I am 25 and my goal is to retire in 9 years by age 34. "Impossible!" you say. But au contraier, it's already been done by none other than Mr. Money Mustache! This financial hero and his financial heroine wife retired by the age of 30, before they had their first kid, each with an average working salary across 9 years of $67,255. Over the past 6 years since his retirement he's been guiding the masses on a mission of frugality and sensibility.
My mission is to recreate the success of Mr Money Mustache with my own finances. I have already made financial mistakes in my short working career, including spending MORE THAN ALL of my money on my truck (aka...financing it..ugh it just makes me cringe) . But I have also had financial successes! I've been maxing out contributions to a Roth IRA since I started working at age 18. If I continue that pattern until age 69.5 (which is $458 a month for 44.5 years), assuming a 7% interest rate, that account will grow to over 2 million dollars. You can perform the calculations on your own accounts with any online retirement calculator. I like this calculator.*
So logically what I have to do to retire at age 34 is build up enough savings to create a stream of income for the remaining years from age 34 to age 69.5. How much will I need? I know that I want to own my home and car free and clear, plus have $30,000 annual income for continued IRA contributions, travel, hobbies, and taxes/fees/insurance. Honestly for one person with no debt and no mortgage, that's downright luxurious when you consider many entire families in the US live on less than that and the average global household income is only $10,000 annually. Mr Money Mustache himself and his family live on $25,000 per year, even though they are millionaires who could afford much more than that. So $30,000 for just one person? Easy :) After all, being rich doesn't make you happy, doing things you love with the people you love makes you happy!
There are two basic parts to my plan of producing $30,000 annual income for use during early retirement. One way is through dividends on investments and the other is what I call "normal-people income", such as full time or part time work, freelancing, rental properties, etc. Those two streams of money are complementary; if you have more of one you need less of the other. The general rule if you are going to withdrawal investment dividends is you should plan to take out no more than 4% annually in order to preserve your principle. See explanation HERE. This withdrawal rate should allow your savings to theoretically last forever if you are gaining 7% ROI, as the remaining 3% gain just keeps up with inflation. A quick way to calculate your target amount using the 4% rule is to multiply your spending by 25, and that's how much you should have in investments if you keep your spending rate constant.
So. If I plan on spending 30 grand per year, I would need 30,000 x 25 = $750,000 in the stock market. That breaks down to investment contributions over the next 9 years of $5,000 per month. Honestly since I'm doing this all by myself it will be nearly impossible for me to have a mortgage-free house AND that much in savings by year 9. But lets say I actually only needed $10,000 a year from my investments, and I'm going to get my remaining $20,000 from the supplemental, normal-people income. (Doesn't this mean I actually won't be retired?) Well then I would only need 10,000 x 25 = $250,000 in my investment account, which breaks down to investing $1650 a month for 9 years.
Now the picture looks more manageable! I've a full 9 years to come up with a way to bring in just $20k a year by pursing only things that interest me. Ideas off the top of my head to produce any remaining income needs include making and selling crafts, dog walking, app development, becoming a scuba diving instructor, workamping in my RV around the national park system, public speaking.... the list goes on. My backup if I found myself making ZERO money on passion projects would be to either reduce my spending, or add in some speech therapy sessions. Just one 13 week travel assignment would pretty much cover me for the whole year, which is why I plan to remain certified as an SLP as a safety net.
Of course you can keep playing with numbers until you find a balance that works for you. 9 years might not be your target and you might want more savings or you might spend less...but I'm pretty sure that when you put on your frugal goggles you will find that a retirement in 40-50 years is likely WAY overkill for what you will need. The key is to spend much less than you make and invest the difference. How novel.
As a final note, in case I never settle down with anyone this post assumes a single relationship status. If I have a family, my future husband will be contributing an additional salary and skills to the equation and should make the process even faster/easier. I know this is true because if he has no skills and makes the early retirement process harder/slower, we will not be a good match and I will not be marrying him ;)
I'm not exactly sure of the nuts and bolts of how I will get there, but the gauntlet has been thrown down! Retire at age 34 with a paid off house. Does anyone out there have a similar goal?
*Disclaimer: I am not an investment professional. I'm not professionally licensed to do anything except Speech Therapy. I am just sharing with you what I have done and what I will continue to do. Past stock market performance is not a guarantee of future performance *