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Extremely Early Retirement – It’s Just Not Working

There is a new craze going around these days, and it’s called Extremely Early Retirement. While the majority of this world struggles to live paycheck-to-paycheck, a handful of individuals are enjoying an extremely early retirement at the age of 40, 35, or possibly even as young as 30 years old. How in the world is this possible? Well, sites like MrMoneyMustache and EarlyRetirementExtreme lay out the calculations pretty clearly. All you have to do is live on less than 25% of your income (and invest the remaining 75%) for about 7 years and you can officially quit your job and live off of your investments!

Extremely Early Retirement - chart

The chart above might appear intimidating at first, but it is actually a fantastic tool to figure out how many working years you’ll have to endure at various savings rates and investment returns. As with anything, it’s probably best to explain the chart with an example.

So, let’s say that from this moment I decide to save 20% of my income, and I expect those savings to earn an average interest rate of 6% in the stock market. From the bottom of the chart I first find the savings rate of 20%, and then I’ll follow that line up with my finger until I hit that 6% line (the black one). When my finger hits the line I simply follow it straight left in order to see how many more years I’ll have to work before I can retire. With this plan, it looks like I can plan to retire in about 27 years.

For those radicals that are able to save 80% of their income and expect to earn that same 6% interest, they can seemingly retire in just five working years. I say seemingly because I see some large flaws with this method of extremely early retirement. I don’t want to be a hater….but this plan is just a little too cookie-cutter for me. I see some MAJOR problems for these early retirees down the road.

Problems With This Method of Extremely Early Retirement

The main plan of this group that expects to achieve an extremely early retirement is to throw a large sum of money into their corporate 401k, Roth IRAs, and their HSA funds. Once they reach a magic number (which is 25 times their yearly expenses), they hang up their corporate hats and start to live off the interest of their investment. And, if they have medical problems, they simply pay the expenses out of their beefy HSA fund, tax free. It sounds fairly cut and dry (and initially, somewhat ingenious), but quite honestly, I can see this plan failing….frequently. Here’s why.

1) Saving 75% of Your Income Is Simply a Pipe Dream For Many

As my friend pointed out to me the other day, many of the teachers of extremely early retirement begin their teaching with, “Let’s say you and your spouse earn $250,000 a year…”

extremely early retirementUmmm….$250k a year? The average family income, the last time I checked, was just a hair over $50,000, so how many families earn more than $250,000 a year? Probably less than 5%. Already, the pool of early retirees is limited.

Now, I’m certainly not saying that if you earn less than $250k a year that you have no chance of living on less than 25% of your income. I make far less than that and I live on only 20% of my after-tax income. But, what about those people that earn an after-tax income of just $25,000 a year? Their minimum expenses for pure survival are probably around $15,000 a year, and that’s if they are completely debt-free. Saving 75% of a small income just isn’t going to happen, and therefore this method of extremely early retirement simply won’t work for them.

2) The Inevitable Increase in Future Expenses

Even if you are completely debt free and don’t plan to take on any more debt, your future yearly expenses will rise whether you want them to or not. Take healthcare for instance. Over the past 7 years, the costs of healthcare have nearly doubled, and this trend doesn’t appear to be slowing down any time soon. So, at the date of your extremely early retirement you can draw a line in the sand and say, “At this moment, we pay $300 a month for healthcare insurance, so that’s what we can plan on for the next twenty years as well.” This mentality is ludicrous. Based on the chart below, the cost of insurance will almost certainly rise and force you to pull more money from your retirement accounts than you planned, putting your future retirement at risk as you erode your lump-sum retirement fund.

extremely early retirement isn't working

Other expenses are likely to rise as well. Do you want kids? Will the cost of food increase in the future? As you get old, will you likely need expensive surgeries to fix medical issues? The answer to every one of these questions is probably a resounding “yes” and will cause your future expenses to rise.

extremely early retirement isn't working

3) You’re Stuck Living This Frugal Life…Forever

In order for many to retire early, they need to decrease their expenses severely. This means turning in their smartphones for dumb ones, cutting back to only one car, and eating out only once per month instead of once or twice a week. For many of you, these “sacrifices” don’t seem all that extreme, but do you realize that your extremely early retirement is dependent on these sacrifices on a permanent basis? To retire early, you must also keep your expenses incredibly low in retirement as well. This means your dumb phone, your one car, and your home cooked meals will be your only future options. Is it worth it? For some it is, but for many this just sounds like an eternal punishment.

