How I Retired Early

By [email protected]

It’s the dream of many to retire early. This is how I did it:

I had a paradigm shift: It was the early 80s and I was in my early 20s. I was working an entry level job and living paycheck to paycheck. It was difficult to find jobs at the time and I was always living in fear of What if…? What if I lost my job? What if my car breaks down? What if I get sick and can’t work for a while? Etc, etc, etc.

Then I ran across an article in issue #4 of The Mother Earth News magazine titled How to Retire 6 Months Every Year. The basic point of the article was that by lowering your expenses to half of your income, you could retire 6 months of the year.

What? Wait a minute — you mean there is another way to live? I don’t have to work a 40 hour job for the rest of my life, constantly worrying about the future? This was a revelation to me. I had never considered retiring early or not working week-in and week-out until I was old. I didn’t make enough to live on half my income and wasn’t willing to go to the extremes the article suggested for cutting expenses. I also didn’t want to quit work every 6 months and hope to find another one in the future. But the thought of lowering my expenses to where I could save enough and not have to work any longer by the time I was 40 was extremely appealing. Thus I was able to define my goal.

I created a financial foundation: The first thing I decided to do was make myself more secure. I was tired of being afraid of a financial mishap. I had about $1000 in credit card debt and no savings. I started working all the overtime hours I could get and having garage sales and eventually paid off the debt. It took about 7 months. I also got a bonus of $500 around then and saved all of it for the start of my emergency fund. I gradually built my emergency fund up to $1000 which made me feel more secure. $1000 was 3 or 4 months living expenses at the time.

It took a long time to actually get the $1000 to remain stable. It seemed like as soon as I got to $1000 I had to spend part of it on car repairs or replacement of some item. However, I eventually added a $100 monthly savings to my budget to cover unexpected expenses which helped stabilize my budget and made me feel much more secure.

I made a plan: I had defined my goal – retiring by age 40. Now I needed a plan on how to get there. Based on my living expenses at the time and adding a 10% cushion I decided I needed $10,000 a year to live on assuming my house was paid off. At the time you could make 13 – 14% on CDs, so I decided I needed to save $100,000 by the time I was 40 with a projected interest of 10%. I gave no thought to inflation at the time.

I divided $100,000 by 15 years and came up with $550 a month. Well of course I couldn’t afford to save that much, but I messed with the calculations and added in the interest I expected to earn during the 15 years and calculated projected raises and eventually got to a number I thought I could save each month. I don’t remember what it was now, but it was a hefty amount by my living standards then. I determined to save a percentage of my salary each pay period. I think it was 5% to start and increase it by 1% each time I got a raise. The plan didn’t work out exactly as I expected but at least I started and was saving and investing money.

I learn about investing: I started reading whatever books and magazines I could about investing to educate myself. I took advantage of the company stock plan and 401K offerings. I started prepaying my mortgage with any extra money that came my way.

I made adjustments to the plan: At first the plan was too stringent and I rarely made my goals, but I was saving more than I would have without a plan. Eventually I started exceeding my savings goals. When I was 37 my job was outsourced and I was laid off.

Since I had built my foundation and had several months living expenses saved, plus my investments and low expenses I viewed my job loss as an opportunity instead of a disaster. I knew my field was dwindling and jobs in the sector were not plentiful, so I decided to take my severance pay, unemployment insurance, government grants and savings and go back to school to retrain in a new field.

I took every class I could cram in during the next year and got my 2 year degree in 1 year in Computers. I went through all my liquid savings and had about $1000 left when I got a new job in my new field; for less money than I was making in my old field. I quickly advanced in the new field and was making more than I had in my previous field within a year.

Even though things were improving, I had lost quite a bit of momentum towards my goal of retiring at 40. By this time I was very interested in my new field and didn’t want to retire at 40. I enjoyed my new job. My living expenses had also increased during that time. So I revised my goal to retire at 50 with $24,000 a year income. I determined I needed to have my house paid off and $600,000 in savings earning 5% a year.

