How Can I Retire Early?

If I told you you didn’t have to wait until you’re old and crusty to retire, would you believe me? Humor me for a few minutes, will you?

Retire early? Is that even legal? Just barely, but yes. And you don’t have to be a genius to do it.

So, how does one acquire such fantasies? Well, they aren’t fantasies at all. The Dollar Debrief will help you determine how much money you need and how to get it.

But before we dive into the math behind early retirement, let's address some underlying assumptions about retirement.

Why Retirement Norms Suck

When I say “retirement,” what’s the first thing you think of? Back in the day, I would’ve told you a 60-something-year-old geezer that quit their job of 40 years and now finds joy in contributing to the traffic problem in my beloved home state of Florida. They’ll live out their retirement years senile and smelly, counting down the days until they die. Like this chick:

Sounds appealing, right?

You may associate retirement with something similar: an age-based benchmark that’s only earned after a long and hard career. But why do we associate retirement with our 60s? That’s thanks to Social Security and pensions. Thankfully, there are ways to retire before 65.

If this picture of retirement doesn’t exactly strike your fancy, you aren’t alone. Let’s throw conventional wisdom out the window when determining when you are “allowed” to retire.

A Better Option

So, what’s the alternative to traditional retirement norms? If retirement is not age-related, what is it based on? Retirement is actually based on a dollar value tied to your expected yearly expenses in retirement.

The alternative to traditional retirement is known as Financial Independence, or FI. FI describes the point when your monthly passive income from your investments meets or exceeds your desired monthly living expenses.

It means that earning income through employment is now optional for you. FI grants you the freedom to live your desired lifestyle without financial needs driving your decisions. FIRE, Financial Independence Retire Early, is a response to FI for those who are ready to kiss the workforce goodbye. And to be clear, we’re considering retiring “early” to be anytime before your 60s.

The natural conclusion you might be making while reading this is that you should retire when you achieve FI, but this isn’t a requirement. Your response to FI will depend on your personal goals. Some people substitute “retire” with “relax” as they continue working on their own terms before fully retiring.

Passive Income

So… the heck is passive income? Passive income is income that requires little effort to earn and maintain. It means making money even when you aren’t actively working. Unless someone is saving on your behalf (hmu if you know somebody), building passive income streams to cover your expenses is how you retire.

One thing to understand about passive income is that it is rarely completely passive. Just about every passive income stream requires some level of attention, even if it involves simply checking in on them periodically to ensure everything is functioning as intended.

Building passive income requires you to spend either your time or your money (or both) up front.

Examples of passive income earned through time spent include creating and monetizing a digital product, writing an eBook, or developing a course. More common is earning passive income through investing your money in assets such as stocks, bonds, rental properties, and much more. Regardless of which route you go, I recommend funneling all earned passive income into assets like stocks and real estate.

Let’s look at an example of how this all plays out in reality. 

Say you want to spend $4,000 a month in retirement. If you build an investment portfolio that produces at least $4,000 a month in passive income for the rest of your life, or you can safely withdraw $4,000 a month without your money running out before you croak, then boom, you’re financially independent. This can look like $1,000 in net monthly rental income plus $3,000 a month through index funds, the opposite, or any other combination of assets and dollar amounts. While this is a slight oversimplification of what the path toward FI looks like, you get the gist. And the goal is realistic and attainable.

Easy enough, right? Just get rich and quit work! Well, not exactly. This pursuit doesn’t come without sacrifice. Early retirement is made possible through a few key things:

1. Impulse control

2. Prioritization

3. Long-term thinking

To gain control over your money, you need the ability and willingness to say no. Not to every purchase, but to things that a) don’t ultimately matter to you or b) are outside of your means to purchase without digging yourself a financial grave. While that sick new Bored Ape NFT may seem like a steal at $693k, exercise some patience before pulling the trigger to prevent yourself from doing something unhinged.

You’ll need to find your appropriate balance between applying your money toward reclaiming your time vs. buying things and experiences. Neither option is always better than the other; there are certain things worth spending the money on at the expense of buying your time back and vice versa. The “right” choice on how to spend your money is situational and depends on your priorities.

Lastly, you’ll need to be able to think of the big picture. Your progress toward FI won’t be linear and perfectly predictable. Especially if you invest in the stock market, it’ll probably look more like this:

But if you can ignore the day-to-day volatility and focus on long-term success without derailing your finances with sporadic decisions, you’ll find success.

You may find yourself with more questions than when we started, and that’s ok. What should I invest in? Exactly how much money do I need to be financially independent? What are the odds that I run out of money? Who’s this random dude lecturing me about money? All good questions, and all of which will be settled in future newsletters.

Call to Action:

Envision what your ideal retirement looks like. Will your current financial trajectory get you there? If not, brainstorm what changes you can make to get there.

What We’re Reading/Listening To:

The Simple Path to Wealth. JL Collins’ book is one of the foundational resources for financial independence. Regardless of your financial background, this book will help you understand the basics and make wise money moves.

Debrief on Deck:

Next week, Wilson will begin our dive into stock market investing, discussing how to invest in the stock market.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (Twitter and Instagram).

Until next time, stay the course.

Disclaimer