5 Ways to Retire Before Age 40

[Onward]

Here are five general principles from Yahoo Finance. They won't be new to most forum members here, but it never hurts to chant the mantra.

5-ways-to-retire-before-age-40: Personal Finance News from Yahoo! Finance

Leaving the workforce behind before the age of forty is an extraordinary accomplishment and it requires dedication, intensity, and a willingness to live differently.

 

[Purron]

I'd say many of us are not only willing to live differently, but insist on it!

 

[ERD50]

I'd say many of us are not only willing to live differently, but insist on it!

Well this is definitely thinking differently:

Consider a new definition of retirement. You may still want to work in retirement to earn additional money, particularly if you can do work you enjoy. Consider a part-time job or even a full-time job with a non-profit organization aligned with your interests and values.

You can retire at 40, as long as you don't mind working full time?

-ERD50

 

[Onward]

Consider a part-time job or even a full-time job with a non-profit organization aligned with your interests and values.

Agree it's a bit of a non sequitur. I guess the idea is that retirement allows you to do w*rk that's truly meaningful to you. I've heard so many horror stories about w*rking at nonprofits that I probably wouldn't go this route, though.

 

[traineeinvestor]

Another shallow, incomplete and useless article:

Why is retiring before 40 extreme? It seems a sensible objective to me. I wish I'd managed to do it.

Why ignore what other people think? Which people are they talking about? If you want to retire early, listening to what other people who have retired early or who are planning to think seems sensible to me.

As to changing the definition of retirement? Big Brother would be proud of this one - being required to keep working to fund your retirement is totally inconsistent with the notion of being retired.

 

[kumquat]

Here are my six ways to retire really early. I've watched a few people do it. In order:

1) Inherit a bunch of money really early. Works great if you can LWYM (live within your means).
2) Inherit a bunch of money late, as in your late 40's. See above.
3) Do something early to give you an income stream. Patenting (and licensing) some great invention works here.
4) Win a big lottery.
5) Get a job with mega-corp. Get stock options as part of pay package. Have them stagnate for years as you acquire more and more. Just as they are about to expire worthless have mega-corp stock sky-rocket up 6 -10, Exercise and tell everyone how smart you are.
6) LYBM, save and invest prudently.

Which one of these can you control? I ER'd on number 5, but it was blind luck. YMMV.

 

[ronocnikral]

public service pensions. LBYM.

 

[audreyh1]

5) Get a job with mega-corp. Get stock options as part of pay package. Have them stagnate for years as you acquire more and more. Just as they are about to expire worthless have mega-corp stock sky-rocket up 6 -10, Exercise and tell everyone how smart you are.
6) LYBM, save and invest prudently.

Which one of these can you control? I ER'd on number 5, but it was blind luck. YMMV.

Variation on 5: Be an early employee of a start-up company that eventually becomes much larger.

You still have to to 6, or else you stay a wage slave.

IMO it's pretty darn hard to retire before 40 without some type of serious windfall (including selling the business that you started).

Audrey

 

[ziggy29]

public service pensions. LBYM.

The only public pensioners I know who can receive checks before age 40 are military folks who joined out of high school and put in their 20, but I don't think many retired 39-year-old military folks can live off their military retirement alone, even with LBYM.

 

[Keim]

I agree it was a shallow article. But can't agree with some of your comments below.

Why is retiring before 40 extreme? It seems a sensible objective to me. I wish I'd managed to do it.

Because it is extreme! Even amongst the folks on this board it is unusual. I'll bet fewer than 10% of the people on this extremely knowledgable board accomplished this. Think of retirement as a bell curve. Those retiring before 40 would be outliers on the far left. Not far up the slope at all. Those retiring in their 50s would be midway up the slope. 60s would be at the crest.

Why ignore what other people think? Which people are they talking about? If you want to retire early, listening to what other people who have retired early or who are planning to think seems sensible to me.

Because most other people don't think about early retirement. To accomplish your goal you'll need either a very large income, accompanied by decent saving habits. Or a smaller income accompanied by increasingly good saving habits. Many other people simply don't think like this. More income simply means more toys. If you want to retire before 40 you'll need to hink differently.

As to changing the definition of retirement? Big Brother would be proud of this one - being required to keep working to fund your retirement is totally inconsistent with the notion of being retired.

We agree here. Being REQUIRED to keep working isn't early retirement. Early retirement means you can keep working, perhaps doing something you love, etc., but do not need to.

 

[FIREd]

Even amongst the folks on this board it is unusual. I'll bet fewer than 10% of the people on this extremely knowledgable board accomplished this. Think of retirement as a bell curve. Those retiring before 40 would be outliers on the far left. Not far up the slope at all. Those retiring in their 50s would be midway up the slope. 60s would be at the crest.

Here you go:

http://www.early-retirement.org/forums/f28/age-at-retirement-50979.html

Less than 5% of people on this board retired before 40.

 

[FinanceDude]

How to retire at 40?

1)Don't take on any DEBT, at all.....
2)Don't have kids
3)Save 35% of your take-home pay, or more.
4)Eat a lot of brown rice and fish you catch yourself.
5)Grow your own veggies
6)Work a side job, and save every penny from that

How hard was that?

 

[Bimmerbill]

Join the military at 17 or 18, then retire at 37 or 38. Heck, you could even push it to 40.

But you would have to avoid debt and do some savings along the way. And avoid getting blown up overseas.

