Latest posts by FIRECracker (see all)
- Guest Interview with Craig, Author and House Hacker Extraordinaire - October 7, 2019
- Book Review: Choose FI, Your Blueprint to Financial Independence - October 1, 2019
- Are You a Good Fit for FIRE? - September 9, 2019
Ever since our story went viral, we’ve been getting slammed with e-mails and comments saying “Yeah but you’re making a salary of $260K year! Nobody makes that.”
Okay, first of all, at our highest point (2014) before we quit, our salaries were $164K, which is $213K before tax (we live in Canada, not Denmark). And that’s after 11 whole years (including co-op) of busting our asses for our Corporate overlords, getting multiple promotions, and drowning in overtime. You don’t get that kind of salary fresh out of school or with an easy, fun degree. You have to pay your dues by crawling through the mud-filled, body-riddled trenches of engineering school, and climbing your way up the corporate ladder, 60-80 hour weeks at a time. It’s not easy nor is it fun, but boy is it worth it when you come out the other end, smelling like roses.
Anyways, enough about me, let’s talk about you.
What if you’re not in engineering, and you don’t make that kind of salary, can you still retire early?
The answer…is an astounding: HELL YES!
And here’s how:
Update: Math has been updated based on reader feedback. Thanks for the assist guys!
Let’s say you make $50K/year and there are two of you. (The key here is to have both people working. If one person is dragging the other one, you’re going to have a hell of a time rowing with half the capacity.)
That gives you a combined salary of $100,000. So after minimizing taxes with RRSPs/401Ks, TFSAs/Roth IRAs, we get $82,261.
Using the power of bad-assity to make our spending as efficient as possible, you can easily live off $40,000/year (we lived off less than this in expensive Toronto, and my buddy and fellow blogger Justin from RootOfGood.com lives off this with 3 kids). That means you can put away $42,261/year into the ol’ savings account.
But if instead of leaving it in a do-nothing savings account, you invest this amount in a portfolio of low-cost Index ETFs, with a conservative return of 6% you’ll have a cool $1.11 Million in 15 years. (And this is assuming your salary is only going up by 2% a year with ZERO promotions or raises in 15 years. Most people will get several promotions during this time) If you just graduated, that’s less than 1/3 of the number of years most people work before they retire.
|Year||Starting Balance||Annual Contribution||Return||Total|
Don’t want to wait 15 years? Well you don’t have to! Retirement for us young, passionate and (presumably) sexy Millennial Revolutionaries doesn’t mean sitting around and sipping cocktails by the pool. Hell no! We’d pursue our dreams! Maybe this means writing a novel, become a DJ, becoming the next Louis CK, whatever. We’re too creative to just sit around doing nothing. And that means you’d still be able to make money in “retirement.”
So instead of waiting 15 years, you can stop working in 9 years (same as us!) after you hit half a million. This gives you a sweet passive income of $20,000/year. By working on something you’re passionate about, and making only $10,000/year each (not insurmountable in any of those creative pursuits I just mentioned), you’ll be able to quit your 9 to 5 and do what you love in just 9 years.
|Year||Starting Balance||Annual Contribution||Return||Total|
Most of us don’t want to sit around doing nothing after leaving the 9 to 5 anyway, so having a goal of making just $10,000/year each is very doable.
Hell, with all the time in the world to build things, you might even find that you’ll make MORE money in retirement than when you were working! Don’t believe me? Check out these hustlers, who managed to do just that:
I know people in my field making even more than we did ($150K/year each) but can’t manage to save even 10%. So by making only 33% of what they make, you can still kick their ass and coast to retirement 36 years earlier just by optimizing your spending, Hey, if I can travel the world on $40,000/year, and other people can raise 3 kids on it, you can live off $40,000/year.
And keep in mind that your cost of living drops drastically once you stop working. You no longer have to pay for daily transportation, gym, dry cleaning, professional wardrobe, eating out, day care, etc, etc. So if you were living on 40K when you were working, you won’t even need that much once you quit. People have no idea how much they are actually PAYING to work (but that’s an article for another day).
But what if your salary is even lower? What if your family income is $65,000/year and living off $28,000/year (like one of our readers).
After taxes, that’s around $55.2K/year. But with a spending of only $28,000, this gives us a savings rate of 49%! Nice! By putting away $27,200/year, this couple can retire in 15 years.
But wait! What if they were to work part time, and make $10K/year each after retiring from the 9 to 5? This reader said he wants to pursue music and his wife wants to be a writer, and while it may take a while to get their income up to this level it’s, again, not THAT crazy. This brings down their time to retirement to only 6 years! (WAY faster than us!).
And I can already hear the Internet Retirement Police firing up their keyboards, saying that this doesn’t count as retirement. So let’s be crystal clear: Retirement means “retiring from the 9 to 5”. It means no longer having to do a job you hate just for money. You can step it down to part-time, or choose to do something you are passionate about, but never paid enough to fully support you. The portfolio gives you supplemental income so you can make these kinds of choices.
Retirement doesn’t mean doing nothing. Retirement means FREEDOM.
So even if you don’t have a 6-figure salary, as long as you understand how money works and how saving and investing can allow you live your dreams, you can STILL kick ass and retire from the 9 to 5, 30-40 years earlier than everyone else!
The real secret to early retirement is that savings rate matters more than salary. A higher savings rate means you need less to live on, which also means you need a smaller portfolio to quit. Win-freaking-win!
And just because you make more money doesn’t mean you’ll be able to retire earlier. If you look at my 6-figure friend, who saves only 10%, his time to retirement is 50 years! A higher salary makes it easier to save more but that doesn’t always happen. In fact, if you don’t understand the retirement math, higher salaries just lead to higher spending. (*cough* houses *cough* purses)
So, don’t get discouraged just because you don’t have a 6-figure salary. With a few adjustments to your spending, and a plan to make just a measly $10k/year each after quitting your 9 to 5 (which you will probably do anyway, because sitting on a beach every day is boring), you can retire from the nine-to-five in just 5-10 years.
Don’t let anyone tell you you can’t become financially independent just because you have a small salary. Growing up poor, if I had believed every bully who told me I was never going to be rich I wouldn’t be where I am today. And even though they grew up with more money than me, I am now richer than them. I came out ahead because I refused to let them tell me what I couldn’t do.
And you shouldn’t either. If you make less but keep more, you are WAY ahead of people who make 6 figures and piss it all away. And while they’re stuck in their job for the next 50 years, you’ll be free in just 5-10 years, doing what you love. Who’s going to be laughing then?
I’m going to leave you with one of my favorite quotes:
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