Extreme Early Retirement – Mainly a Myth Except for Hippies and Drifters

by Darwin on March 31, 2013

I was reading the other day about extreme early retirement (CNBC) where they profiled a few people who were retiring much younger than what you might consider even “early” retirement at 55 or so. In one case, it’s a 40 year-old retirement target – so sure, that counts as pretty extreme early retirement.  But I’m not sure anyone wants to live his lifestyle! The case studies outlined how they set out to achieve complete retirement by an age where they’ll certainly be living much longer in retirement than years worked.  The problem I have with people declaring that they’ve retired in an “extreme” fashion is that they’re either not really retired, or they’re relying on a spouse, which, well, isn’t really the same thing.  Millions of Americans, including my wife, could make that claim.

Here are some of the things that struck me from this article as well as general claims of extreme early retirement:

  • Math Challenged – Before getting into actual concepts and critiques about early retirement in general, I couldn’t help but point out the “extreme math challenged” nature of the subject of the article and/or the author.  The article claims a 30 year old has $100,000 in the bank now and plans to have $400,000 by 35.  The thing is, he makes only $50,000 and claims to save 60% of his income.  Assuming he pays no taxes and saves this 60% on his pre-tax income, that’s saving $30,000 per year; x 5 years = $150,000.  Adding that to his existing $100,000 is a total of $250,000.  How does he plan to have $400,000 in the bank by 35?  I guess details don’t matter when you’re writing for USAToday and publishing at CNBC.  Now, for some actual meat…
  • Life as a Broke Hippie. Is It Even Worth Living on $15,000 a Year Just to Avoid Working? – So, using the subject above, he claims he lives on $15,000 per year.  First off, that’s the extreme poverty we hear so much about that has Obama looking to arbitrarily raise the minimum wage (horrible idea).  But more importantly, who the hell would choose to live in poverty for life voluntarily just so they don’t have to work?  So, from age 40 onward, while you may not have to show up at work, what are you going to do with your life?  You can’t travel. You can’t really pay for anything other than crappy food, crappy shelter and crappy clothes.  And you’re supposed to do that for the next 40 years?  Is that really a life to aspire to?
  • Working Spouse? Doesn’t Count – Per above, take my wife for instance.  She’s home with the kids.  She doesn’t go around telling people she did so well professionally and saved so much money that she’s “retired”.  I just happen to be providing enough income for her to not be working.  If it’s a male professional who quits their job and their wife’s still working, kinda the same thing, not sure why we’d draw distinctions based on gender.  But I tend to hear many more males (with working wives) claiming they’ve achieved extreme early retirement than vice versa.  In my mind, if you’re living off your spouse’s income, you didn’t retire.  They’re just working.
  • 4% Withdrawal Assumption – People like to use the 4% retirement assumption to see how much they have to save in order to live off their principal.  Here’s the problem – that is wrought with assumptions – and if any of those assumptions don’t come to fruition, you’re screwed.  Consider this – if you put away your nest egg in 1990 versus 2001, you’ve have vastly different outcomes.  Starting just before a bull market, you’re golden.  Starting into a bear market and you’re screwed when your entire portfolio drops 50% in a year.  When you’re withdrawing 4% on half your initial nest egg that just lost half its value, you’re now withdrawing 8% a year.  And that assumes it recovers!  What if you enter right at the start of the next lost decade?  Next, it assumes inflation is low and that your personal inflation doesn’t increase (which it does as you age, especially with health care costs skyrocketing).  So, I don’t like to rely on the 4% withdrawal assumption in a vacuum and when these “extreme early retirees” do, you can bank on them looking for work in the future.
  • You’re WAY Healthier in Your 40s than Your 70s – On that health care topic, young people think they’re invincible.  That’s why they don’t think they need health insurance (see our healthcare premiums over the years), think they can kick anyone’s ass in the bar and think they won’t get caught drunk driving.  It takes a decade or two of getting knocked out, getting sick and seeing your friends racking up DWIs before you realize you’re just like everyone else.  So, realize you’ll get sicker and sicker as you age.  Meds, chronic disease, hip replacements, walkers.  It’s all downhill after 40. So, when a 30-something uses their current zero cost health care budget and projects that same budget for the rest of their lives, they demonstrate their naivety   It’s going to be a hell of a lot of money to live in the future with no income and stay healthy.  And by the way, on $15,000, you’re not eating organic.  Plan for diabetes, cancer and more.
  • Working is About More than Money – Social, Sense of Purpose, Parenting and More – For all the early retirees that abhor work so much, perhaps they haven’t considered what they’re missing.  Aside from, well, a predictable income, work provides a sense of purpose and accomplishment.  I hear stories all the time about people hitting their 50s and 60s and when they retire, they just sit around the house and sleep all day.  That’s called Depression, they just don’t know it or admit it.  There are strong social bonds formed when working and people do derive satisfaction from their professional experiences if they’re in a job they don’t hate.  And what about parenting?  I’m trying to teach my kids that they need to work hard and do well in school to have what we have someday.  They’re not going to learn that by watching me sit on a hammock in the yard from the time they’re old enough to see their friends’ parents working.
  • Blogging is a Job. You’re Not Retired – Don’t get me wrong, I love to see stories of bloggers that are able to quit their W-2 day jobs and live off what they make blogging.  Companies are trying like hell to fire all the workers they can anyway (seriously, here’s a common trick they pull and you’ll soon be replaced) so congrats to those who beat their employers to it. But when they say they’ve “retired” while toiling away for 25-60 hours a week blogging, creating products, chasing advertiser revenue and making money online, that’s not true.  They’re just earning money working as a blogger instead of working as whatever they were doing in corporate America.  They’re still working after all.  To me, retirement means you’ve earned enough income that you don’t need to earn any more to support your desired lifestyle.  That means through combination of fixed income from pensions, SS, otherwise plus distributions from your investments, that’s it.  No side hustle income.

Do You Know Anyone That’s “Retired” in Their 30s or 40s?  

Are They Truly Retired?

When Do You Plan on Retiring?

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