AAII just launched a newsletter called AAII Retirement Investing, so I’ve had “retirement brain” for a few weeks. Specifically, I have been thinking about how people could possibly retire early, based on the Financial Independence, Retire Early (FIRE) movement. Back in 2019, the AAII Investor Conference featured a presentation by a couple, Tanja Hester and Mark Bunge, on how they retired around age 40.
Why retire early?
One of the benefits that draws people to retiring early is being young enough to do all the things you would otherwise be doing when your knees and back are in worse shape than they are now. If you want to travel the world, why wait until it’s more difficult to breathe and move? It’s a nice idea, but when I think about the possibility of retiring early, I could see myself taking a “retirement break” and choosing to work when I’m older and sitting down is more the vibe. (Although it would be more difficult to reenter the job market at an older age.)
If you have a lifestyle in mind for your adult years that doesn’t involve working full-time, there are ways you could “fake” an early retirement. You could work part-time for a while or do some other kind of work that requires less commitment, like freelancing. This is something that many parents do when they have kids, splitting their time between life and work. The hard thing about working part-time in the U.S. is that no employer is required to provide health insurance to part-time employees. There are some companies that offer health coverage at the part-time level, usually large corporations like Starbucks and Costco.
How do you retire early?
The first thing you have to do for anything close to an early retirement is save—big time. Many in the FIRE movement suggest saving up to 70% of your income. This is no easy feat, especially for people early in their career just starting to make enough money to make ends meet. Essentially, you will be uncomfortable and living below your means as much as you can for a while so that you can be comfortable for the rest of your life. It’s up to you to decide if it’s worth it.
But it’s not just saving that gets you to an early retirement, you have to invest those savings wisely. Those who retire early likely make a large salary from the start of their careers, but it’s not necessary. Like any financial goal, if you can stick to a disciplined plan, you can make it happen. You have to really want it, and you would have to forgo the majority of everything else you could possibly want in the meantime. What do you really value? It might help to look around your dwelling and determine what you would save in an actual, non-retirement-related fire. I would grab the linen sheets off my bed and my poetry collection (some of the books are out of print and would be hard to replace). OK, I would probably also bring a laptop and my phone, but we can pretend 😂.
An article by AAII Journal editor Charles Rotblut discusses “Five Major Considerations for an Early Retirement.” One of the more complicated parts of retiring early involves having health insurance even when you’re too young to qualify for Medicare. The Affordable Care Act (ACA) is something of an answer to this problem, but some have struggled to keep their plan with turnover and health care reform. Especially now that we are living in a world where viruses can spread anywhere and anytime, making sure you have health coverage prior to age 65 is more important than ever.
Retiring early means that everything in your finances and life has to shift. If one thing is happening earlier, everything else has to accommodate for this change. If you crunch the numbers and decide you’d rather ride it out with your 9-to-5 job, then so be it. An early retirement isn’t for everyone, and some following the FIRE ideology also own multiple properties to maintain a steady cash flow. Being a landlord and exploiting people certainly isn’t my dream, but if I figure out a more sustainable way to retire early, I’ll let you know!