27 Jun

The Impossibility of Early Retirement

The front page of MSN.com recently featured an article titled How this couple saved $1 million and retired in their 30s. Bruno was happy with this, since it’s always a great opportunity to potentially inspire and encourage new readers about financial independence. However, unbeknownst to Bruno, the posting of this article also turned out to be a poking stick that gently nudged a hornets nest. The incalculable fury of two notorious internet gangs was henceforth invoked. They call themselves The Doomers and The Denialists and upon reading about Bruno, they conspired to join forces and unleash a rainbow of disgruntled comments online. Tighten your internet seat belts folks, shit’s about to get serious.

It started with The Denialists tap-dancing all over the comment section of the MSN article, dropping such golden denial nuggets as:


These casual Denialist complaints are pretty silly and are mostly explained away with two posts we’ve already made: How We Saved $1M and Early Retirement With Zero Income Taxes

However, over at the Early-Retirement.org Forums in a thread so far totaling 19 pages, things get more serious. The Doomers turned up the volume on their Rapmaster 2000 megaphones and loudly proclaimed that our failure is all but a sure thing – it’s really just a matter of time until we’re homeless.

To summarize the all the negative comments into one, I fabricated this one:

 “these delusional millennials are gonna run out of money faster than the average bible belt teen gets pregnant!”

Doomers, I would like to say three things:

  1. Someone please correct me if I’m wrong, but I believe I’m allowed to make good-natured bible belt jokes, since I now live in the South! I have a free pass and it feels really good.
  2. Before anyone makes any North Carolina jokes, I would like to inform y’all that according to the latest study by the CDC – North Carolina is kicking teen-pregnancy’s ass and we’re currently in the same league as Colorado and California. HELL YEAH!
  3. Thirdly, back on the topic of running out of money – I think we urgently need to sit down together and have a friendly fireside chat on the basics of early retirement:

Revisiting The Basics of Early Retirement

Part I: The Ultimate Dilemma

A Serious Situation: Congratulations! You’re a self-conscious being that exists on a mote of dust suspended in a sunbeam, in a universe that is 13.8 billion years old. Your own species has been around for 200,000 years, has been civilized for 5,000 years, and only for the last 150 years have started making huge technological leaps forward. You’ve won the lottery ticket to be alive right now! Immortality and Artificial Intelligence have not yet been achieved, but they seem to be just around the corner. Average life expectancy is currently only 79 years. Knowing these facts, how would you like to spend the remaining years of your life?

One Possible Answer: You could aim to achieve personal freedom through financial independence, and then proceed to enjoy the short blip of time you have left on this planet pursuing whatever makes you happy! One way of accomplishing this is to analyse economic opportunities, become skilled in a trade or profession that is highly rewarded, then hustle to save money and ultimately achieve your freedom!


The big question mark is identifying exactly how much money you need to become financially independent. Once you know this number, you can work your ass off to reach this goal and ultimately quit your job in a blaze of glory once you cross the finish line! When your boss orders the celebratory office cake for your last day, the icing may read some like:

Congratulations, you’re now FREE from the chains of wage slavery!!

Ok, maybe that’s a bit over the top. But I should mention that alternatively you could try your luck and roll the dice at finding a job you actually love. But, since only 13% of people actually like their jobs, the odds are sadly not in your favor. More than likely you’ll be one of the remaining 87% of us who hustle our careers primarily for the money.

Part II: How much income do you need to live a comfortable life?

The Census Bureau actually answers this question for us by using Consumer Price Index data to identify how much money is needed to “provide goods and services commonly taken for granted by members of mainstream society”. It’s called the poverty threshold, and for a family of two in the US the amount is: $15,930.

I’m sure it’s possible to live a decent life on this amount of income, but let’s throw caution to the wind and actually double this number. I’d like to make the wild proposal that the annual amount of $30,000-$35,000 is more than enough to live an amazing, comfortable and happy life.

Taking a look at Annual Household Incomes for the US, currently 28% of all US Households make LESS than $30,000 per year.


Before we get too deep in this, how exactly do we define “comfortable and happy” anyways? Could we please randomly survey a number of individuals from human history and ask them: “What would you need to have a comfortable and happy life?”

