You've Got to Want It
“Can I retire early?” As an advisor, this was, by far, the most common question asked by potential clients. Prospects would have $5 in their back pocket - and that was it. But they wanted to know if they could retire early. I know what they wanted me to say - something to the effect of: “Sure, just keep doing what you are doing. Invest some money with me, and my amazing investment prowess will multiply your net worth in a few years. Boom. Retirement ready.”
But…no. I couldn’t say that because it isn’t true. Here is what I usually said instead:
Yes, but you’ve really got to want it.
Sometimes, I might add a couple more “reallys” to the answer. Then, we would get into the details. To retire significantly early requires heroic savings. Saving so much money that - unless you are wired differently than most - it will be almost painful. Unless you inherit some money or get lucky some other way and trip into a pot of money, the simple solution is to save enough to retire. Simple is not easy. When people press for guidelines, I advise something like this:
Savings Years to Retirement
10-15% 40
15-25% 30
25-35% 20
35-45% 15
45-55% 10
55%+ The world is your oyster
The strategy is simple. The more you save, the more you constrain your spending. The savings are one major component, but learning to live on much less than you make is equally, if not more, important. That second part is the hard part. I’ve written about it before; most people don’t want to save much of their money. To retire early, you have to master saving lots of money. You have to save when the market is down. You have to save when the market is up. You have to save when you want to go to Disney World. You get the point. I’m not the first person to talk about this topic. None other than Mr. Money Mustache - the Yenta of retiring early - wrote about it years ago. You can find his version here.
The strategy to retire early is simple and well-documented. So I wonder why more people don’t just go ahead and do it. Sure, ten years is a long time. But to set yourself up for life financially? Maybe that is worth it. Over 12 years of giving financial advice, I only met a handful of people who truly put themselves in a position to consider work optional. I met more - including all of my actual clients - who were working on plans that would ensure that work was optional in the future.
Here are some commonalities among those who did and those who were well on their way:
High-income jobs: this no doubt helps. Some dual-income families devoted one salary to living and saved the second salary.
Gaming their savings: We mentioned the savings hurdles to overcome to make work optional. Successful savers played games with their savings. Some banked all their “gravy”—bonuses and stock options went directly to savings. One had their tax withholding elevated so that every year, they got a tax refund, which they then saved. (I don’t recommend that one because it is essentially an interest-free loan to the government—but it worked for them.) Another family did an “austerity month” and banked all the money they saved. I talked about doing this here.
Modest housing: I had many clients in California, where housing is quite expensive. Most successful savers lived in houses well below their means. It is common for people to fall into the renovation trap, where they continually spend money upgrading their homes. Limiting that spending supports saving.
I read something a while ago that resonated with me: when going after a goal, research what is required to achieve it. And then pay that price - happily. Whether you are pursuing financial independence, a better golf swing, or a singing career, find people who have done what you want to do. Find out how they got there, and then happily pay the price required to get it. That feels like good advice for finance and life.
But you’ve got to want it.