4) You Have Zero Control Over Your Income

extremely early retirement risksDo you know of anyone that controls the stock market? I mean, is there someone on your list of friends that wakes up in the morning, looks outside, and then decides whether to flip the “bear market” switch or “bull market” switch? Ludicrous right? Well let’s take it back a step. How many of you know professionals that can time the market? They study the market and its trends and they constantly pull out of the market before it falls and throw all of their money back in just before the market starts skyrocketing again. Again, ludicrous. Some people are more educated than others and might have an inclination that the market will rise and fall, but no one can consistently time the market. Nobody.

If you have your entire net worth sitting in stocks and bonds, don’t you feel like that’s a bit risky? You have no say whether your money will earn a return, and even worse, you can’t even make a prediction of when it will happen! The future of your retirement rests in the hands of chance. Frankly, for me, that’s just too scary. If the market falls 20% in one year, many of these extremely early retirees will probably be completely screwed. I hope they still have skills in the marketplace, because it may be time for them to get a job again soon!

The Better Method for Extremely Early Retirement

I’m not going to lie. I have thought about extremely early retirement quite a lot. The idea of stashing a bunch of cash away and saying “peace out” to work is obviously appealing. Based on my above reasons, the pile-money-into-your-401(k) method obviously isn’t likely to work, but I believe that there is another method that could still allow one to retire extremely early. In principle, it’s quite easy. In practice, it can be quite difficult. I’m talking about systematic passive income (or at the very least, semi-passive income).

In my post a few months ago, I outlined how one can earn a million dollars over a ten year span and I still stand by this belief today. Here are the basic steps from that article:

  • Become debt free
  • Live on less
  • Earn more
  • Purchase a cheap rental property with cash, fix it up, rent it out
  • Build up cash from work income and rental income, and repeat the fourth step over and over again until wealthy beyond belief

extremely early retirementWith this plan, instead of loading every cent you own into the stock market and hope it goes up, one will instead put much of their money into real estate with the intent to earn a consistent income from quality renters. Over the span of just ten years, one could earn an income of $160,000 per year through rental income alone! AND, the total value of the properties will be well over $1 million as well! In my opinion, this is a much better option for an extremely early retirement because:

  1. You have control over your rental properties
  2. Your income is not dependent on unknown stock growth
  3. There are many income deduction options in real estate investing, thereby reducing your tax rate
  4. You can live large instead of watching your pennies all the time
  5. You have the means to continually grow your income

At this moment, I’m choosing real estate, but it doesn’t have to be. There a many other avenues besides the stock market to invest your hard-earned money. Start your own business, become an angel investor, rent out land to farmers, write books, write music, invent a product – the list could go on and on. If you want an extremely early retirement, please do not limit yourself to a pile of money in a 401(k). This option is too simplistic and could hurt you tremendously in the future. Expand your mind and do more with your money. In your extremely early retirement, you’ll be glad you did.

Are you considering an extremely early retirement? What is your plan?

Investing Money Passive Income Retirement


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.


  1. Thanks for pointing out these dangers, I too feel that at times people are setting themselves up for failure. Luckily I seem to read that most who have ‘retired’ have taken on something else for extra money and to spend their days on. Just not doing anything once you retire is not smart because you risk becoming socially isolated and feeling purposeless. The warnings about post-retirement depression are there for a reason, and the same sometimes happen to those who are unemployed. And if you then seek treatment for that, well, that is going to give you some extra bills to pay.

    • You’re welcome Nina! I agree that many people continue to work with their blogs and other side ventures for the more stable income, and I’m totally okay with that. For those that think they’re just going to sit back and live solely on their nest egg, I definitely wouldn’t recommend it.

