Have you ever thought about retiring before the age of 40? Do you think that it would be at all possible? Well, if you still have 5 years or more before that 40th birthday, I wouldn’t count you out of the running! There isn’t a large percentage of people that retire before 40 today, but I don’t think it’s as difficult as one would think. With a little planning and discipline, I’d say that a retirement party before the mid-life crisis is entirely possible.
The Traditional Retirement
Did you know that I used to be involved in a few different multi-level marketing businesses? While I didn’t get rich with these ventures, I learned to question the typical retirement plan. For roughly 95% of the population, working hard and retiring with a nest egg after 45 years of work is the norm. But, why wait until you’re 65? Why not work a little differently, develop a passive income, and retire much earlier? Based on my calculations, I’d say that the typical person could probably retire quite comfortably after only 15 years of consistent work.
How to Retire Before 40 Years of Age
My wife and I work hard for our age. I’m 27 and she’s still a spry 24, but we both have full time jobs and own two side businesses as well! With our current career path, I’d say that it’s not out of the realm of possibility for us to earn $200,000 per year within the next 3-5 years. Since we currently live on less than $40,000, we could really start stashing away some serious money in the next decade. And, by following the guidelines I’ve established below, it’s a very good possibility that we could consider ourselves retired before our 40th birthday.
1) Earn More Money – If my wife and I didn’t make an effort to increase our incomes in the past couple of years, we might still have some student loans or even some credit card debt. But, through careful preparation and schooling, we’ve found excellent jobs in our field and we’ve created some additional income by using our talents to start our own businesses as well.
2) Pay Off All Debts, Even Your House – We worked hard for 14 months to pay off $18,000 in student loans. Now the only debt we have is our home loan of $62,978, and if all goes according to plan, we’ll get rid of this within the next 3 years.
3) Don’t Inflate Your Lifestyle – If our income really increases to the $200,000 mark, think of how our day-to-day lifestyle could change. Our vehicles suddenly could upgrade from a GMC and a VW to a Porsche and a Mercedes. We could relocate to the “wealthy side of town”. And, we could probably afford to go out to eat every night of the week rather than just once. But, inflating our lifestyle would not improve our future life, it would only give us short-term thrills with happiness that’s surface deep.
4) Invest the Extra Cash and Develop Passive Income – Since you’re debt-free, living a frugal lifestyle, and increasing your income, the cash should just be rolling. The big question is, “What should you do with it?” The common answer would be something like, “Invest it in the market let it grow”. Personally, I don’t like this answer, especially if you plan on retiring early.
Rather than sticking all of our money into the market (yes, we’re still investing some there as a back-up), my wife and I will be looking at various passive income investments that will improve our equity AND our cash-flow. A great example of this would be real estate – whether it’s in commercial or residential, single family housing, the value of the properties look like they have nowhere to go but up, and with a large down-payment (maybe even a 100% down-payment), the cash-flow on the rental should be quite lucrative as well.
After 10 years of passive income investments, we could easily own $1,000,000 worth of properties that yield nearly $100,000 of income each year.
5) Keep the End in Mind – There are many different views of retirement out there. If you’d simply like to live in a 1 bedroom, 1 bath condo and live frugally for the rest of your life, then you won’t need millions and millions of dollars in your future. Chances are, you could scale back considerably and still live quite comfortably without ever worrying about spending your last dollar.
If, on the other hand, you have dreams of a mansion on the lake and plan to travel around the world on a yearly basis, you’re going to need an impressive plan for your future. One that includes a large equity base and passive income cash-flow. While this may take more planning, it’s still 100% achievable.
Do you have hopes to retire before 40? What’s your plan? Does it follow my guidelines above?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.