- I have friends who keep talking about this FIRE movement (financial
independence retire early, I think). It seems like something that's
either too good to be true, or you just have to make millions in
your 20s and 30s. Am I missing something? -DJ
Hi DJ - You're not missing much, just doing a bit of oversimplifying.
The idea of retiring at 35 or 40 sounds glamorous and somewhat unrealistic,
but it is possible and it actually might not be as glamorous as
you think. I'll try to give you a succinct breakdown.
a million dollars in your 20s and 30s. This sounds like a
lot, but it's not that crazy a number. Let's say you get a job
at 21 with a salary of 35K. If you can get a 5% raise each year,
either through the company or by seeking out higher salaries,
you should be making 50-60K a year when you're in your early 30s.
If you don't have any debt and keep minimal expenses, a significant
portion of that income can go into an investment account that
continues to compound your earnings. As long as you invest in
quality stocks and bonds, turning a modest salary into a million
dollars isn't that far fetched. Why a million? Because that's
usually the number for the FIRE model of living. If you can make
more, feel free to do so.
2. Avoid most luxury buys. If you have an inheritance and
can get a good deal on a house, that might help with your retirement
plans down the road. Otherwise, leaving the workforce early usually
means renting cheaply or living nomadically for the foreseeable
future. A lot of people use the international house-sitting sites,
going where the wind takes them and living for free. You probably
won't be living in a gated community and playing golf every day
of your retirement, but that's usually not the goal for people
who ditch their jobs while still relatively young.
3. Weather the storms. The rule of thumb for this lifestyle
is living of 4% of your portfolio amount. That means you have
more money when your assets increase in value, and less money
when the markets are struggling. If you have a million-dollar
portfolio, you have $40,000 a year to live off. This math shows
how feasible an early retirement might be, but the variables of
healthcare, having a family and unexpected expenses still loom
large. If you commit to a jobless life at the age of 40, you will
be closely monitoring your money for the rest of time.
| Is early retirement
possible? It really, really is. Is there a cheat code that makes it
easy? There definitely is not. It's a lifestyle you have to identify
with, but it's one you can absolutely strive to live. Hope this helps,
© Taylor Kovar
October 12, 2018
More "Go Far With Kovar"
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