Reader Case: Start Early, Retire Early

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Phew, so after the crazy few last few weeks, we finally got some time to sit down and read our e-mails. And now that it’s Friday, you know what that means!

Reader case time!

Today’s reader isn’t your stereotypical FIRE candidate. He’s only 27 years old, doesn’t have an engineering degree or a 6-figure salary, and is bascially your typical Millennial. Will he be able to retire early? Or will he prove the Boomers right that as Millennials, we’re all doomed?

Let’s find out…

Hoping to get some input on my current financial situation. I’m 27 with a college degree. Working full-time, but hoping someday to retire early. I see myself changing careers within the next 5 years. I live with my girlfriend. She is in school and works part-time, so she doesn’t make much. Thus, I haven’t included any of her information here. She is in student-loan debt and has two more years until graduation. She only has about $7,000 in student loan debt. When she finishes school, we would like to travel, perhaps teach abroad.

Currently I am learning how to trade on Robinhood and am learning a lot. I have also thought of learning coding through one of those “bootcamp” sites to perhaps start a new career. Here is my current financial situation:

Gross Annual Income: ~$56,774.40

Net Annual Income: ~ $31,787.04

Monthly Spending: ~ $1,120.00

– Rent: $600
– All Utilities + Internet: ~$125
– Groceries: ~$125
– Climbing Gym: $50
– Home and Auto Insurance: ~$90
– Entertainment (out to eat, drinks, movies, etc.): ~$130

Debts: None (As of this month, student loan-free)

Fixed Assets:
– Personal Car: ~$2,800
– Other Assets (computer, furniture, electronics, bike, etc.): ~$1,000

– Cash: ~$15,000 (at a credit union, a growing emergency fund, thinking of transferring some out to an investment account [Vanguard? Or put additional into deferred compensation plan, see below])
– Stocks: ~ $2,500 in Robinhood

– Retirement Accounts:
o State Employee Retirement Plan (similar to 401k):
– Total: ~6,000 – deductions are 6.7% pre-tax (around $155 per paycheck).
– State also puts in 6.7%, but only get to keep if you stay in State service for 5 years (currently have 2.5).

o State Deferred Compensation Plan (457b):
– Total: $6,331.69 – $500/month pre-tax (deductions can be made pre- or post-tax. You choose how much to deduct). Current investment portfolio is mixed:
• Large Cap (US): 55%
• Mid Cap (US): 20%
• Small Cap (US):15%
• International: 10%

– HSA: ~$436 (deductions are pre-tax, around $114 per paycheck [max contribution per year]). Can keep all money even after leaving State service.

Cryptocurrency (several types): Currently worth ~$1,000”


Okay, so right off the bat what jumps out at me is his taxes. Even though he’s making an average salary, he’s paying $24,987.36 in taxes? That’s a 44% tax rate! Even if he lived in a high-tax state like New York, there’s no way he would be shelling out that much with a salary like that.

This means he’s likely forgetting to include his contributions to his retirement plan, 457, and HSA as part of his net income.

Taking those into account, that’s an additional $12,456/year of income, which makes his tax rate a much more reasonable 22%.

I’ve also noticed that even though he doesn’t have a high salary (which is probably why he’s looking to switch careers), his monthly spending is one of the lowest I’ve ever seen! Plus, he’s only 27 years old and debt free so there’s tons of time for him to supercharge his salary and investments!

Will he be able to retire early? Is he doing well for his age even with a lower salary?

As we always say on this blog, let’s MATH SHIT UP!

Net Income:$31,787.04 + $12,456 (tax-sheltered contributions) = $44,243.04
Expenses:$600 (rent) + $125 (utilities + internet) + $125 (groceries) + $50 (gym) + $90 (home + auto insurance) + $130 (entertainment) = $1,120/month, or $13,440/year
Investible Assets:$15,000 (cash) + $2,500 (stocks) + $6,000 (retirement accounts) + $6,331.69 (457b) + $436 (HSA) + $1,000 (crypto) = $31,267.69

This means his savings rate is $30,803.04 / $44,243.04 = 70%! Wow, that’s AMAZING given his net income. That’s as much as our savings rate during our best years!