 

[Keim]

Minor detail there...

And avoid getting blown up overseas.

 

[Calgary_Girl]

The only public pensioners I know who can receive checks before age 40 are military folks who joined out of high school and put in their 20, but I don't think many retired 39-year-old military folks can live off their military retirement alone, even with LBYM.

Here's a family profile from a couple of years ago that Money magazine did. Both were in the military and retired at 44 and 40 (although the money is pretty tight IMO....)

Retired at 40 - February 1, 2008

 

[Onward]

I think the way to retire at 40 is to set your sites on it when you're 20. The problem is that very few 20-yr-olds know or care about FIRE.

 

[REWahoo]

I think the way to retire at 40 is to set your sites on it when you're 20...

...and set your target for 35.

 

[plex]

...and set your target for 35.

That's my plan, at least in the near best case scenario. The planning definitely had to be well on its way by 20. If I had done amazing in law school, the best case scenario could have been 32.

Debt is actually OK, as long as it is mortgage/educational debt, the educational debt is lower than your first years pay, and you have the ability easily pay it off very quickly. Obviously you have to work a lot during school and/or the summers, and/or have a big scholarship. With how interest rates and house prices were last year, I could definitely see a small mortgage being very possible, if they absolutely knew where they would be working for awhile.

On the other hand, saving 35% isn't going to cut it, 50-60% is more likely necessary (unless the income is beyond even what most professionals make). At 35%, most people would not be able to retire until their late 40s, at the earliest, early 50s is much more likely.

 

[Bimmerbill]

Anyone catch the article on CNN about condos for less than the price of a new car? Many in FL, in nice areas, going for $15 to $25K. I would guess you could live pretty cheaply after buying one with cash ($200 a month maint fees). Course they were only 900sqft 1 bedroom examples.

 

[Milton]

I've heard so many horror stories about w*rking at nonprofits that I probably wouldn't go this route, though.

+1.

Occasional volunteer work is great, provided that it fits within your schedule and gives you a sense of fulfilment. But working for pay carries with it too many responsibilities and hassles, regardless of the nature of the employer.

 

[FUEGO]

1. Marry a frugal spouse
2. If you have kids, make sure you have a mother or mother in law that can babysit your kids for free or cheap. Daycare is a no-go for FIREing by 40.
3. Buy a house that is 50-60% of the area's median housing price.
4. You and your spouse have to work.
5. Save 50%+ of your income
6. Don't pay interest on consumer debt (unless it is very low like <3%). Low interest education debt (that leads to a career that will compensate you well) and mortgages are ok.
7. Don't buy new cars frequently. Consider buying used and keeping 10 years.
8. Invest in a tax efficient manner. Defer taxes when you can (if it makes sense).
9. Keep monthly recurring expenses low. Make sure you are getting value for everything you are spending your money on.
10. Focus on building net worth by increasing income producing assets (investments, bonds, CD's, maybe even real estate based on your asset allocation or investment goals). Reducing your mortgage and student loan debt (assuming low rates) is secondary.
11. Start early. Have your savings/investments on auto pilot as much as possible so you won't miss the money and won't "forget" to invest/save each month. Treat savings and investments just like another bill - it is a bill - a down payment on your retirement.

This is basically how I have run my finances and I'm well on track to FIRE by 40. The only detour we took was DW and I each spent 3 years in law school (and have the debt to prove it!) and neither of us practice law nor really use it in our careers.

Edited to add: gubmint subsidized health insurance/health care by 2014 factors into the plan as well.

 

[Milton]

Here's a family profile from a couple of years ago that Money magazine did. Both were in the military and retired at 44 and 40 (although the money is pretty tight IMO....)

Retired at 40 - February 1, 2008

I read the article; thanks for sharing.

They are fine for now but I agree that things will be a bit tight when they increase their consumption and travel expenses, as they plan to do in ~10 years' time.

If their children go on to post-secondary eduction they will need to win scholarships or contribute to the associated costs via part-time and summer work (I am not sure that that there is anything wrong with that).

P.S. As you are a fellow Canuck, here is a related article for you: Freedom 55 is for Wimps.

 

[ziggy29]

I read the article; thanks for sharing.

They are fine for now but I agree that things will be a bit tight when they increase their consumption and travel expenses, as they plan to do in ~10 years' time.

Not only that, but going back to what I said earlier today on another thread, if they are on a tight COLA'd income stream where they can't afford much more than the "essentials of life," chances are that their COLAs won't keep up with their personal inflation rate, as the "flat" CPI is primarily due to falling big-ticket discretionary items offsetting inflation in essentials like food, energy and health care.

 

[HFWR]

How to retire at 40?

1)Don't take on any DEBT, at all.....
2)Don't have kids
3)Save 35% of your take-home pay, or more.
4)Eat a lot of brown rice and fish you catch yourself.
5)Grow your own veggies
6)Work a side job, and save every penny from that

How hard was that?

I'm thinking trust-fund baby sounds easier, but then, Paris seems to be having a hard time...

 

[Carnage]

I think even shooting for 35 when you are 20 is mighty aggressive. Not saying it can't be done, but that's college years and "Jimmy's first job" years. Not usually a lot of money going into the bank unless you are in a highly sought after position with an abnormally high salary.

My DW has had a Roth since 18 and 35 is nowhere near a possibility, we're still shooting for around 45.