I persevered during down times: There have been many downturns in the stock market during the last 25 years but I kept my money in regardless and continued to invest during good times and bad. When I started investing in stocks the DOW was 400 something. I went thru the 1987 Black Friday plunge. The early 90s downsizing craze. The 2000 tech market bust and now the latest downturn, plus many other recessions in between. I didn’t panic and sell when times got bad and then buy back when times were booming. I diversified and continued to invest during it all.

I know myself: I had to know what was important to me for this to work over all the years. Retiring early was the most important goal and many things were sacrificed for that, but I needed/wanted other things too. Everyone has certain levels of comfort where if they can’t have enough of some things life is miserable and you can’t continue with the plan. I analyzed what was important to me and directed my money to those things and scrimped on other items that I didn’t care about.

  • Living alone was important to me. Having a nice, safe and comfortable house. It didn’t have to be fancy, but it had to meet those criteria.
  • Having books to read. I like owning books so a pretty big chunk of my money was spent on books. Now I’ve mostly satisfied that need and am much more content with borrowing books verses owning. I still like to own some, but it’s tapered off during the years.
  • Good, reliable transportation. It doesn’t have to be expensive or fancy, but it has to be reliable.
  • Eating out. I enjoy eating out both for the food and the social aspect, so I budget for that at least twice a week.

Most everything else was lower on the list and could be put aside for other priorities. Vacations, clothes, gadgets etc.

I get the most for my money: Savings always came first in my budget. To afford more for savings I had to make the rest of the budget stretch as much as possible so I didn’t feel deprived. I started learning how to get the most for my money. Couponing, bargain hunting, using less and recycling all helped to make those dollars stretch farther and allow me to get the maximum amount for the money spent.

I read virtually every money saving book or article I could get my hands on to help with this. The best resource of course was the Tightwad Gazette, but didn’t stop there and I was constantly finding new ways to save money.

I revised the plan again: After 11 years in my new job, the situation changed. It was no longer as interesting and the environment was much more stressful. I hated going to work and was under a lot of stress. I had been living on budgets and lowering my expenses for years so knew what I needed to live on.

I reran the numbers on what I needed to retire and determined that if I was careful and adjusted as needed I could retire now. My new numbers were $18,000 to $21,000 a year income. I determined I needed my house paid off and $525,000 in savings. I had more than the necessary savings. I also had a cache of money put aside to cover big expenses for the next 12 years until I am 60 — when I can withdrawal money from my Roth IRA and not pay taxes on the withdrawals.

I had the courage to quit: I had determined that I could retire on paper, but we are in a downturn in the stock market and it’s a scary time to retire. I think most anytime is scary. Even though you have planned and revised and thought and thought about every possible scenario and response, you still hesitate and wonder if you’ve thought of everything and if your plan will really work. At the end of the day you have to just take the plunge and have the courage to follow the plan. So I retired at 47, but it remains to be seen if it will work out long term. I have faith that I can adjust for whatever comes my way and I will make this work.

Do you have a story about saving money or earning money that you’d like to share? We’d love to hear about it.

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16 Responses to How I Retired Early

  1. Shane says:

    Liked this article a lot – thanks for sharing !!

    And Good Luck !! 🙂

  2. Broken Arrow says:

    Nice to hear from you again! Glad to hear that your retirement is going swimmingly I presume.

    Interesting that I seem to have very similar goals (if you replace books with the internet).

    Thanks for sharing, because it gives me hope that perhaps I can too can make it some day.

  3. Analise says:

    I’ve wondered how things were going for you… I used to enjoy reading your blog. Any chance you’ll resume? I’m sure folks would benefit from reading about your life in retirement, especially the financial part.

    Glad things are going well and thanks for sharing.

  4. EEinNJ says:

    I can relate to your post. It’s interesting to note how things changed along the way compared to your plans. Stepping out of the work world early can be risky because of that. Unexpected things happen, and nothing’s getting any cheaper.

    I’ve had a few period of what I called “pre-retirement” aka consulting work or actual unemployment between contract jobs. It’s fun the first couple of times, but then it feels like it’s time to get back to work. I went back to 9-5, but with a small company at a job I enjoy.

