How much money do you need to save if you plan to retire early? For some, retiring as young as your 30s means having accrued a million or more dollars. For others, a few hundred thousand dollars might suffice.
There is a debate raging in the FIRE community which stands for financial independence, retire early about how much a person needs to have set aside before quitting their 9-5 job. One side, known as Fat FIRE, believes retirees should have enough saved so they have a $75,000 annual budget in retirement, the other side, Lean FIRE, maintains that a $40,000 a year budget will do.
There are a few other variations, such as Barista FI, where you save enough to quit your day job and instead take on small gigs (like working in a coffee shop) to supplement your retirement income.
Financial freedom is a dream for many, but for a lot of us, its only a fantasy. Despite low unemployment, wages for many arent keeping up with inflation and saving for retirement is hard, even for those lucky enough to have access to retirement savings vehicles like 401(k) or 403(b) plans. Many 30-somethings say its already unrealistic to save for retirement, what with student loan debt and daily financial responsibilities. Still, there are countless blogs devoted to the topic, and as many ways to live in extended retirement.
See: You can retire early without adopting Mr. Money Mustaches extreme frugality
Fat FIRE makes the most sense for people who want to maintain their preretirement standard of living (like paying for rent or a mortgage) if not go beyond that, whereas Lean FIRE is for the more frugal at heart. Vicki Robins, who retired at 25 five decades ago and is considered one of the pioneers of the financial independence movement, said she accomplished such by being extremely frugal and conscious investing. She told MarketWatch that for people to accomplish financial independence they must first get out of debt and save six months of income and then earn as much as possible without compromising their health and integrity (and of course not spend all of it).
Justin McCurry, 38, a blogger at Root of Good who retired at 33, and his wife, budgeted for between $1.3 million and $1.4 million to cover $40,000 a year. He said one rule of thumb people could use is multiplying your expenses by 25. In that case, a lifestyle that costs $100,000 a year would require $2.5 million saved for retirement, for example, whereas someone who intends to live off just $20,000 a year in retirement would only need $500,000 (and maybe have to take freelance work to supplement other goals).
Jillian Johnsrud from Montana Money Adventure, 32, took a frugal approach to her financial independence. She and her husband looked at their expenses and cash flow and saw they had enough passive income through a military pension and investments, as well as cash, to cover all their basic needs. They set out to experiment with financial independence for a year, which became two, and then continued on. We are more interested in just creating a life so perfect for everything important to us, she said.
To them, financial independence simply means the freedom to make their own choices. She and her husband never earned high incomes and didnt come from privileged backgrounds. (We always lived below the poverty line, Johnsrud said.) Within a decade, they paid off their debt, bought their home with cash, adopted four children (and had two biological children) and traveled abroad. They had to be creative, such as reducing the grocery bill (she has written about $1 meals for breakfast, lunch and dinner), and relentlessly keep their goals in mind. You might not be able to have the same metrics someone else has, she said. Saving $5 million may take years for one person, and decades for another.
Dont miss: Think saving for retirement is unrealistic? Try retiring with no savings
Financial independence ultimately relies on a very personal strategy what people want in their lives, how much they need to fund those goals and a dedication to save enough to do so. Fat FIRE versus Lean FIRE suggests numerical boundaries, said Tanja Hester, personal finance blogger behind Our Next Life who is now working on a book called Work Optional. Along with having a vision for the future, everyone is coming at early retirement from different points in their lives some are younger with more years to accrue returns and interest on their assets, others might be living in very economical cities (not expensive hubs like New York City and Los Angeles) and others might have one spouse earning a much higher income to more quickly attain their savings goal.
Still, people should factor in unexpected emergencies or health care costs. For other reasons too, I think it makes sense to save a little bit more than they think is necessary, regardless of the budget or the 25x rule, Hester said. Not everyone especially millennials plan for how much theyll need in retirement. More than half of millennials guessed how much they would need to save, according to a 2014 Transamerica Center report, and only one in 10 used a calculator or spreadsheet to make those estimates. That generation in particular also has other financial considerations to make, such as how much they may really get in Social Security paychecks (theyll still get a benefit, but it may be reduced by the time they retire) or potentially having to care for an elderly parent or loved one.
J, the personal finance blogger behind Millennial Boss and the podcast FIRE Drill, said she believes $2 million is enough, and she and her husband have incomes high enough to reach that goal. Using the so-called 4% rule, where you withdraw that much of your assets every year to live on, would be more than enough for the average person, especially if they pay off their home like they plan to do. But even then, she understands other expenses will pop up. We dont know what will happen with health care and we dont know what the situation will be like with family, and we may need to support older members of the family, she said. To me, that number seems more safe.
Also see: The 3 most surprising things I learned when I got serious about early retirement
After determining how much money it will take to retire early, those interested should learn how to invest. A few other tasks to consider: automate paying bills and saving in various accounts; put aside enough cash to offset volatility in the markets; and focus on the long term.
After all, retirement will last a lot longer if you start in your 30s.
Read the original here:
How much does financial independence cost? It depends on your ...
