Retire at 30? 40? 50?
This question has been asked a lot in recent years and the answer is a pretty simple one.
Yes of course you can retire early, but are you prepared and have enough of a nest egg to do so?
In this post we’ll break down a little of what it means to retire early and give you a simple calculation that could help with your decision.
One of our favorite posts comes from Mr. Money Mustache and The Shockingly Simple Math Behind Early Retirement.
We’ll give a simple breakdown of the post. Retiring early is calculated by finding out how much it costs right now to sustain your lifestyle.
For example, your family may live on $30,000 a year and are comfortable with this lifestyle. To retire early, you would need a nest egg that would provide you $30,000 per year and won’t run out during your retirement.
It’s called the 4% Rule, and this rule states that we multiply the amount we live comfortably off of by 25 to arrive at a nest egg number.
In our example that would be $750,000.
The reason this works is because once all of your nest egg is invested and earning compounded dollars, it will continue to grow. The amount at which it grows will vary, of course, but in our example let’s say it’s 5%. That means you can safely draw down those funds at 4% per year and still have a 1% growth in the account.
You wouldn’t even be drawing from the original $750,000.
How this applies to retiring early, is that the smaller your living comfortably number is, then the smaller the nest egg has to be! So if we cut spending, and save as much of our current earnings as possible.
We can take back our life and time!
Let’s look at a family that spends $20,000 per year, they would only need a nest egg of $500,000! Mr Money Mustache goes into the curve of the calculation a little more, but I think you have the gist of this.
A New Take
We want to propose another way of looking at this formula as well.
We believe that increasing your income during your working years will also be a very beneficial way to reach early retirement.
One of the concerns that I have with Mr. Money Mustache’s approach is that he never proposes to make more money to help reach the goal.
AM and I only bring in $60,000 per year combined, less than a third of what Mr. Money Mustache and his wife made during their working years.
So making more money is a necessity in our eyes.
It is the two part approach that this blog will take and will help guide you, Dear Reader, to the promise land of Early Retirement.
Not only will we need new hobbies to drive us through retirement, we will also need a side hustle that can provide passive income. Over the coming months, please follow us on our Journey to Financial Freedom.
We’ll give you some insights on what we are doing to enact our two part approach. Let’s Go!
What do you think about the 4% rule and how would you implement changes to reach your goal number? We do this for you and are excited that you’ve taken time to read our post. Let us know how we can help.