How to Retire Early

by J.D. Roth

The best way to retire early is to be a non-conformistEvery morning when I get out of bed, I pour a cup of coffee and sit down at my computer. While I wait to wake up, I browse my favorite websites. This morning, as I was browsing Ask Metafilter, I stumbled upon an intriguing question. A user named House of Leaves and Grass wrote:

I’m turning 30 this year. My husband and I are discussing a retirement plan that includes a farm in South Carolina. Can you recommend some resources (blogs, persons willing to email, books, etc) so that we can make an informed decision about whether to do this and what sort of financial planning we’ll have to do to make it happen?

Talk about something that’s right in my wheelhouse! For years, I had a similar dream. I wanted to retire with Kris to a farm in the country where we could raise goats and grapes and filberts and corn and more. That’s not how things worked out, of course, but I still remember reading about this (idealized) lifestyle for hours at a time. And, of course, I’ve been thinking a lot about early retirement lately.

As I waited for my coffee to kick in, I dashed off an answer to this would-be farmer. Here’s an edited version of my response.

First, be open to the idea that your priorities may change. That is, plan for this future and make it your mission right now, but be aware that it’s very hard to predict what the Future You will actually want.

Countryside magazine is awesomeI found that Countryside magazine was one of the best ways to get a feel for what this sort of lifestyle really entailed. This publication is largely written by readers, all of whom are into the farming/homesteading lifestyle. They share their experiences and expertise with real-world situations. It’s great stuff.

As for the financial planning stuff, I can address that too. (I’m a personal-finance writer by trade.)

I’m not going to go deep into the theory behind any of this stuff, but my advice to you is:

Begin saving as much as you can as soon as you can. The two factors that make the biggest difference in how much you’ll have saved in retirement (or at any point, really) are how much you’ve contributed and how long you’ve been contributing. Your investment returns do contribute to the final number, but they’re not nearly as important as saving early and often.

What is early? Well, now. Start saving now. Not much more to say about that.

How much should you save? Most traditional advice is to save ten or twenty percent of your income, and for years I’ve spouted that line too. In the past few months, however, I’ve come to realize that this advice is inadequate. If you save just ten or twenty percent of your income, it’ll take you forty years to have enough accumulated to retire (or to pursue whatever goal you have).

Instead, aim to save fifty percent of your income. Seventy percent is even better. If you can save at this rate, you’ll be retiring to your farm in South Carolina in ten or fifteen years instead of forty. The math behind this is shockingly simple, yet most people miss it. And most people complain that they could never save fifty or seventy percent of their income. Meanwhile, there are plenty of people who do manage this amazing feat. These industrious folks quietly retire at age 35 while their peers continue to say that it can’t be done (all while buying into the modern adult lifestyle).

How do you achieve such a high saving rate? There are only two things you can do to boost it: spend less or earn more. You should do both. When most people try to cut spending, they focus on the small, easy stuff like clipping coupons. That’s great — and you should definitely do that — but you’ll have a greater impact on your bottom line if you go for big wins. Housing and transportation are the biggest expenses (by far) in the budgets of most Americans. If instead of spending the average 33% on housing, you spend (say) just 15% of your take-home pay on housing, you’ll save a ton. And if you can live without a car (or with a beater), you’ll save a second ton. Meanwhile, finding ways to boost your income will also accelerate your savings.

Where do you put these buckets of money you’re now earning? Tuck it all into a low-cost stock-market index fund, such as VTSMX or FSTMX. Maybe add a total bond index fund too. Resist the urge to own more. Resist the urge to move money in and out of the market. Ignore the financial news. Ignore what your friends are doing with their investments. Just funnel your money into these funds and stand pat for the ten or fifteen or twenty years that you’re accumulating cash to afford your farm.

If you do these things — slash housing and transportation expenses, boost income, invest in index funds and leave the money alone — you should be able to build a sizable nest egg in half the time you’re planning to spend on the project. During that time, keep dreaming the dream and building your skillbase.

If you want moral support while trying to save fifty or seventy percent of your income (your friends and family will think you’re crazy and say that it can’t be done), read Mr. Money Mustache, Early Retirement Extreme, and Afford Anything. I’d recommend my own blog too (Get Rich Slowly), but sadly the focus isn’t on this sort of financial behavior — it’s more geared toward those in the modern adult lifestyle.

How I Found Freedom in an Unfree World

As for books? Check out Early Retirement Extreme, Your Money or Your Life, Cashing in on the American Dream, and How I Found Freedom in an Unfree World. (The latter isn’t about money but philosophy. Ignore the libertarian politics and focus on the personal behavior stuff.)

There. You’ve just received the sum of the financial wisdom I’ve accumulated over the past decade of reading and writing about personal finance. Put it to use, and you’ll have your farm sooner than you think!

I don’t know whether this Ask Metafilter user will put my advice into practice, but I hope she does. Regardless, it was a hell of a lot of fun to encapsulate my current financial world view into just a few hundred words. This is what I’ve spent the last four months writing about for my ebook. And here I’ve summarized everything in a matter of minutes.

Updated: 20 February 2014

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