    As a relatively young person, hopefully you will find a rewarding “second act”.

  5. A Marino says:

    I liked your article because it just shows what can be done when you make a plan and stick to it, You took lemons and made lemonade out of it.

    Your story is very inspiring and easy to read. You are young enough that if you ever decided to work again out of wanting or needing to; you will be able and young enought to still make that decision. Good luck!

    I think we all second guess alot of decisions that we make.

  6. Ricky Roma says:

    Great article. I think one thing that would stand out for some folks is the lack of expenses necessary for families with children. That adds up to quite a lot, especially in a one-income family. Makes it a bit more difficult to plan and execute within the same timeframes.

  7. Raymond says:

    This is awesome. I really line the foresight and planning you put into it. I’d like to find that old Mother Earth article and check it out!

  8. Noel says:

    Fine, you are now retired and thanks for sharing how you got there? What worries me more is the vacuum that will be created in my life after my retirement. Now, my life is so tied up that idea of staying home freaks me out. I honestly get bored. My family doesn’t expect me to pay attention to them all the time.
    I really wonder, what is your experience in this regard and whats you current engagement?
    Thanks again for sharing.

  9. clauduia says:

    I share your desire to retire early, but IMO, $18 to $21,000 a year to live on from age 47 on, even with a paid off house, is not enough to live on except in a truly spartan lifestyle. Inflation will do a number of your savings, and the big risk here is that if you do find you don’t have enough money, by the time you realize that, you’ll have difficulty getting hired.

    Also, FYI, you don’t pay taxes on withdrawals from Roth IRAs. Your contributions were made post-tax, so you don’t pay taxes again.

  10. Cindy M says:

    Can’t resist asking, believing it’s not really not such a dumb question and hoping you’ll be forthcoming about this – What in the world are you doing with yourself all day, day after day, now you’re retired with hopefully another 30 or so years left to you? I’d find your answers to that a far more interesting thing to read. Thanks.

  11. Jan says:

    Congratulations and thanks for sharing!

  12. minny says:

    Great article.

    And, of course if you ever want or need to you can get a part time of full time job for as long as you want.

    A dream is a dream – until you write it down when it becomes a goal!

  13. annie says:

    Great article. What are you paying for health insurance?

  14. Lester says:

    For the most part your desire to retire early is admirable but I disagree on paying off your mortgage “early”. By getting a low interest loan for 30 years I would rather invest/save the difference and let the monies compound over this period. With the downturn of the present real estate market home owners equity has dropped significantly and have difficulty tapping into this equity in emergency situations. The difference over time of putting away the emergency monies would have been realized sooner. I would rather have a liquid asset to get to rather than a difficult one as my house. At a early part of my working career I think it’s important to accumulate investment assets to work for me over time and at the same time make the minimum payments to my 30 year mortgage. If, I got laid off or injured and was not able to bring in my regular income to cover my monthly expenses I would be able to tap into this emergency fund to tide me over until things got better. Other than that I wish you a happy and prosperous retirement! Also, what are you doing for healthcare coverage?

  15. Gail says:

    Awesome that as a young person you had the foresight to plan where you wanted to go and figured out how to do it. I seem to remember reading that article myself. So glad that you have achieved your dream.

    I too have that same love of books, but have also found ways to have them for cheaper. I’m home on disability and even with poor health, I’m never bored. I don’t understand why people are bored if they don’t have a ratrace to go to every day. There are so many things to do if you don’t have to worry about getting out of bed and out the door every day.

    The poster seems to have been living a spartan lifestyle all his adult life and I doubt that continuing to do so will now be a problem for him as it is his habit.

  16. jb says:

    Lower expenses, avoid or pay off debt, and invest as much as you can. This is what it takes. It’s not that hard to understand. It’s hard to actually do in real life because real life is difficult. There’s nothing wrong with building the surplus and having that surplus take over for your own labor one day. If investments are paying your bills that makes you pretty free in this world.

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