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I was able to retire early at the age of 30 using the exact early retirement strategy in this post. While you might be thinking, how can you retire at 30? Well, it’s important to first define what early retirement actually means to you.
Here’s what it means to me.
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What is Early Retirement?
Early retirement is no longer defined as the moment when you stop working forever, it’s simply the moment when you no longer have to work for money.
But you can choose to keep working like I do, if that’s what you enjoy doing. It’s been scientifically proven that working is actually good for you and many people who completely quit working start losing their mental faculties and people who retire early might actually die sooner.
So to me, early retirement means being able to make the shift from work you have to do to work you want to do. The old school idea that when you retire you are done working, is just that, an old school idea. Now that we’ve got that settled, let me show you how I retired early and how you can too.
How Can I Retire Early?
While this is a hotly debated topic in the early retirement community, based on a series of papers known as the Trinity Studies, you need to save approximately 25-30x your expected annual expenses to have enough money to last you for the rest of your life.
This multiple is based on what’s known as your expected withdrawal rate, which is the percentage of your investment growth that you would be able to withdraw per year to live on. Based on this study (and many others), a safe early retirement withdrawal percentage is between 3%-4% adjusted for inflation (meaning you can also take out an additional 2%-3% per year depending on inflation).
How Much Money Do I Need to Retire?
Here’s how to calculate how much money you need to retire early:
First, figure out how much money you are spending each year by tracking your expenses. My wife and I spend approximately $50,000 per year and here’s an approximate breakdown of our expenses by category.
You can track your expenses using a free tool like Personal Capital. My wife and I spend approximately $50,000 per year, and you can see an approximate breakdown of my expenses by category here:
Using myself as an example, if you spend about $50,000 per year, then you need to have somewhere in the neighborhood of ($50,000 x 25) $1,250,000 to ($50,000 x 30) $1,500,000.
It’s important to note that this is how much money I currently spend, not how much I will necessarily be spending in the future, but it’s a great starting point for setting an early retirement goal.
$50 a Day Early Retirement Strategy
This is the single most important hack I’ve used to build wealth. It’s easy.
Set Daily Goals
I break down ALL of my money goals into daily goals. I still deposit money every day into my investment accounts and track my net worth for free using Personal Capital. Our minds are built to think about today. Our ancestors weren’t able to comprehend years into the future. This is one of the reasons it’s so hard for us to save money.
You’ve probably tried those retirement calculators or have used the retirement projector at Personal Capital. Most of the calculators come out with a number you will need to “retire” based on your inputs and current progression. The numbers are usually big and run into the millions. SERIOUSLY? Who can save $1,272,000 dollars? I was barely able to buy a burrito when I first started.
These numbers are so large, they seem impossible to reach, don’t resonate with us, and actually discourage saving. But, backed by academic research, a lot changes when we start thinking about money in daily increments. I used this hack to transform my savings and reach financial independence. If you are nerdy like me and want to go deeper on this topic check out the research of USC professor Daphna Oysterman.
How Early Do You Want to Retire?
So what should your daily goal be? I did some calculations and determined I needed to try and save approximately $50 a day in order to reach financial independence in 30 years. It can’t be a coincidence that I needed to save a Grant a day!
It’s a simple calculation, and I even created a calculator that makes it easy to figure out. In order to get to $1,250,000 I needed to save $50 a day and have an expected 5% annual compounding rate (a pretty reasonable expectation over a 30 year period). Thinking about it in annual terms I needed to save $18,250 a year. Max out that 401K!
But 30 years? Forget that.
Then I started really thinking. If I could save even $51 a day then I could fast track my financial independence. This was a mind-blowing moment for me. Just $1 more per day. I was hooked.
To figure out when you can retire early, check out this early retirement calculator:
Retirement Freedom Calculator
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Fast Track Your Early Retirement by Saving More
I started depositing as much money as possible every day into my investment accounts. I downloaded the Vanguard app and literally make deposits every single day directly into my investment accounts. Some days it was only $5, but I rarely missed a day. Then I started a side hustle and put 100% of what I made directly into the same Vanguard account. I barely let deposits clear my bank account. The minute I saw the money in there I put it into an investment account.
I got really stoked when I was able to pass the $50 a day deposit threshold. I started to feel in control. I knew that I was ahead. Every day that I deposited more than $50 I was ahead in my retirement savings.
Then I started trying to make as much money as possible every day so I could invest it. I stopped thinking long term and thought every day about making that $50 threshold. When I got a bonus or a new client, those were just bonus points. BOOM, right into my investment account.
Do your own calculation – you might need a lot less.
Here is how much you need to save per day to reach your number:
Depositing money into my investment accounts every day felt, and still feels, like a game.
Fifty dollars went from being my daily goal, to being my daily minimum. I started depositing $70, then $80, then $100 dollars a day. Then as my side hustles started really taking off I started deposit $500+ a day. Every check I got I put as much in as I could that day, but still kept my daily $50 deposit goal. Then I put $5,000 in a day, then $20,000 and the rest is history.
Using this early retirement hack I was able to reduce my 30-year saving plan down to just 5 years and reach financial independence!
Automate Your Early Retirement Savings
I still do this to this day. Now I automate most of it and simply have the money pulled out of my account and put into Vanguard. My current minimum threshold is $200/day.
But you can start at any level that is comfortable for you. There are a ton of ways you can take this idea and run with it. Try depositing $5/day to start and then increase it $1/week. Trust me you probably aren’t going to miss that extra dollar.
There are a ton of apps you can use like Acorn and Digit to do this for you, but good old fashioned manual depositing via your investment app (Betterment, Vanguard, Personal Capital, or any others) all make it super easy to deposit. I find that doing it manually is A LOT more fun and will get you motivated to escalate your limits.
You Can Retire Early Too!
The more you invest every day, the faster you will retire early. If it means that much to you, you’ll make time for it. Every $10 you invest today, could help you reach early retirement days, weeks, or maybe even months sooner in the future. Imagine how much time making that extra investment is buying you in future time.
Now that you’ve learned how to retire early, you need to pay attention to the mechanics and make decisions that minimize taxes, minimize fees, and invest consistently in the right accounts the right way, so you can reach early retirement as quickly as possible.
To learn more about how to retire early and the exact steps I took to retire at 30 check out my book Financial Freedom: A Proven Path to All The Money You Will Ever Need.
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