  2. 1) The guy from Early Retirement Extreme has some fundamental mental problems. That’s not to say he isn’t bright (he earned a living as a physicist), but there are some financial realities that he insists on ignoring. I (and just about every person I’ve ever met aside from a few homeless beggars) would not be satisfied with his lifestyle. He has also let leak (but de-emphasized) that he has a spouse who is currently gainfully employed in a traditional job. That’s a bit disingenuous.

    2) There are also problems with being a landlord. The process is nowhere near as simple as you portray it. I’ve been there, done that, and have the financial scars to show for it. In order to succeed at being a landlord, you have to have both a suitable personality and a bit of good luck.

    • Hi Howard. Thanks for the great comment. As for the real estate, I supposed I’ll discover the highs and lows this year. By paying for the property with cash, I hope to alleviate many of the stresses that are simply caused by the mortgage loan, PMI, cash flow worries, etc. I will certainly plan to write about everything that happens to me in my rental property progression. Stay tuned!

    • @Howard – Thank you for your ignorant and insulting comment. I wonder what your fundamental problem is? While admittedly only a relatively small percentage of people are interested in a life that doesn’t revolve around earning money in order to go shopping; eat out; take their annual two week vacation; drive a mid-level sedan; and park it next to their heavily mortgaged home as their primary source of meaning in life, not everybody is close-minded as you seem to suggest is the case.

      For what it’s worth, my wife and I currently live in a fully paid off house and our passive income is almost three times as large now as our spending. The reason we spend less is simply because we have worked to develop the skills so that our cost-of-living is now much smaller than most other people’s despite now having a similar standard-of-living.

      Furthermore, during the ten years we’ve been married, 2/3 of our combined fortune came from my earnings, so it’s a bit stupid to suggest that I’m mooching off. As I said, our financial income is now 3x larger than we spend. Therefore, none of us need to work anymore.

      • Try not to take too much offense Jacob. Howard has punched me a few times as well. He’s just a no-nonsense, tell-it-like-it-is kind of guy.

  3. You essentially present the same short list objections that many other bloggers have done before (google). Unfortunately, they’re mostly a fallacious variation of “I don’t understand it so therefore it doesn’t work anyone”.

    However, fact is that extreme early retirement IS working. Not only for a few people but for a lot of people. It’s not even a new thing attributable to the blogs above. People have pursued and reached financial independence for decades. Many people are doing it now. You can easily find examples.

    To address your points:

    1) You’re making a straw man argument. It’s true that having a six-figure income is like playing the financial independence game on easy-mode. However, that doesn’t mean that you can’t succeed on $25-40k/year income which is how I did it. For another well-known normal/average income blog, see Also both ERE and MMM’s forums have online journals from hundreds of people (singles, couples, children, different countries, …) demonstrating how it works for average incomes and even for low incomes.

    2) Actually taking a high growth rate based on only a decade of data and extrapolating it into the next decade is ludicrous. If something doubles every 7 years, why then in 35 years, it’ll be 30 times bigger. You’re essentially presuming that health care costs is going to completely take over everybody’s budget—that health costs will exceed everything else by a factor 10 within three decaudes. Clearly that’s not going to happen. You argument would have the same problem for a normal income.

    3) Well, first, if you stick to your work-buy plan, your one future option will be doing 9-5 for the next 40 years. More importantly, there’s a strong tendency for people (keep in mind that there are many people who have done or are doing this) to over-save. This means that their investments and the resulting income tend to grow faster than their spending. Remember that the withdrawal rates people talk about is the number of the WORST SINGLE CASE out of ALL CASES. It’s most likely that extreme early retirees will end up with much more money than they imagined.

    4) Here, you’re creating a red herring. Market timing is neither required nor used by anyone I know off to fund their financial independence. In fact, the vagaries of the market are covered by the withdrawal rate.—As per the above. This is basic stuff.

    PS: Real estate is a popular strategy which also works for FI. It’s more work than the typical strategies, but some people like to be hands-on.

    • Hi Jacob! I didn’t think this article would ruffle so many feathers, but I appreciate your stopping by so we can have a chat about this extremely early retirement a bit more. I agree with some of your points to an extent. Mainly though, I have a problem with the lack of control that a huge pot of retirement money comes with. As the market fluctuates, so too will your nest egg – and I would have to live with that nest egg for the next 40+ years? Now THAT’s pretty scary. I’d much rather retire with some real estate that I can seemingly control a bit more. Yes, I agree it’s a bit more hands-on at times, but I don’t think I’ll mind it.