With this spend level, using the 4% rule, he would only need $13,440 x 25 = $336,000 to become financially independent.

This means, at a conservative return of 6% per year over the long term, he will be financially independent in…

YearStarting BalanceAnnual ContributionReturn (6%)Total

Just under 8 years!

Now, in this scenario, we haven’t included the state match of 6.7% on his pre-tax salary. That’s because he’s planning to switch careers within the next 5 years, so we don’t know whether he’ll move to another state.

If he does decide to stay for another 2.5 years (he’s already accumulated 2.5 out of the required 5 year stay), he’ll get an additional 6.7% x $56,774.40 = $3803.88 per year. $3803.88 * 5 = $19,019.4 total.

So if we add in the employer matching in 2.5 years, we get:

YearStarting BalanceAnnual ContributionReturn (6%)Total

He’ll get to FI in slightly less than 7 years!

Since 27YOI has already spent 2.5 out of 5 years in state, it makes sense to ride out the next 2.5 years to get the retirement plan match from the State and add more than 20K to his net worth.

So overall, he’s doing amazingly well, and on track to increase his salary by learning to code and getting his investments in order.

Let’s take a look at his investments:

He’s very aggressive with a 100% allocation in equities—split between 90% US and 10% international.

Given that he’s in the accumulation phase and only 27, it does make sense to be more aggressive, but if you’ve never lived through a market crash, you need to really be sure you can handle the drop when (yes, I said when, not if) the correction comes.

In addition to this, he’s also invested in cryptocurrencies. Now, you all know how we feel about Crypto, but given that he’s only invested $1000/$31,267.69 or 3.2% of his net worth, that’s within a safe range. As we’ve said before, if you want to invest in alternative assets, keep it within 5% of your portfolio to keep it from blowing up your finances.

So given his numbers, his age, and his willingness to learn new skills, he’s in a great spot and will be on track to become FI when he’s just 35 years old.

What I love about this reader case is that it proves that, even if you live in an expensive country like the US, don’t earn a 6-figure salary, you can still be on track to FI within 8 years, by making optimal choices with your spending. And if you’re young, learn to invest and get into the market as early as possible so your money can compound for as long as possible.

What do you think? What advice would you give to 27YOI?

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30 thoughts on “Reader Case: Start Early, Retire Early”

  1. 457s are the It’s like a 401(k) tax-deferred, but there isn’t a penalty for early withdraws. I.e. he could access those funds anytime once retired early without paying any penalty (but still paying income tax-maybe).

    Therefore, my recommendation would be to get the state pension match, but then all saving must go into the 457 until it’s maxed. $18,500 this year. That will save him more on his taxes. He’s contributing $500 a month now, but that could be bumped up to 1541 a month for an extra $12k of saving pre-tax. The tax savings would be $12,000 multiplied by his tax rate of 22% = $2750 (which is more than he spends on groceries a year – there’s your free lunch!)

    1. Yes, I agree with this. I also have a 457 and it definitely is the (lol) if you’re a FIRE candidate. I won’t be super early FIRE but am 49 and considering leaving my job. Between my mid 6 figure account balance (most in 475 but some in IRAs), and my pension that will pay out in 6 years, I should be in pretty good shape.

    2. Heck yes — that 457b is gold. This guy is doing it right. And frankly, unless he really doesn’t like his current job? State benefits + 457b + amazing cost of living = keep riding that train until retirement!

      Also, $50/mo climbing gym membership is a pretty solid deal. I haven’t been to a gym regularly in almost nine years and really miss it.