Considering it’s been less than 100 years since electricity, radio, television, telephone, indoor plumbing, refrigerators, computers, the internet, automobile and aviation have been widespread – a typical human from history might just answer: “Uhh, I’d be happy with shelter, food and safety please.”

Despite living in a Golden Age of Information and Entertainment, most people seem to be jogging on their own hedonic treadmill and keep grasping at happiness by accumulating more money, status and material goods. We’re all living more luxuriously than all the Kings and Queens of history, but strangely it’s not enough!

To the Doomers who balk at living on “only” $30,000 per year, I question what essential part of life they think is being skimped on? Truthfully, by any measurement, we’re all ridiculously spoiled. What exactly do they think we need more of? How about a laptop, a smartphone, fast internet that connects us with the world and provides unlimited entertainment, a big screen TV, and perhaps a reliable vehicle with four wheels that can easily travel at 120km/h? How about a bunch of delicious fresh foods from around the world available at your local grocery store with very reasonable prices??

I have some really great news: ALL OF THESE THINGS can be had with a $30,000 per year lifestyle! I’ll leave it to Captain Bozo to react to this wonderful news:


Part III: So how big of a portfolio do you need to save?

While it’s impossible to predict the future behavior of markets (unless you’re an inside trader), the best we can do is analyze previous market behavior and speculate about the future. The famous Trinity Study did exactly this and has proposed that it’s reasonably safe to annually withdrawal 4% of a portfolio made up of 75% stocks and 25% bonds without depleting it over a period of 30 years. This study provides the basis for the popular “4% Safe Withdrawal Rate” that many base their retirement plans on.


It’s true, many believe that using a 4% Safe Withdrawal Rate (SWR) as suggested by the Trinity Study is overly optimistic and therefore too risky. It’s all been endlessly debated online, and many (including Amanda and I) opt to be extra conservative and use a lower SWR – we aim for 3%.  One “flaw” with the Trinity Study is that it assumes annual spending will continue to increase each year (at 4% of the original portfolio amount, plus inflation) regardless of market performance. An easy improvement, if you want to be more conservative than the Trinity Study, is to simply reduce your spending when markets are down – something Amanda and I are also doing.

So how big of a portfolio do you need to save? If you want to live on $30,000 per year (this amount would increase with inflation), and you want to use the very conservative 3% Safe Withdrawal Rate, then you need to save up $1,000,000 to become financially independent.

If you want to dig deeper, there are fantastic tools available to play around with early retirement numbers: cFIREsim and FIRECalc are two of them. You can enter a portfolio amount, expected annual spending, and number of future years you plan to live – and these tools will run through all stock market data since 1871 and tell you the number of market scenarios where your portfolio will run out of money.

For example, with $1,000,000 and an annual spend of $35,000, FIRECalc gives a 98.8% chance that the portfolio will last 60 years. cFIREsim provides even more options – for example it allows us to set a variable spending rate of 3.5% with a minimum floor of no less than 3.5% of the original portfolio, resulting in a 100% success rate over 60 years. Here ‘s the graph showing all possible market outcomes over time:




Are these tools bulletproof – most definitely not, especially when applying time-frames of 60 years. But they’re certainly helpful.

What’s going to happen in the future? No one knows for sure. My money is on transport truck and taxi drivers being replaced by driverless vehicles, our farms and manufacturing being almost completely automated by intelligent machinery (robots), and last but not least: we’ll eventually have some sort of Universal Basic Income.

On the other hand, even if we do have serious market downturns like the Doomers predict – we’re ready to tighten our belts, cut our fancy-pants luxuries, reduce our traveling, eat more basic foods, hustle some Airbnb income, and do some side contract work if needed.

Our willingness to be flexible with these extremely conservative precautions guarantees that our portfolio would survive even the zombie apocalypse that the Doomers are certain is just around the corner.

That being said, I believe there is more reason to be optimistic about the future than to be pessimistic. Sit back, relax, and enjoy the show folks. If technology trends continue to advance exponentially, who knows, maybe we’ll be lucky enough to achieve immortality in the next 50 years!