      Also, as an FYI – I am a pretty frugal guy and typically live on $10k a year, but if I want to spend $5k on something that I don’t necessarily need, then I would like to do it without thinking too hard about how it might mess up my entire financial future. You must be a pretty disciplined guy, my friend. If you ever find yourself in West Michigan, I would love to buy you a drink. Take care, Jacob!

      • Well, once you understand why you wouldn’t mind owning a number of houses who could drop 50% or more in market value (as they did in many places when the housing bubble popped) or why you’re not too worried about renters tearing the place up, or moving out due to either an economic crisis or the neighborhood going south leaving you with vacancies and less income and perhaps a house that’s now permanently lower in value but still have the same expenses in taxes, insurance, and utilities… (yeah, runaway sentence)

        … Then you will understand why other people don’t mind owning shares or bonds for their particular income stream.

        Different people are just scared by different things. In particular they tend to fear what they don’t understand. As I said, real estate is not uncommon as a source of retirement funding and people pick whatever makes them sleep well at night.

        Also, once you know what it feels like to have money being deposited in your bank account three times faster than you can ever use it, you’ll understand that $5000 feels about the same to you at that point in time as maybe $50 does now. (By your example I get the impression that $5k is a significant amount of money to you? It is not to me. I don’t mean this in any flippant way—$5000 is still a nice sum. However, money is just one of the last things I’m short on at this point in my life. This is VERY VERY hard for most consumers to wrap their heads around because money is almost always what consumers can’t have enough of.)

        I’d really suggest keeping an open mind when it comes to this. Especially given that people are doing “the impossible” (more money than they need, yes, with children, getting married, living in brick houses, … ) all the time. It’s not hard to find examples these days and I think people are doing themselves a disservice when they so easily dismiss something as being unworkable because they won’t question or admit to the fact that if they had made different choices, they would have joined the six-figure club several years ago already.

        • Jacob. Got it. Hopefully your story is the same in 30 or 40 years. I’m just not yet convinced. Thanks bud.

          • I agree with both of you on this one. The extreme early retirement does indeed involve a number of sweeping generalizations, but frankly so does any long term plan. I agree that if you over-save, only spend $10k a year and base your retirement on those numbers then you will be forced to live within those same numbers forever. The smarter approach would be to assume you will spend more in the future and use that as a baseline.

            I also question heavily relying on real estate (or any other single venture for that matter) vs the stock market. In my mind, real estate is simply a different form of investment, but the problem is it puts a lot of your money in one asset class, which can cause all kinds of issues if the real estate market tanks. Something that has screwed over a lot of people in my area where housing prices sky-rocketed over the last few years (more than doubled in <10 years), but has easily dropped 10-20% in the last year or so. That said, I live in an area that lives and dies based on the local economy, so if you can find somewhere that has more stability you might be okay.

            As ERE mentions, real estate can be a viable, stable way to fund your retirement, but I think the best approach is to diversify across various markets (i.e., geographic locations) to help buffer against market value and tenant demand fluctuations. If you plan to manage your own properties, I'd say that's more of a semi-retirement since it will require time and effort on your part to manage, maintain, advertise, etc. On the upside, it can also mean becoming semi-retired at an earlier age until you build up enough income to let someone else do the day-to-day property management.

            Either way good luck! I'm curious to see how things pan out for you. 🙂

          • Oh! One last thought. You could also consider comparing moguls like Buffet vs Trump. Both extremely successful, but if you look at the history of each, Trump has had a lot more of a roller coaster ride to get where he currently is. Meanwhile, Buffet has had much smoother (slower) sailing, though he did certainly have to go through some choppy waters as well, but generally less. Admittedly, they both lead very different life styles, but it’s interesting to see how different approaches lead to different things.

