What if I told you that the principles of early retirement aren’t nearly as “extreme” as they may sound? If your goal is to retire early, you’ve probably already discovered this remarkable truth.
My wife and I retired from full-time work at 33 and 35, respectively. We aren’t geniuses (well, perhaps my wife is). Instead, we’ve spent the last several years preparing for this next phase of our lives by employing principles that were surprisingly not extreme and non-ridiculous. They took some time to get right, but they weren’t exactly difficult.
In this article, I’m going to lay these principles out. How many of these do you find extreme? Are any of them as extreme as this jet skier who is either incredibly talented at what he does, or just totally screwed up?
8 not-so-extreme principles of early retirement
1. Time is more valuable than money
You have probably heard this phrase before, and it’s especially true in early retirement. Money is a component, but it’s also an asset that’s replaceable. If money wears thin, we can always earn more of it by taking on part-time work.
Time, on the other hand, cannot be replaced. It is finite. We can’t screw with time because, with history as a guide, we always lose. By definition, time is more valuable than money because money can be replaced while time cannot.
Those of us who value our time over money tend to be happier people. “Across a range of surveys and experiments involving over 4,400 people, researchers at UCLA and the Wharton School found that nearly two-thirds of respondents said they’d prefer having more money over more time. But the people who opted for more time were happier with their lives.”
2. Confidence is also more valuable than money
Though money is required to retire early, it’s also the least important element in the larger equation of getting up in the morning with the whole day available for anything that you choose. Money is the enabler, that’s it.
I am annoyingly confident. I firmly believe that what we are doing is the absolute right thing, and we’ve made our decision. We are jumping in head first and not looking back. I quit a high paying and relatively low-stress job in the Information Technology industry for a life of freedom.
And I’m damn proud of what we’re doing.
Confidence is very different than arrogance. I don’t believe that I’m “always right”. I believe that I make the very best decisions that I can based on the information I have at the time. If I’m wrong, then I’m wrong. Big deal. We fix it and move on.
Life sucks when we spend it second-guessing ourselves. So, I don’t. I believe that things will work out. I know that we are flexible and will roll with the punches.
I’m not worried about health care (gasp!). I don’t care who our president is. I refuse to let external factors that I cannot control dictate my life. The only thing that I can control is me. My life. My reactions. Also, my motivations.
Confidence is key to keeping a sound mind and determined future.
3. Early retirement does not require millions
In a previous article, I gave you three reasons why we won’t be millionaires by the time that we retire. Our ability to call it quits in our mid-30s came down to three primary factors:
1. Three years of living expenses in short-term savings
Upon retirement, we’ll have a solid three years of living expenses in our Ally savings account. Living off of this cash will allow our investments to grow during the onset of our post-retirement life. We won’t begin to withdraw from our investment accounts until our savings dwindle down to the point where all that remains is reasonable emergency saving.
2. Our frugal post-retirement lifestyle
Our lifestyle is damn cheap, and it’s about to get even cheaper. This year, we sold both of our homes and bought an Airstream RV in cash. We live in Charlie full-time at a campground in Tucson until the end of the year, at which time we quit and start traveling.
3. We remain completely flexible and willing to change
I tout our flexibility a lot on this blog, but it happens to be a critical element of our post-retirement lifestyle. If things don’t work out exactly like we planned, we change. We find a solution. It might include us working a seasonal job or two. Or, maybe we look for ways to reduce our spending. Choosing a lower cost of living area is another idea, to include overseas travel to areas like Thailand and Costa Rica.
Early retirement solely depends on how much of your precious money it will take to fully fund your lifestyle. Living full-time in an RV drastically reduced our living expenses (not to mention our carbon footprint), which set us rollin’ down the dusty road into the sunset at such early ages.
4. Money must be invested to grow
No one ever got rich by saving money.
It’s true, and I’ve talked about this before. The act of saving money won’t, in and of itself, make anyone rich. Ordering water instead of soda or beer at restaurants might save you a few hundred over the course of a year. But let’s face it: A few hundred isn’t life-changing money. Those extra benjamins have no business convincing you to hang up your hat in corporate America. If ordering water was the easy button to achieving early retirement, we’d all be retired early and sipping margaritas in paradise.
Sadly, compound interest doesn’t materialize out of thin air.
Wealth comes from a very different source: Investments. It’s not about how much money we have. Wealth is a direct byproduct of what we do with that money. It’s THIS that enables early retirement. I like to think the equation that solves the early retirement riddle is actually quite simple: Your money’s purpose + Your motivation = Your chances at giving corporate [Insert Your Country Here] the middle finger.
Invested money has a purpose, and the more money that you have to invest, the easier this equation becomes. Investments include index funds in the stock market, real estate, or investing in startup tech companies with a potential to make it big. Whatever your investment game is doesn’t matter – so long as your investments are smart. Investments build wealth.
5. Financial independence is not early retirement
Too often in the personal finance blogosphere, financial independence get coupled with early retirement as if they are the same thing. While you need to be financially independent to retire early, we don’t need to call it quits from work after we reach the point of financial independence.
Financial independence for the non-early retiree is one of my most popular articles and it explains the difference between these concepts. It’s okay to reach the point of FI even if you have no intention of retiring early.
