Are you one of those crazy people that aspire to retire extremely early? Like earlier than 50? Earlier than 40? Heck, maybe you even have the goal to retire by 30! It’s been done before, so why not you?
What would you like to do with your early retirement?
- Travel the world
- Volunteer in your local community
- Lay on the beach all day
7 Keys to Retire Extremely Early
You might not know exactly what you want to do, but you DO KNOW that you don’t want to work in a cubicle from 8am-6pm for the rest of your life. So why not save up a pile of cash and enjoy life in retirement while you’re still young?
If you think this sounds like heaven, then let’s figure out what you’ll need to do to make it possible!
1) Get Out of Debt
If you’re trying to beef up your net worth to retire extremely early, then keeping your debt will only hurt you. That car payment, that mammoth house, and the huge student loans – they all have to go. I know it sounds crazy because it seems like everyone has debt. But you know what? Everyone’s broke! So if you want to be rich and retire early, it just makes sense to do exactly the opposite of what everyone’s preaching.
Related Article: The Absolute Best Way to Get Rid of Debt
2) Live on a Small Percentage of Your Income
One of the big keys to retire extremely early is to live on far less than you earn. Like, WAYY less than anyone you know.
Financial advisors recommend that you invest 10-15% of your income into your retirement, but THAT’S if you want to retire when you’re 67 years old. If you want to retire by the time you’re 37, you’re going to need to save 50% or more of your income.
So how do you live on so little? Refer to Step #1. 😉
When I got out of debt, I soon discovered that I could live on practically nothing! – just $460/month for 10 months out of the year. I had no mortgage, no car payment, no nothin’!
All I needed was:
- $160 for food
- $100 for gas
- $60 for my phone bill
- and $100 for utilities
When you have expenses this low, you can save roughly 75-80% of your income each month, which means you can retire in just six or seven years!
Want to figure out EXACTLY how much you need to save each year? Put your numbers into this calculator.
3) Maximize Your Income
You might not love that cubicle job. In fact, you might deeply despise it. But if you stick with that high income for just a few years, you might be able to retire far earlier than anyone else!
Let’s say you net $100,000 a year at that job you hate. Once you get rid of your debt and figure out how to live on next to nothing, you could save $75,000 a year. Do you realize what that turns into in five years? With interest, $500,000!
If you can continue to live on just $25,000 a year, you could make that nest egg last forever. You’ll never run out!
4) Invest Outside of Your 401k
This is a big deal. If you want to retire extremely early, you DO NOT want to pile up all your money into your Roth IRA or your company 401k.
Because you can’t pull it out until you’re 59.5 years old! …Not without paying a huge penalty anyway.
If you want to retire in your 30’s or 40’s, then you’re going to want to stash your money somewhere else.
Here are my top options:
a) Real Estate
This is the method Liz and I prefer. We put roughly 15% of our income into our 401k, and then we set aside all of our extra cash into a savings account each month until it grows large enough to buy an investment property.
The value of the real estate grows from year to year, and it provides us with an additional $10,000 of income each year as well.
If we decide to retire extremely early, we could either sell the investment properties and live off the pile of cash, or we could keep them going and live off the yearly returns. All the while, our 401k investments go untouched and continue to grow.
b) Mutual Funds
Alright, so you probably don’t want to over-invest in your 401k mutual funds, but you can invest into very similar funds yourself through companies like eTrade or Motif Investing.
I always recommend Motif because:
– They’re cheap (all your trades for less than $10)
– They pay up to $150 just for making a few trades
– It’s super easy (just in case though, here’s a step by step guide)
c) Your Own Business
Just like the rental properties, starting your own business will provide you with equity AND a monthly income. Not sure where to start? I’d recommend building a website.
It wasn’t until I started my website back in 2010 that I began to understand where my true passions were – mainly, in helping others with their personal finances.
5) Keep a Solid Emergency Fund
If you’re going to retire extremely early, you’re definitely going to want a heft emergency fund – like, an entire year’s worth of expenses. After all, without all the perks of your job backing you up, you’ll be a little bit more vulnerable to all of life’s unwanted surprises (ie. health challenges, market uncertainty, income loss).
If you typically live off of $50,000 a year, I’d recommend having that amount nestled safely in a CD or Money Market account. It’s not sexy and it certainly won’t earn you much, but it’ll always be there if you find yourself in a pinch.
6) Don’t Realize Your Earnings
Want to act like the wealthy? Want to retire extremely early? Then you’ll want to live by this fantastic article I read last month: “Wealthy People Don’t Realize Their Income“.
It’s not that they don’t realize mentally what they earn. Believe me, they know EXACTLY how much money they make and where it’s going. What this article is saying is, the wealthy do everything they can to take their earnings and put them straight into another investment.
They don’t buy nice cars, they don’t buy huge yachts – they invest, invest, invest.
- To keep the grubby government patties off their stack of cash for as long as possible
- They don’t want the $10,000 now. They want the $100,000 that it’ll grow into later.
If you want to ditch your job in the next few years, you’ll want to adopt this mentality.
7) Stay Healthy
You know how people end up broke in retirement? First of all, they don’t save enough. Secondly though, they don’t take care of themselves.
They go out to eat….every day. They constantly consume fatty foods and exercise very little.
It should be no surprise that this leads to:
- Heart disease
- Gallbladder issues
- and Sleep Apnea
This inevitably means DOLLARS! It’s costly to pay for medicine every month and for surgeries every couple of years.
If you want to retire extremely early and STAY RETIRED, then you’re going to need to take care of your body. Eat your fruits and veggies and exercise for 30 minutes every day.
So How About It? Will You Retire Extremely Early?
Let’s sum it up. What do you need to do to retire extremely early?
- Get out of debt completely
- Live on far less than you make
- Earn the most you possibly can
- Invest in things not tied up in your 401k
- Keep a healthy emergency fund
- Keep reinvesting – avoid taxes
- Stay healthy
Hit each one of these steps and you’ll be sitting pretty! Heck, if you start young enough, you could be retiring in your 30’s!
What’s your goal? Do you want to retire extremely early? Are you following the plans 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.