            Once again, good luck. I’m sure if you do your due diligence you can be very successful in real estate. It’s just not my personal cup of tea. Lets compare notes in 20 years? haha

          • Compare notes in 20 years? Deal. Hopefully all goes well and we can be laughing about the old days when we were only making $100,000 a year. 🙂

  4. Retiring early is certainly attractive, but as you mention, not very practical for most people.

    Personally, I’ll be happy being able to retire at all and still live relatively comfortably at my current lifestyle level. However, I don’t think the stock market is going to get me there. It will likely be real estate or some other alternative investment such as tax liens. Given or current government / central bank mindset, I foresee a very rough road ahead for our economy, the stock market and federal retirement programs.

    • Thanks for the reaffirming comment Jack. I think it can certainly work, but there are just too many unknowns! I’d be a nervous wreck all the time and wouldn’t be able to enjoy myself at all!

  5. Derek,
    I love the blog! Thank you for being the voice of reason. If people want to do an extremely early retirement – good for them. It’s a free country. I just hope like hell they never have kids – and not just because of the cost of raising them, educating them etc, but what happens if they have a child that is born with (or later develops) special needs that require a great deal of medical and other types of care.

    • You’re welcome, Jim. It was a fun post to write and I stand by every word. I wouldn’t mind an early retirement, but I would rather have a business that I could ramp up if I needed to in order to earn some more income. Living and dying by the stock market just seems a bit crazy to me.

  6. Interesting post Derek! As you pointed out, not sure this would work for most people, especially families that probably would not have the disposable income to invest. I do believe if you invest in the right real estate property you can build real wealth though!

    • Right! The regular method of retiring extremely early will definitely not work for everyone. Glad you liked the article, Paul!

  7. Well crap

    Here we were, retired in our 30’s and traveling the world, and now I have to scrap all of that and go back to work 😉

    • Haha, nice Jeremy. Alright, you can’t tell me that you aren’t the least bit concerned about the future of health insurance and the greater risk of ailments and surgeries! And what about the volatility in the stock market? I definitely wish you well man, but if all I had was a portfolio of money, I’d be pretty scared all the time.

  8. Retiring while still in your early age is amazing. I wish I had been diligent enough with my savings in the past to pull that off. As it is I plan to work for a long time unless I get incredibly lucky.

    • Hi Amos. If you believe in early retirement, then at least be sure to spread the word to those young bucks that don’t yet understand it’s possible. Thanks for the comment!

  9. For myself, I’m exploring other alternatives to get more freedom in my life before I make it all the way to financial independence. Most likely, my husband and I will both cut down our work hours when we have kids. I’d call it semi-retirement more than early retirement.

    • Still a better option than both of you working full-time and plunking your kids in daycare! It’s great that you’re thinking ahead. You’re far ahead of most of the population!

  10. This post resonates with me. I read some of the early retirement blogs, and they’re great sources, but I’ve decided it’s not for me. I do want to quit my job (hopefully within a year or 2 or 3 :), because I rather dislike it, but instead, I want to buy some businesses and run them. That’s always been my dream. And for the past year, we’ve been investing in real estate. Buying and selling property. We also bought 3 rental properties for cash (one is one the market to sell, we’ve decided to not keep that one). Having rentals can be at times nerve racking, we had to do 2 evictions and go to court, but I still think I want to buy more rentals in the future. Enjoyed reading your post!

    • Sounds like you’re on track Felix. I’ll have to stay in touch with you. Sounds like you’re headed where I’d like to go as well! Thanks for the comment!

  11. The way I see it is there is two options in life. Suffer early or suffer later. I am trying to purposely suffer now so I don’t have to later. But even then I am kinda sucking at it so far lol. I am in the process of my own retirement planning and I am detailing it in my new blog. Nothing wrong a darn, but it keeps me honest with myself so far.

    I also agree the MMM way is over the top in practical terms. But so far through some of his articles I have found that I buy things to try and feel happy. Which I am sure many do as well. Since I realized this and have rid myself of some things I am just as happy/unhappy as ever. They did not add value to my life so I didn’t miss them. I believe that is the point of some of his stuff.

    • Yeah, I think I’m with you GDP. I really enjoy reading the early retirement articles, but the information just doesn’t always add up. I think I will retire early some day, but not in the fashion that MMM or Jacob (from Early Retirement Extreme) recommends.

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