The Financially Independent, Retire Early (FIRE) community includes a diverse range of individuals-some may have saved furiously as soon as they began working, allowing them to stop working a conventional job as early as their late 20s or early 30s. However, retiring early doesn't have to be that intense; many take longer, don't focus as fully on frugality or on maximizing income, and still become financially independent in their 40s or 50s-well before traditional retirement age.
We talked to a few folks who have actually managed to quit their jobs and live off their savings while doing whatever they love most-all before the age of 45. Some travel, some work on passion projects, but all of them have interesting and informed perspectives on saving and spending wisely according to your own retirement goals.
Ali and Alison Walker, the married couple who write the blog All Options Considered, didn't settle on a particular savings rate until they really got clear on what they wanted to be able to do (and afford!) in their early retirement. "It wasn't until we pulled all of our goals and our hopes and dreams together in our 'Personal Money Statement' document, that we really figured out how to match our savings to our retirement timeline and make it happen," they explain.
While personal awareness helps, Anita Dhake of The Power of Thrift advocates that setting up automatic transfers to savings so that you don't have to think about it at all is very valuable. "Maximize the amount you throw in there each year as soon as humanly possible. Set it and forget it," she says. "It's not your money. It's for Future You. If you don't see it, you won't spend it."
Jeffrey Fate (a pseudonym) of the blog Fates on FIRE echoes a sequence of debt payoff and savings that many people who aspire to FIRE mention: Start by paying off unsecured debt, especially debt with high interest rates, then save through an employer-sponsored retirement plan or an IRA. When you're reaching the maximum yearly contributions on those accounts, start investing in a taxable brokerage account. The popular, easily-accessible options for investing are also well-regarded by long-time investors like early retirees.
"For the new investor, the prevailing wisdom is to invest in low-fee index funds with Vanguard's VTSAX being the highest regarded," says Fate. "It's a good way to start investing in the equities market."
Ramping up with saving and investing
While conventional wisdom often says that the safe plan is to stick with a job and build stability through multiple years, the anonymous blogger who writes A Purple Life found that being willing to change jobs was key to her boosting her savings.
"I changed jobs almost every year of my career for a variety of reasons-from toxic work environments to layoffs to cross-country moves. Those job hops allowed me to increase my salary about $20,000 almost every time I moved, and that allowed me to save more towards my goals. In 2015, I moved from Manhattan to Seattle, and with that move alone, because of the difference in rent and taxes between those two locations, my expenses decreased 50 percent while my standard of living actually increased," she says.
Michelle of Fire and Wide endured the unexciting toughness of a very long commute for years in order to take advantage of earning a higher salary while not having to pay those high cost of living prices.
"Earning a high income but having low living costs really makes a big difference. By working in London (high wages) and living in Norfolk (low living costs), it vastly increased how much I was able to save each year," she says. Finding ways to earn money in one place and spend it in a place where prices are cheaper is known as "geo-arbitrage," a term coined by Tim Ferriss of The Four Hour Workweek fame.
Jeremy Jacobson and Winnie Tseng run the blog GoCurryCracker! They attribute a lot of their ability to retire early to lifestyle choices that lowered their expenses. "A big boost we used was to design our lives so we didn't need a car. For several years my main transportation was a bicycle I bought on Craigslist for $50. I eventually sold it for $60," Jacobson says. The couple mentions that even after retiring, they feel quite busy-with travel, spending time with their children, socializing, biking, swimming, and cooking.
What they know now
For families who retire before having kids, the calculation of what is "enough" can shift, requiring a return to work or the creation of a business. Financial Samurai writer Sam Dogan shared that "living in San Francisco, $150,000 no longer felt like enough. In our expensive city, a family of four making $117,400 a year is actually considered low-income and qualifies for subsidized housing according to the Dept. of Housing and Urban Development. Therefore, I had to find ways to make more money online, to invest more money for more passive income."
Of course, many early retirees return to work periodically, like Dogen did, or find part-time or lower-demand versions of their work. So the goal of retiring before 45 may really be an aspiration to make work an optional choice by that time; it just depends on how the person feels about their work.
Michael Quan of Financially Alert was taken aback at first by the quick shift from his focus on his career to having a totally new identity as an early retiree. "Because my career path took a 180-degree turn, I had to reinvent myself-because the work I used to do was no longer relevant. This soul-searching was ultimately a blessing. However, if I could do it over again, I would have spent more time figuring this out before retiring early," he says.
That being said, Adam Fortuna, who writes Minafi, has been retired a little over two years, and he appreciates the big change that happened. "What surprised me most is how great it feels to slow down," he explains. "I didn't even realize at the time how fast I was always moving. I was waking up early, heading to work, and cramming more errands at the end of the day."
Early retirees may put into practice more extreme forms of saving than others, but many of their strategies can be adopted by almost anyone interested in retiring someday.
Here are just a few more strategies that have helped these folks retire before 45.
When possible, think of avoiding money waste as "buying your time instead of more stuff, advises Michelle.
In dual-income households, experiment with living on one income and saving the other, suggest Jacobson and Tseng.
Track your spending manually for three months to really see what you are spending in each category. Fortuna offers: "Some purchases I could happily cut and not feel any deprivation from their removal."
Quan suggests "raise laddering," where you only allot 20 percent of any raises for enhancing your lifestyle, and instead put the other 80 percent automatically into savings/investing.
While maximizing tax advantaged accounts is important, Dogen reminds anyone who is interested in early retirement that they'll need taxable investment accounts, or a real estate portfolio, or both if they want to retire early; 401(k) and IRA funds have a 10 percent penalty if you withdraw from them before you are 59.5 years old.
While tracking your spending manually is eye-opening, you can also start with a software like YNAB or look at the spending breakdowns generated with online banking platforms for your debit or credit card.
The Walkers note that it's valuable to rethink any spending habits of yours that you've unconsciously inherited from family, friends, and neighbors; when you break free from spending like others, it's easier to put goals to save and invest a lot at the forefront of your plans.
Make sure you aren't just saving and investing for the emotional boosts, Fate advises. Much of the success you will achieve will be through consistency and discipline with your money over time, even when no dramatic boosts in your accounts are happening.
Remember that you don't have to only cut expenses; one of the most viable ways to save or invest more is to keep your eyes open for ways to increase income, notes Dhake. If you get a better-paying job but keep your simple-living habits, you can save much faster.