Howdy $wanigans! How are you on this fine day? I’ve been thinking lately of when the actual day comes that I retire. Specifically, how I will explain reaching financial independence and retiring (for good…) in my 30s. To me it was fairly simple and straightforward. But why is the average savings rate in the US a mere ~5% while I somehow have managed to save over 50% of my salary for the last 10 years. How is that simple?
Well it is simple, but not easy.
While I haven’t actually retired yet and don’t necessarily plan on it for another 5 years, I do consider myself financially independent. And that is the first time those words have come out of my mouth (or fingertips…). What a declaration!
How can I consider myself financially independent? Well, my net worth is currently hovering around $1.5 million. Using the trusty 4% rule, that means I could theoretically spend $60K annually for the rest of my life and not run out of money. However, I have historically preached and used the 3.5% as my safe withdrawal rate as I’m fairly conservative and prefer to be safe rather than sorry. A 3.5% safe withdrawal rate represents $52.5K of annual spending in retirement.
Right now, my annual spend is ~$47K*. Therefore, I’ve reached a fairly comfortable status of financial independence.
So why don’t I retire right now? While I consider myself financially independent based on my current level of spending, I’m not entirely sure how my spending will evolve over the next (hopefully…) 60 years of my retired life. Again, I’d rather be safe than sorry and I don’t mind working a few more years to resolve all doubt. If I pass on a few million to my kids or a charity of my behest, that isn’t the worst thing in the world. Plus, I’m only 32. If I were 62, my answer would likely change and I’d be much more eager to retire (and have a much better guess of my spending over the remainder of retirement). After all, time is finite.
How will I tell people that I’m able and comfortable to retire in my mid-30s? That won’t be easy. I can’t help but think of my wife’s family (her parents and her brother’s family). My family is fairly open with finances and understand my intentions to retire early. My wife’s side of the family though, not so much…
My in-laws, ~30 years my senior, are on a similar retirement timeline as my wife and I. That is they will be looking to retire in the next 5 years or so…They know we have done well with our careers, but I don’t think they have any sense of how much we actually make.
They know we are fairly frugal, but they’d be shocked to know we’re frugal millionaires. And they know we’re smart with our money, but who retires in their 30s?
My brother-in-law’s family…I’m fairly certain they are on the opposite end of the personal finance spectrum as us. They are the typical American family. He makes solid money and his wife stays at home with the kiddo. Although we aren’t open with each other about finances, it is fairly easy to tell they spend about what they make. You can just see it in their mannerisms and spending habits. They save, but I wouldn’t guess it is all too much in terms of percent of salary. Especially considering they live in a high cost of living location; Washington DC.
So how do I explain to them, or pretty much anyone else we encounter, how we retired early?
I’ve Worked My Ass Off
While I’m no Einstein, I’ve made up for it with hard work. Surprised? After all, my mantra is “work harder, work smarter…”!
My mindset has, and still is, that if I can graduate near the top of my class in undergraduate and graduate school, then I should be able to come out with a high salary and generate income and wealth in the top percentiles of the population.
While, admittedly, I’m not the smartest, a little hard work can go a long way. That’s why I work hard, and as smart as I can. Anything to maximize my salary and potential. While I may have to work harder than some, it is worth it to put myself in the top percentiles of wealth.
I worked summers in high school and college, paid half of my college costs, graduated in three years, earned a graduate degree with distinction from a top public university, did what I needed to in order to advance my career, and have reaped some monetary rewards because of it.
As you can read between the lines, I sacrificed a lot personal time and work life balance by working young, getting a graduate degree during nights and weekends, and regularly working 60-70+ hours per week. This sacrifice was worth it to me and my family. It isn’t a sacrifice everyone is willing to take, but if you are then rest assured that hard work pays off.
In retrospect, working my ass off was the biggest sacrifice I made on my journey to financial independence. But nothing worth having comes easy. I’m 32. I’m financially independent. I have the rest of my life to make up for lost time.
I’m Stingy as F***
I hate to splurge. It goes against every fiber in my body. Every major purchase has been examined for its worth and value. I optimize…and track spending to the cent. Then I optimize some more. I’ve never stopped optimizing. For example, two years ago my wife began cutting my hair at home.
There is always something to optimize and optimization adds up. It adds up each day, month and year. And it certainly adds up over decades. That was the view and mentality I had on my road to financial independence.
I questioned spending money for practically everything over my ~11 year adult life. Although not a perfect record, it’s pretty darn good. I would get cash from my parents for my birthday. They told me to go buy something special. I did. Index funds.
You think I would buy my coffee from Starbucks?
In this day-in-age, you think I’d pay for a cable package?
Pay someone to cut my hair for me?
The list goes on and on.
I “insource” or go without for about everything I can. My wife and I carpool (~90% of the time). I even insourced my utilities as much as I could (thank you solar panels…)! That’s right, I generate my own electricity! In the words of Alan Donegan on the ChooseFI podcast, it is the “Aggregation of Marginal Gains”. And don’t think they don’t aggregate…
But I still pay for what I want.
While being stingy as f***, I won’t say I’ve really sacrificed. The things I value most in life I’ve kept, the things I don’t I’ve cut out.
Yes, I’m stingy, but I don’t value any of those things listed above. Things I don’t value, I cut out, and I cut out ruthlessly.
However, I am willing to part ways with my hard earned money for certain things I do value (of course after finding the best deal I can…).
I have a 55 inch tv (to watch my over-the-air channels and streaming networks).
We take nice vacations.
We own a nice, ~3,000 s.f. house.
Our boys are in swim lessons (yes, both boys ages 9 months and ~4 years).
I got LASIK (PRK actually…).
I’m loosening up now, but that’s because frugalness is a means to an end for me. The power of financial independence means I have the power to spend on things I value to no extent.
So how do I tell this to others without them feeling remorse for their own path. If I heard this all for the first time when I was nearing the end of a 40 year career, I’d likely feel like I missed the boat. Or have just been wandering aimlessly. Of course that is coming from my jaded and biased point of view.
In the case of my brother-in-law’s family, they spend lots of money and don’t seem too bothered by it. And because of that, I don’t expect they’ll change their behavior once they know we’re ditching the grind. No doubt that it would take them a significant shift in mindset if they tried to follow suit. And who’s to say that their current mindset is wrong for them. There are certainly people out there perfectly happy in their decision to spend what they earn with little buffer. It’s obviously a choice they’re making and who is it for me to say they’ve not adequately weighed all options.
Nonetheless, it is tough to come out with the news of early retirement to folks like this. Maybe they’ll have no remorse for their own path. Maybe they will. But either way, what’s there for me to say about it. “Awkward…”
I’m reminded of the Dumb and Dumber line, “Well, see you later.”
Thanks for taking a look!
The Green Swan
*Does not include the ~$18K of annual daycare we spend on my two boys, but if I were retired I wouldn’t be spending this…