- FMO & IMO | Financial Independence Group, Inc - December 25th, 2016 [December 25th, 2016]
- financial independence - Good Financial Cents - December 31st, 2016 [December 31st, 2016]
- 8 Secrets to Achieving Financial Independence - January 4th, 2017 [January 4th, 2017]
- COLUMN-Millennial parents still like to tap the Bank of Mom & Dad - Thomson Reuters Foundation - February 7th, 2017 [February 7th, 2017]
- Republicans Move on Financial Deregulation; Fed Finalizes Stress Test Guidance - Lexology (registration) - February 7th, 2017 [February 7th, 2017]
- Millennial parents still like to tap the Bank of Mom & Dad - One ... - One America News Network (press release) - February 7th, 2017 [February 7th, 2017]
- Speaking of Women...Are We Really More Financially Independent Now? - Investopedia - February 7th, 2017 [February 7th, 2017]
- House Dems: Trump wants to put Wall Street first - The Hill - February 7th, 2017 [February 7th, 2017]
- 3 insider tips for achieving financial independence | The Motley Fool ... - Motley Fool UK - February 7th, 2017 [February 7th, 2017]
- The power of financial independence - KXAN.com - February 7th, 2017 [February 7th, 2017]
- Find out if you qualify for free tax preparation and financial advice - wtvr.com - February 7th, 2017 [February 7th, 2017]
- My Turn: Program provides a path out of homelessness - AZCentral.com - February 7th, 2017 [February 7th, 2017]
- Getting To Know You Tuesday: Elliot Dole - Forbes - February 7th, 2017 [February 7th, 2017]
- Millennial Parents Still Like to Tap the Bank of Mom & Dad - WealthManagement.com - February 8th, 2017 [February 8th, 2017]
- How to Prioritize Financial Goals When You Can't Do It All - Inside Higher Ed (blog) - February 8th, 2017 [February 8th, 2017]
- How to Modify Money Management After the Presidential Election - Yahoo Finance - February 10th, 2017 [February 10th, 2017]
- Congress could limit the Fed's independence and hurt the US economy - Washington Post - February 13th, 2017 [February 13th, 2017]
- Court Rejects Order Forcing Parents to Pay Tuition - Inside Higher Ed - February 13th, 2017 [February 13th, 2017]
- Syrian refugee families achieve financial independence in Alliston - Simcoe.com - February 14th, 2017 [February 14th, 2017]
- Sheroes Founder Sairee Chahal ventures for Women's Financial Independence in India's sometimes Suffocating ... - Plunge Daily - February 16th, 2017 [February 16th, 2017]
- Advocates say more women need financial independence: 'We really do need that extra leg up' - Globalnews.ca - February 16th, 2017 [February 16th, 2017]
- Surviving widowhood: Five tips to avoid financial hardship - Cincinnati.com - February 16th, 2017 [February 16th, 2017]
- Q & A with Sr. Maureen Gallagher, setting up financial independence paths for women in Mexico - Global Sisters Report (blog) - February 16th, 2017 [February 16th, 2017]
- The road to financial freedom - ABS-CBN News - February 18th, 2017 [February 18th, 2017]
- Byron Moore: Position, Pace and Power perform like a pro - Monroe News Star - February 18th, 2017 [February 18th, 2017]
- Cash Course - Binghamton University Pipe Dream - February 20th, 2017 [February 20th, 2017]
- Independence Financial Partners - SPECIALIZING IN - February 20th, 2017 [February 20th, 2017]
- 'Financial you' hits all bases, aligns with priorities, values - Lehigh Valley Business - February 20th, 2017 [February 20th, 2017]
- International Financial Reporting Standards - Wikipedia - February 21st, 2017 [February 21st, 2017]
- Opinion: Young adults need an easier path to financial independence - LSU Now - February 23rd, 2017 [February 23rd, 2017]
- Retiring in their 30s. Yep, they're doing it. - Crain's Chicago Business - February 24th, 2017 [February 24th, 2017]
- Successful Boomer Women Offer Financial Advice to Younger ... - Fox Business - February 24th, 2017 [February 24th, 2017]
- 'Thousands' of cancer sufferers forced to borrow money from parents because of financial difficulties caused by illness - The Independent - February 27th, 2017 [February 27th, 2017]
- Independence Contract Drilling, Inc. Reports Financial Results For The Fourth Quarter And Year Ended December 31 ... - PR Newswire (press release) - February 28th, 2017 [February 28th, 2017]
- Another way to measure retirement readiness: Your 'Power Percentage' - USA TODAY - March 1st, 2017 [March 1st, 2017]
- Oran Hall | Young cop seeks financial independence | Business ... - Jamaica Gleaner - March 6th, 2017 [March 6th, 2017]
- International Women's Day - Investing for financial independence - Simple Landlords Insurance (press release) (blog) - March 8th, 2017 [March 8th, 2017]
