Is Early Retirement Really Possible?

Erin Lowry

By Erin Lowry
Erin Lowry is a Millennial personal finance expert, speaker, and author of the book BROKE MILLENNIAL: Stop Scraping By and Get Your Financial Life Together. Based on the successful blog, the book is a choose-your-own-adventure guide to personal finance that uses wry humor and real-life examples to demystify the basics of money for Millennials. Lowry lives in New York City with her spunky rescue dog Mosby.
Posted on 02/13/2018

It's hard to resist the click-bait early retirement stories that populate my social media channels:

How This Couple Saved $1 Million and Retired In Their 30s!

This Woman Retired at 33 and is Traveling the World Without Going Broke.

After all, who isn't interested in learning the secret to leaving a desk job behind and traveling the world without worry? Always the skeptic (and one with an intense interest in personal finance), I began to regard these early retirees as snake-oil salesmen peddling an impossible dream to the debt-riddled masses of American Millennials.

But are they?

I started to do some digging to see how plausible this early retirement lifestyle really is.

Understanding the FI/RE Movement

The first thing I learned is that Financial Independence Retire Early (FI/RE) speaks to two potentially separate populations: those who want to retire in the traditional sense, but have the funds to leave work early if they so choose, and those who want to ditch the office ASAP to follow their passions. Being financially independent doesn't necessarily mean it's time to ditch the day job and retire. There are plenty of financially independent people who still have steady jobs. The point, however, is that achieving FI provides the ability to choose the RE step.

In my mind, retirement always implied no longer working, no more earning income. I was wrong. Quitting a job with $1 million saved doesn't mean retirees never earn another cent. It certainly can, but it's more likely early retirees, particularly ones who opt out at age 30, are looking to live a life that aligns with their passions and interests. These passions may end up yielding an income, but one that isn't necessary to financial stability.

What do these stories have in common?

After decoding the true meaning behind the FI/RE movement's splashy headlines, I began to compare scores of blogs and articles about real-life individuals looking to achieve FI or currently living the retired early lifestyle. Here are the common threads:

  • They're minimalists: FI/RE participants are minimalists to their cores. They shun overconsumption and only spend money on what they truly value. Their belongings and homes may be beautiful, but often due to their simplicity and modesty.
  • They're (usually) debt-free: It's hard to be financially independent with a debt anvil hanging around your neck—so being debt-free is key. Many aggressively paying down debt kickstarted their interest in retiring early or at least achieving financial independence.
  • Their cost of living is low: It's not a requirement to live in a cheap town or city, but it makes a big difference in lifestyle. The cheaper it costs to live, the more money can go towards other interests like travel. Many FI/RE loyalists also ditch the two-car family life and opt for just one and frequently bike or walk instead.
  • They plan for a 4 percent withdrawal rate: Coverage of FI/RE individuals frequently cites $1 million as the go-to amount for successful early retirement, coupled with a 4 percent annual withdrawal rate, which means $40,000 a year to cover expenses. In short, it's a long-running rule that taking out only 4 percent of your portfolio (and adjusting for inflation) will ensure you won't run out of funds. This rule is generally applied to 65-year-old retirees who are expecting to only need the portfolio for 30 years or less.

What kind of life do I want to live?

I put my lifestyle to the FI/RE test: Debt-free, check. Minimalist, check (more or less). Live in an area with low-cost of living—well, not right now. My analysis of the FI/RE movement piqued my interest in saving even more aggressively than I already do, but it wasn't enough to make me want to give up my New York City life. Nor do I still feel keen on the notion that $40,000 is enough for me to live my ideal lifestyle. It would mean needing to live in a cheap area of the country if I wanted kids. Family vacations to far-flung destinations (the kind I grew up taking) would probably only happen every few years instead of every year or even multiple times a year. I'd have fewer choices about public versus private school—thus limiting housing options to good public school districts.

But it would also mean a lot of time to pursue other interests, potentially ones that generate money. It would mean not paying for day care for future children. It could mean being happier, more fulfilled, and less anxious about my finances. Isn't that the point?

So is FI/RE really possible?

Yes, retiring in your 30s or 40s is possible. You can aggressively pay down debt. You can save 70 percent of your income, if you live in an area with a reasonable cost of living or you make a much higher than average salary or both.

However, it's certainly not for everyone. In fact, I'd argue it's for the very few. Living off $25,000 to $40,000 a year is for the frugally empowered. It's for those who genuinely want a simple life and are able to raise children within that budget, and probably not pay for their children's college educations. As a late 20something who loves living in New York City and would prefer to have excess cash towards travel—the retiring by 30 or 35 option isn't available to me. But hey, I do save 40 percent of my monthly paycheck and maybe down the line I'll decide living on a homestead in Vermont or in a small Colorado city—or even moving to Ecuador—is the right fit.