  2. The one thing I find missing with these reader cases is that they assume the individual/couple remain static in their income and expenses. Looking back over the last 20+ years since I started working, much has changed. I can tell you from 2018 to 2019, my expenses have increased by a good 33%. That’s over one year only. My habits didn’t change when it came to my purchases/living expenses and I don’t suffer from lifestyle creep. Things just cost more. On the employment income side, it grew 18% however that is an anomaly and I foresee only about 2-3% for this coming year. If next year is a repeat expense-wise, that easily deteriorates your purchasing power.

    Overall, what I’m saying is that this type of calculation is too simplistic and doesn’t consider reality. Also, does 27YearOldInvestor plan on living how he’s living today forever? Probably not. At $350k invested, it’s good directionally but that’s living a pretty bare bones basic lifestyle. Maybe that’s enough for him and all the power to him.

    My feedback is please consider adding some type of buffer (padding) to your numbers on how long it takes to hit FI as it will not get you to RE. Maybe something in the 20-25% range above and beyond the current state of their expenses.

    Let’s be honest. Living on $13,440 is pretty extreme. Firecracker, you can’t even manage that. How many people can?

    1. > Living on $13,440 is pretty extreme. Firecracker, you can’t even manage that.

      I personally find this tone to be borderline “naysayer” camp. That said, I think a lot of people are unfortunately turned off by FIRE due to what I feel is missing the point. The fact that you cannot fathom living on $13,440 says nothing about others’ happiness at that level of spending. Many others are fine with that or use geographic arbitrage to live like kings at that level. And perhaps experimenting with lower spending can open windows into new possibilities for increased happiness by engaging in these new ideas ;-). May not, of course.

      > Maybe something in the 20-25% range above and beyond the current state of their expenses.

      There’s a good talk with Michael Kitces that points out the details of why the 4% rule is actually much, much closer to a worst-case scenario than an average-case one, so I’ll delegate that response here:

      Everyone can do their own planning. I happen to want a 3.5% withdrawal rate myself, so I’m closer to your camp. At the end of the day, it’s a personal choice.

    2. I agree with Greg that this is borderline naysayer. But you do make a good point about padding. The lower your income, the less fluff you have in your budget to cut if times get tough, so I think it’s better to pad that a little by working another year or maybe working part time.

      On the other hand, if his gf is on board with FIRE, she may end up contributing a good amount to the pot in a few years when she graduates from college. That would give them both a larger portfolio and more to spend.

      While I agree these exercises are overly linear, it’s tough to predict the future, so you have to do the best you can with what you’ve got. While their spending may not stay this low for 8 years, they’ve conservatively assumed no income growth and a pretty modest 6% rate of return on investments. So I think those things balance out pretty well, if not perfectly.

    3. If he’s expenses change, he would need to redo the calculations. Though, that’s true for everyone, regardless of whether your expenses are high or low. That’s why we recommend plugging your numbers into FIRECalc each year to make sure you stay on track.

      The reader cases are not meant to take into consideration everything that could ever happen in your life. It’s a baseline calculation you can use as a template to continue checking your numbers as you move toward FI.

  3. Health care needs change over time. Definitely factor in that co-pays, uncertainty in future health care costs in the US and age will change what you need. Also consider whether you will want children, want to travel or have hobbies. There are many future yous and they will have different needs.

    1. I agree with this post regarding health care costs, assuming this individual lives in America. If he can keep his income very low then he could qualify for Medicaid. Yet, if his family of 2 income is greater than $23,400 or so, (or $17, 236 for single individual) I think there is a good likelihood he would at least have to pay 8.05% of income on a healthcare plan
      ( This could require $2000 a year, or another 50k (25 * 2k, 4%) , saved for healthcare costs. If they lived abroad, it could be a different story

  4. He’s doing really well. Good job so far.
    I’m with Dave above. His cost of living is very low and it will be tough to keep it at that level. If he gets married and builds a family, he’ll have to spend more.
    All in all, I think he should keep at it and enjoy the journey. As long as he keeps saving and investing, it will work out just fine. Oh, I’d probably shoot for a million in net worth. 🙂

    1. True, his needs could change, but then he could adjust his numbers and then recalculate for the updated costs. On the plus side, his salary could also increase, and if his gf decides to work with him toward FI, that’s also added earning power.