- Game of Thrones gave financial independence to actor Conleth Hill - Bollywood Life - March 8th, 2017 [March 8th, 2017]
- How to Leverage Your Small Business for Financial Success - Kiplinger Personal Finance - March 9th, 2017 [March 9th, 2017]
- A Struggle Back to Financial Independence After a Brain Injury - The Good Men Project - March 9th, 2017 [March 9th, 2017]
- Ten favorite personal-finance books - Christian Science Monitor - March 11th, 2017 [March 11th, 2017]
- Five facts about financial independence - finder.com.au - April 8th, 2017 [April 8th, 2017]
- Regulatory reform leads to financial independence - Argus Leader - Sioux Falls Argus Leader - April 8th, 2017 [April 8th, 2017]
- Mayor Berke's Council For Women Takes On Predatory Lending - The Chattanoogan - June 6th, 2017 [June 6th, 2017]
- Mayor's Council For Women Invites Public To Financial Independence Hearing On Monday - The Chattanoogan - June 6th, 2017 [June 6th, 2017]
- How I Reached Financial Independence By Age 40 - The Dough Roller - June 6th, 2017 [June 6th, 2017]
- Berz: High-interest loans can hamper financial independence - Chattanooga Times Free Press - June 6th, 2017 [June 6th, 2017]
- Financial tips, resources for college grads - WTOP - June 6th, 2017 [June 6th, 2017]
- Public invited to hearing on financial independence, high-interest lending - Nooga.com - June 6th, 2017 [June 6th, 2017]
- Financial Independence | Tardus | Retire Early | Wealth - June 6th, 2017 [June 6th, 2017]
- How to become financially independent in 5 years - Jun. 6, 2017 - CNNMoney - June 7th, 2017 [June 7th, 2017]
- House Republicans Vote to Strip Away Post-Financial Crisis Safeguards - Roll Call - June 8th, 2017 [June 8th, 2017]
- Auditor Independence Definition from Financial Times Lexicon - June 8th, 2017 [June 8th, 2017]
- Top 5 tips to achieve financial independence | Mpumalanga News - Mpumalanga News - June 11th, 2017 [June 11th, 2017]
- Two 6% dividends to help you achieve financial independence ... - AOL UK - June 11th, 2017 [June 11th, 2017]
- Sun Life kicks off Financial Independence Month with beautifully crafted short films - ABS-CBN News - June 13th, 2017 [June 13th, 2017]
- How to become financially independent in 5 years - CNNMoney - June 13th, 2017 [June 13th, 2017]
- Achieve financial independence with stocks by following this one ... - AOL UK - June 17th, 2017 [June 17th, 2017]
- I'll pursue financial independence for judiciary - Akuffo - GhanaWeb - June 20th, 2017 [June 20th, 2017]
- Baker awarded Helping Hands grant - Columbia Daily Tribune - June 22nd, 2017 [June 22nd, 2017]
- Baker awarded Helping Hands grant - Devil's Lake Daily Journal - June 23rd, 2017 [June 23rd, 2017]
- Porter's Five Forces can help you achieve financial independence ... - AOL UK - June 24th, 2017 [June 24th, 2017]
- You can achieve financial independence easily by using buckets ... - AOL UK - June 24th, 2017 [June 24th, 2017]
- You can achieve financial independence easily by using buckets ... - Motley Fool UK - June 26th, 2017 [June 26th, 2017]
- Greater savings options for feds draw praise, while move to cut their retirement looms - Washington Post - June 26th, 2017 [June 26th, 2017]
- Alabama one of the least financially independent states in the country - Birmingham Business Journal - June 26th, 2017 [June 26th, 2017]
- JL Collins' Tips for Achieving Financial Independence - The Dough Roller - June 26th, 2017 [June 26th, 2017]
- 3 steps to become wealthier and more successful - Ladders - June 27th, 2017 [June 27th, 2017]
- These 5% dividend yields could help you win financial independence - AOL UK - June 30th, 2017 [June 30th, 2017]
- Celebrating Independence - Jewish Link of New Jersey - June 30th, 2017 [June 30th, 2017]
- The easy way to financial independence - AOL UK Money - AOL.co.uk - AOL UK - July 2nd, 2017 [July 2nd, 2017]
- 5 powerful steps towards financial independence and retiring early ... - AOL UK - July 3rd, 2017 [July 3rd, 2017]
- Independence Financial Group - July 3rd, 2017 [July 3rd, 2017]
- Gain Financial Independence Attend a FREE Educational Event - FOX31 Denver - July 14th, 2017 [July 14th, 2017]
- CNNMoney readers react: She retired at 28 with $2.25 million - Aug ... - CNNMoney - August 6th, 2017 [August 6th, 2017]
- How to retire early with financial independence in 3 steps - NBC2 News - August 6th, 2017 [August 6th, 2017]
- Could this miner help you secure financial independence faster than ... - AOL UK - August 24th, 2017 [August 24th, 2017]
- Solutions 4 Financial Independence: 8/22/17 - WDTV - August 24th, 2017 [August 24th, 2017]
- The 7 Stages of Financial Independence | Radical Personal ... - July 30th, 2018 [July 30th, 2018]
- Financial Independence - August 3rd, 2018 [August 3rd, 2018]