There are several reasons why FI is important even for those who have no plan to retire early:
- Your next boss might totally suck, prompting you to contemplate slamming your head against a brick wall just for the sake of a few extra “workman’s comp” days off
- You may no longer enjoy what you’re doing in the future
- Your organization might shrivel up and dissolve or relocate, or otherwise stop doing business in their current capacity
- You might watch a documentary about a poor Ecuadorian school on television and would kill to live there for a while and teach the local children English
- You might have a family emergency, requiring months of time away from the office
In other words, things might change from the rosy awesomeness that they may currently be.
Financial independence gives you options. Choices.
After reaching that buttery-sweet point of FI, YOU become the ultimate ruler of your life rather than your full-time job. You pick and choose your schedule. And, you decide your life’s work from that point on. You instantly put yourself in the position to dominate virtually every facet of your life, from top to bottom. No bosses. No schedules. And, no performance reviews. It’s all you. No job required.
6. Early retirement is a risk
Early retirement is a risk. There’s no doubt about it. Especially at our age (36 for me, 33 for my wife), we are taking a risk by calling it quits this early from corporate America. Both my wife and I understand the risk and are okay with it.
In fact, I like risk. I believe life gets more satisfying with the more risks we take. It’s boring otherwise, at least to me.
Life is too short to sit back and hope everything falls into place before making a move. We don’t need a couple million bucks to sustain our lives. We want to travel NOW while we are still young and active. Screw the whole “just one more year” syndrome. That just isn’t us.
And if you’re an early retiree (or future early retiree), it probably isn’t you, either. The earlier in life that you call it quits, the more risk you’re accepting. And good for you. Risks make us stronger people. We learn from every risk we take – to include the risks that we probably shouldn’t take. We become wiser people, confident in ourselves and the world around us.
I had absolutely no reservation with calling it quits at 35, and neither did my wife at 32.
7. Being healthy is your best healthcare
I understand that shit happens. Sometimes, we get sick. God forbid, we get into a car accident and break bones. Our life completely changes. Yes, there are things that we just can’t control.
But for most of us, we CAN control a lot more of our health than we care to admit. From the foods we eat to the exercise that we get (or don’t get) during the day, the best way to keep our healthcare costs down is to lead healthy lives.
Naturally, it’s still wise to obtain health coverage in some way. For early retirees, health care is very often the most expensive element in the equation, and many continue working, at least in part, to continue their generous health care packages that a lot of companies subsidize.
Another benefit of leading healthier lives are options with health care. For my wife and I, we opted for Liberty Health Share, which is an organization that shares health costs among their members. While health shares can require adherence to religious beliefs, Liberty is one of the more relaxed health shares in the business. We pay $299 a month combined for my wife and me. As full-time travelers, Liberty health share was one of our only affordable options.
Health shares keep their costs down because their members are generally healthy people. They eat well, exercise and don’t abuse alcohol. They typically aren’t smokers, either (in fact, some health shares forbid their members to smoke any type of tobacco). These restrictions keep costs down because each member is less likely to need expensive medical procedures.
8. Early retirement is not the end of work
Retiring early from full-time work taught me an important lesson: This world is full of opportunity. Full of beautiful things. Of some seriously powerful and satisfying stuff that we never truly realized existed back when our minds operated behind a wall of status reports and performance reviews.
For many of us, our jobs define us. But even when they don’t, jobs provide the stability that we need – at least psychologically, to live a happy-enough life. When we work dependable jobs, our subconscious ignores opportunities. We think that our J.O.B. is THE opportunity that we need to live a fulfilling life. Therefore, our brains instantly attempt to make our world more simple by automatically ignoring other options.
Confirmation bias. It’s compelling beyond comprehension, and many of us don’t even realize what’s going on. I sure as hell didn’t.
But, once I removed the shackles of full-time work from my wrists, my world literally opened up right in front of me.
Instead of ignoring opportunities right in front of me, I notice them. By now, I could be involved with full-time work again if I wanted to – the opportunity is everywhere. This is stuff that I would never have considered in my previous life of full-time work. I couldn’t. My mind knew that I couldn’t.
It is too easy to view early retirement as the culmination of productivity and “work”. It’s not…well, at least it doesn’t have to be. Ignore the obtuse narrative recited by lifers that retirement is the end.
Early retirement is the reward after completing the accumulation phase of our life. It means that the work requirement has been lifted. We now enjoy the freedom to live our lives the way we see fit – with or without work. Your opportunities for work and productivity don’t stop. And I’m not talking about hobbies, here. I’m referring to legit work. Enjoyable work.
In early retirement, opportunities expand. Without a full-time job monopolizing our precious (and limited) brain power, we’re now able to take note of our environment and make better decisions about what makes us happy. Opportunities are all over the place. For work. For happiness. Whatever. You make the call. The world is your freaking oyster.
You meet people who need help with a part of their business that you happen to know well. Your friend needs a website designed for his mountain biking club. You had an idea for a service that matches people up with pet hamsters based on its personality that you never pursued working full-time. Genius.
The point is: Early retirement opens our world to opportunity. Those things that our minds never allowed us to consider now become possible. That’s right, start that hamster business.
Steve is a 38-year-old early retiree who writes about the intersection of happiness and financial independence. Steve is a regular contributor to MarketWatch, CNBC, and The Ladders. He lives full-time in his 30′ Airstream Classic and travels the country with his wife Courtney and two rescued dogs.