people have religious-related expenses, such as tithing 10%). I do agree with Jacob that once someone gets his finances straight, then the objective is to do agressively build wealth if you desire to retire early.
    .-= Roshawn @ Watson Inc on: Through the Looking Glass =-.

  • 4 Budgeting in the Fun Stuff April 23, 2010, 6:43 pm

    I can’t get to Jacob’s site from work…darn…I wanted to know how he lives on just more than $500 a month.

    Anyway, we take home about $5000 a month after taxes, insurance, benefits, my hubby’s pension, and my 401k. We only save/invest about 20% of that, so our overall savings rate is only around 35%-40%. I know we could live on about $2000 a month if we cut out $1000 of extras, but our small mortgage plus overpayment of principal is double what Jacob actually lives on! That’s amazing…

  • 5 Daniel April 23, 2010, 7:37 pm

    Amazing post, I love it.

    $500 a month is ridiculous. Obviously you don’t pay rent or have a mortgage. Other than my student loans and rent, I spend around $600 a month. I can’t wait to get out of debt. I’m saving right around 50% now, which I think is pretty good.

    What do you think about this: Start at 50% of your income and allow yourself to drop 1 percentage each year? So if you start at age 25, at age 35 you only have to save 40% and at age 45 it’s 30%. This allows for family and added expenses. Plus, if you’ve really saved 40%-50%, you’re WAY ahead of the average Joe’s 15%.
    .-= Daniel on: Why I’m a Fan of Lifestyle Inflation =-.

  • 6 Brandon Schmid April 24, 2010, 4:39 pm

    I think the key to retiring early is creating streams of income. Think about it. If you have assets pouring off positive cash flow then you could retire and not have to save a penny. Not a bad deal.

    They key problem is the time and effort it takes to set-up these streams of income. I believe it is well worth the effort though.


    .-= Brandon Schmid on: Tips on Budgeting– A dollar saved is 2 dollars earned =-.

  • 7 Steve April 26, 2010, 5:08 pm

    Saving 15% is just the right amount IF someone starts at age 22 (right out of college) and sticks with it until retirement age. If they do that, they can retire at 66. See my “website” which is actually a google spreadsheet with my #s. Is 15% going to be enough to retire early? No, of course not. Most people aren’t interested in retiring early (or at least not interested enough to make the necessary sacrifices.)

    My wife and I are perfectly happy saving 50% of our income. I think it’s important to strike a balance between today and tomorrow. I would rather retire at 50 but turn some of my money into happiness (experiences, education, altruism, family, etc) along the way; vs. retiring at 35 but without those happiness vectors.

  • 8 The Investor April 26, 2010, 9:04 pm

    Good points Steve, and I like your spreadsheet. Quite daunting the retirement income you’re targeting at 65 (I appreciate most of that is money illusion from inflation, of course!)

  • 9 Early Retirement Extreme April 27, 2010, 2:50 am

    @Steve – You can easily have those happiness vectors and retire at 35. You just can’t buy them. Essentially, you have to put in the time for them. For example, I go out sailing 1-2 times a week as a crew member (in the past 2 weeks I’ve sailed past Alcatraz—fairly famous island just outside the San Francisco waterfront and next to the Golden Gate bridge for those who don’t know it—3 times, twice around it). We usually pass tour boats, where the people pay $15-20 each to have an “experience” on the water. Sometimes they wave at us (nice sailboat!) and so we wave back. I guess we’re one of the attractions. I pay nothing (except a one time cost for the gear), but I have commit the time/reliability to be a valued crew member. Conversely, they pay because they usually don’t have the time to commit because they are busy working. Of course this is alright if working is what matters most. I prefer sailing to working.
    .-= Early Retirement Extreme on: Saying “NO” to fitting in =-.

  • 10 Steve April 27, 2010, 4:15 pm

    Well, I do run into many people who mistakenly equate “living today” with spending money. That is a huge mistake.

    However, another mistake is to claim that money can’t buy happiness. In fact I believe it can, if you use it right.

    I am happy that your lifestyle works for you, but personally I prefer not living in a closet 🙂

  • 11 Early Retirement Extreme April 27, 2010, 4:34 pm

    And I prefer not working in a closet 😀

    Money can buy happiness, but often time can be substituted for money, especially when it comes to activities. For example, you could be the tour guide getting paid rather than the tourist who pays. The difference being that the tour guide has put a few hundred hours into the activity and the tourist has put in none.
    .-= Early Retirement Extreme on: Saying “NO” to fitting in =-.

  • 12 FinEngr April 27, 2010, 5:35 pm


    GREAT post. Your writings are always top-notch!

    So I thought about it, and it hit me….tell me if I’m right/wrong in this.

    Instead of how aggressively you want to retire, doesn’t your savings rate really show what you can enjoy life for?

    Back to the 75%, that would mean you could lead the life you wanted for $0.25 of every $1 earned and this is what allows you the flexibility to freelance or work odd jobs that may only pay $0.25 – b/c that’s all you ultimately need?
    .-= FinEngr on: Managing Fear and Expectations =-.

  • 13 Steve April 27, 2010, 5:45 pm

    I do see your point. Certainly I make many decisions to trade money for time. And at least one decision to trade time for money.

    One way to view it is as a “tax” on working. I trade my time for money at a job, making the rest of my time more precious, which I then spend money protecting. Taxes don’t remove all incentive to work, they just reduce the incentive.

    Another way to view it is as a tradeoff. I could live for tomorrow by saving all my money and retiring as early as possible. I could live for today by quitting my job and living off my money as long as it lasts. Or I could strike a balance, working for money and spending some of it now and saving some to spend later. (The fourth option is live for neither today nor tomorrow – perhaps frittering your money away on stuff that doesn’t provide true happiness?) You and I probably agree on the “balance” but just have that balance set at different points 🙂

  • 14 Early Retirement Extreme April 27, 2010, 7:26 pm

    @FinEngr – Answered in today’s post!
    .-= Early Retirement Extreme on: Saying “NO” to fitting in =-.

  • 15 BD May 6, 2010, 8:25 am

    Very interesting series.
    I’d love to learn a bit more though. I too, have lived in an RV to save money. However, the cheapest I could swing RV space rent was $300 a month, and that was in an extremely low-cost area in central Florida.

    In addition, there is RV insurance (in case your RV and all your possessions catch fire or something), Electrical, basic Phone service (i had the cheapest service available), Propane, Food, and Medical Insurance. Unless you’re going uninsured (both body and RV), your extremely basic costs are going to come to something over $500 (I did it for around $700-$800 a month).

    Plus, little stuff in the RV always had to be maintained. The lights burned out. The sewer hose would spring a leak and need to be replaced. The valve in the toilet needed to be replaced. I had to buy chemicals to put in the black water holding tank on a monthly basis. Nothing in an RV really lasts very long, it seems, no matter how well you take care of it. And the initial cost of the RV is a money sink as well. I bought a used Sandpiper to live in. While it was much cheaper than buying new (never buy new!), it still was a substantial cost, and my payments were $265 a month for the trailer (And then $300 for space rent).

    In hind sight, I figured out it would have been cheaper to rent an apartment than to own a trailer (I ended up selling the trailer, and renting a room in a friend’s apartment! Much much cheaper.)

    Anyway, yeah, just curious about your initial cost for the trailer, and if you kept insurance on it, and yourself, and how you managed to keep even your most basic bills at around $500! 0_o

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