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Is It REALLY Possible for the “Average Person” to Retire Early?

by Robert G. Yetman, Jr.

When we read stories about average people who do extraordinary things in the realm of personal finance…like paying down a mountain of debt in a handful of years…we, understandably, tend to question the veracity of such claims. The stories are often accompanied by photos of the principals, and they all look great: happy, healthy, often young…and without a trace of having gone through any of the hardship associated with what it takes to accomplish such amazing feats.

As I said, we often read these kinds of stories in conjunction with the issue of paying down debt, but we will also see them now in relation to retiring well before typical retirement age…65, 70, whatever. In fact, you don’t have to look around very hard to find a growing body of articles that discuss the subject of retiring in one’s 30’s. Part of what makes the articles so interesting…just as with the articles on paying down huge sums of debt in short order…is how relatively stress-free the process seems to be for so many engaging in it.

So, what’s going on here, and is it really possible to retire decades earlier than your peers?

The answer is “yes, it is possible,” but an important caveat is that you pretty much have to have decided that such is your goal almost as soon as you begin life as a working adult. The reason is that between what you have to set aside, and the lifestyle choices you make to accommodate what you need to set aside, you really have no choice but to embark on this path as early as possible. The reason comes back to math, as so much in life seems to; math, conjoined with reality, prevents an average person making a typical salary for his profession from beginning this journey at, say, age 30, in order to be financially independent by age 40. It is simply not possible.

The underlying issue seems to be, what it takes to accumulate $1 million in savings at an age appreciably younger than 65. Looking at the issue broadly, it comes down to this: having the ability to set aside at least 30 percent of your income for a little more than a couple of decades. If you can do this, you should no longer be “job-dependent” at that time, assuming you are also willing to live a financially-prudent lifestyle.

Here is an illustration: Let’s say that your average salary over the course of your working life is $60,000 per year. Taking into account the realities that, as an average, what you can set aside, in dollars, will likely be lower towards the beginning of your working life and higher at the end, we can assume you will be able to put away $1500 per month as a function of your 30 percent savings effort. Do that for 23 years in a diversified portfolio of investments that generates an average annual return of seven percent, and you will have your $1 million in savings.

Now, depending on how you choose to live, that should be enough to sustain you, but what it also does is provide you with greater flexibility to live a life that is somewhere in between having a daily, rigid employee obligation and needing to generate no additional income whatsoever. For example, if you would like to live a little better than what your $1 million in savings can provide, a part-time, work-from-home opportunity could be a perfect fit for you.

Setting aside a minimum of 30 percent of your gross income is the key here, and the more you earn, the better this works – living on just 70 percent of your income is a lot easier if you make $100,000 per year, compared to if you bring in $40,000 per year. On that note, you cannot realistically expect to succeed at this if you are content to exist at the bottom of the career food chain for the duration of your working life.

The lessons here are not just for the benefit of the very young who, beginning this effort at that age, actually have a shot of no longer needing to work by age 40; they also apply to that person of more advanced years who nevertheless seeks to be unburdened by work obligations sooner, rather than later. Admittedly, it can be more challenging, initially, for that person to reconfigure his life in a way that allows him to set aside his 30 percent, but, when it comes right down to it, much of that has to do with a willingness to make the necessary choices, rather than a genuine inability to do so.

The point here is that if you are willing to live in a way that allows you to set aside 30 percent of what you earn into your retirement savings (if that’s what you call it), and you can do so for a little over 20 years, you will, thereafter, enjoy financial freedom of a kind that you were otherwise not destined to realize.

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