Did you know that almost anyone can legitimately retire in ten years, maybe even less? No, it's not a result of some flashy con-game that promises 5,000% returns on your investment.
It relies on something more important than your investment return: your savings rate. This is the percentage of your income that you save. Traditional financial advisers say that you should save about 15% for retirement. But how long will that take? On average, about 42 years. So if you don't start saving this percentage until you're 35, you won't retire until you're 77, though Social Insecurity might help you about a bit (don't count on it over the long-term though).
But what happens if you increase your savings rate? This has a two-fold benefit. One, it results in an increase in the amount of money you are saving and, in turn, helps compound interest help you. Two, it results in a decrease in the amount of money you need to eventually retire.
So if you increase your savings rate to 25%, you can retire in about 31 years. With a 50% savings rate, it drops to under 17 years. Want to retire in ten years? Increase your savings rate to 67%, two-thirds of your income, and you can do it. The size of your income doesn't really affect this, although if you're income is only $25,000, you might find it difficult to live on $8,300 a year, though a surprising number of people do and have a good quality of life.
People think that retirement is some complicated event that only a certified financial planner can help you understand. While advisers certainly have their place, the bottom line is that 90% of retirement is simple math.
The real question is: how much do you want it? Many people would rather spend 90% of their income and work the 42 years. Many others, including myself, would rather spend less, save more, and at least have the option of calling it quits when they want to. That doesn't mean that you must retire just because you can, but at that point you are truly working because you want to. Or you can try a different kind of work, like helping out a charity or your local church, or do something else enjoyable and productive.
If you want to play around with the numbers, you can do so at this website. You can play around with the assumptions, such as the rate of return above inflation and the withdrawal rate during retirement, but you quickly see that the savings rate is a much bigger factor than anything else.
If you're 50 years old and haven't saved anything for retirement with no prospects for passive income besides Social Insecurity (a terrifying number of people are in this position), this should bring you hope. It is still very possible for you to have a comfortable retirement. Will it bring some pain to reduce your spending to half or less of your income? Certainly, but this will likely be better than working to survive when you're 75.
What if you're 20 and don't want to do the 40+ hour work week for most of your adult life? There is another way! Even with a relatively modest income, a 50% savings rate will enable you to retire with your current spending by the time you're 37. If you want more retirement income, then save more and/or wait longer.
Some people have taken drastic measures and increased their savings rate to 70% or more. I know of one couple whose savings rate (if you include their employers' 401k matches) is around 90%. Doing this in your twenties or even thirties enables you to spend most of your adult life doing something other than working to make ends meet.
Why have you probably never heard of this simple truth? Because our economy is geared towards spending. Consumer spending literally drives everything. If people start saving more in large numbers, that reduces spending, and TPTB and their minions can't deal with that. That reduces the ability of the Fed to create (or at least hide) inflation, which lines the pockets of the big banks.
So don't blame the stock market, or even the evil PTB for your inability to retire when you want to. Your spending is the biggest thing that's holding you back.
How to retire early, as in ten years from now, no matter your age
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