      I don’t predict the future. I just do the math 🙂

  5. I’m sorry but this sounds wayyyy too simplistic. You’re assuming he’ll live forever on $1,120/month (+ inflation). This is a little bit silly if I may say and I completely agree with Dave above!

    1. I’m also assuming that he’ll never get a salary increase or have a partner to help pay the bills 🙂 The point is not to predict the future, the point is to provide a blueprint that he can use to adjust his numbers accordingly over time.

  6. I just don’t think he has really given us all the info. He owns a car, and with that comes a lot of expenses other than insurance (gas/maintenance/licensing/parking) and his numbers don’t mention that at all.
    Also, he mentions that he would like to travel and he would need to save more in order to do that.

    1. Have you actually travelled the world? There’s a misconception that you need a lot of money to travel the world. But in reality, travelling has actually saved us money, and for the past 4 years, it cost us less than staying at home.

      If you move to SE Asia or South America for example, you could easily live on $25K/year as a couple or 12K/year as a single person. Our reader Colby lived in South Korea, teaching English and saving 67% of his income on a 30K salary.

      1. Actually I’m from South America and I’ve been to SE Asia. I know that is cheaper than the US/Canada but I still don’t think his numbers are realistic.

  7. I appreciate the comments on extra padding, but also considering the conservative rate of return and assumption of no income growth. Also really appreciate the article because it at least gives people who are new to this a place to start!

    1. Thanks, Ngoc! I’ve actually quite conservative when calculating income because I never take into account promotions. Knowing that this reader is very enthusiastic about learning new skills, most likely he will also increase his salary over time.

  8. Yes I agree these analysis are linear and simplistic but they show what can be done. There are lots of variables that are unknown. Main point I see is that the habits of good money management are in place: save more, spend less, control debt.
    Another point is to take a hard look at the pension. Is it stable (fully funded)? State pensions have been known to get into trouble.
    Great start 27 year old investor.

    1. Agree that there will be many unknown variables in life, that’s why it’s a good idea to continuously re-evaluate your numbers on your FI journey. But yes, I agree that good money management skills are in place.

  9. Really love these reader case studies and would love to do my own, but the link to your mathshitup-inator seems to be broken – or doesn’t work for me (no links are visible to click on). Is there anyway to fix this (please and thanks!)

  10. it’s inconsistent to say you’re not predicting the future but then assume a clockwork like 6% rate of return indefinitely and think it’s even conservative. it isn’t conservative at all and shows extreme recency bias for markets.

    a planned 6% real return (net of inflation) is very optimistic.

  11. US average historical rate of return is about 7% after subtracting inflation, so a 6% return is a conservative one.

    1. that historical rate of return is on a 100% equities portfolio. if you’re 60/40 split with bonds or even 80/20, it’ll obviously be less.

  12. Since the year to reach FI is calculated solely based on the saving rate, does that mean the living standard & cost of living will vary based on your current salary level?

    Let’s say everything else equal, it takes 10 years for person A ($60k salary/year) and for person B ($150K salary/year) to reach FI. Saving rate is the same, investment portfolio is the same. When they retire, does person B technically have more leeway in terms of living style?

    I know living frugally is part of equation – but we should have an expectation that your living standard will remain more or less the same as where you are today.

  13. So…what happen’s when he want’s to start having kids? He would need to up his expenses pretty considerably to accomodate even a single child.

  14. Hi all,

    One makes the estimation based on the existing circumstances. I believe that the expense will more or less remain the same in future. This will be done via making some adjustment accordingly. This might include geo-arbitrage.


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