Many Americans today say they despair of ever being able to retire, let alone retire early. But a there’s a small and growing group of people who take a much different view.
They believe it’s not only possible to retire early, but that you can do it in your 20s or 30s.
While their “Early Retirement Extreme” (ERE) notion may seem to be coming a little late if you’re in your 40s, 50s or 60s, midlifers might want to consider their advice if the goal is to retire as soon as possible.
(MORE: Coping With Extremely Early Retirement)
Origin of 'Early Retirement Extreme'
The Early Retirement Extreme moniker comes from the title of a blog and 2010 book by one of the movement’s leading proponents, Jacob Lund Fisker. He’s a 38-year-old physicist in Chicago who “retired” five years ago at 33 with what he believes to be enough savings to last the rest of his life — even if he never works again.
“I should have called it ‘Financial Independence Extreme,’" he says. “I think ‘financial independence’ will be to the 21st century what ‘retirement’ was to the 20th century.”
Another popular “extreme retiree” goes by the name of Mr. Money Mustache, a self-described “freaky financial magician” from Longmont, Colo. named Pete (he prefers not to reveal his last name). He and his wife retired at age 30 (on “two normal salaries with no lottery winnings or Silicon Valley buyout windfalls”). He’s now 39 and his blog has more than 62 million pageviews from 5.2 million people.
How They Did It
Here’s the three-step process Fisker, Mr. Money Mustache and others recommend to pull it off:
1. Embrace a very frugal lifestyle. That means cutting back substantially on biggies like your home and car expenses as well as learning to cook (to save on dining out and prepared foods) and to do more things yourself rather than pay someone else to do them.
2. Save like crazy — ideally at least 75 percent of your income — and invest the money. Put another way, if you can live on one dollar out of four and invest the other three, you’ll save enough money to cover three years’ worth of future expenses in just one year.
(MORE: 5 Expenses to Ditch in Retirement)
3. Once your investments are sufficient to support that very frugal lifestyle for the rest of your life, consider yourself free to retire. Fisker sets the savings target at 25 to 40 times annual expenses, depending on how many years you have ahead of you.
As a longtime writer on retirement, I can tell you that I approached this idea with more than a little skepticism. But after interviewing Fisker and Mr. Money Mustache, I was struck by how level-headed both of them seemed.
Neither is the sort of finger-wagging, anti-materialist scold you might expect. Both offer their lives as examples of an alternative approach to retirement, rather than the one true path everybody else should follow.
It’s Never Too Late to Retire Early
Fisker and Mustache believe that not only isn’t it too late for those of in our 50s or beyond to contemplate early retirement strategies, but we might actually be in a better position to benefit from them than our younger counterparts.
For one thing, many of us are near our peak-earning years, giving us more income to sock away if we can. Plus, our child-rearing expenses may be largely behind us, also freeing up cash.
“The point is that mindful spending and saving can lead to a safe retirement in five to 10 years,” Fisker says. “Someone who’s 50 still has time to accumulate enough savings and retire before the traditional retirement age. For someone older, who thinks he can never retire, ERE is a path to a secure retirement in a fairly short timeframe.”
Mustache sees things similarly. “Financial independence is not an age-related concept,” he says. “It simply means your income from sources other than work is enough to pay for your lifestyle.”
The Wrong Retirement Focus
Most people wrongly focus on the income side of this equation, he says. “They want as much income as possible in retirement, to ensure the happiest possible life. What they are missing is that happiness is almost completely unrelated to how much you spend.”
Mustache maintains that with a bit of learning and reflection, almost anyone can learn to live happily on half of their take-home pay or less. That “allows savings to compound and set you free rapidly.”
Skeptical? He suggests a trial run.
“Try some experiments in your own lifestyle that cut down your costs and watch the surprising results on how happy you are,” says Mustache. You might wind up driving less, walking more, cooking more and spending more time enjoying nature rather than costly leisure activities, he adds.
Interestingly, the activities that extreme early retirees recommend for saving money bear a strong resemblance to the things many of us look forward to in retirement anyway, such as cooking, gardening, walking and biking.
Their choice to live in smaller homes and not be “owned” by possessions also fits nicely with the attitude many of us adopt as we get older (and, we hope, wiser).
What It Takes to Succeed
That’s not to say the extreme approach will work for everyone. Among the prerequisites:
- An understanding family If you have a significant other, he or she had better be on board with this new lifestyle. Otherwise, you could be in for some extreme arguments, if not a costly breakup. Both Fisker and Mustache are married, and Mustache has a young son. All seem to have gotten with the program.
- A love — not just grudging tolerance — of frugality “The mistake many make when becoming frugal,” Fisker writes in his book, “is that they don't replace their previous vision of accumulating more stuff with an equally strong vision of doing something else.” As a result, they feel deprived rather than liberated.
- Plenty of stuff to do Having meaningful activities to fill the day is key to successful retirement at any age, but it’s especially important if you retire when your peers (and perhaps spouse) are still doing the 9 to 5 thing. Mustache, for example, enjoys carpentry and is rebuilding a 1950s house to 2014 standards a few blocks from his current home. Fisker has actually taken a job since his book came out. His financial independence, he says, gives him the freedom to work or quit work and take up another activity that interests him without worrying about a paycheck.
- A do-it-yourself mentality In order to hit their savings goals, early retirees need to learn to do things for themselves that many of the rest of us pay others to do. That could mean everything from home and car (or bike) repairs to cutting your own hair.
- Good humor I mentioned to Mustache that I was struck by his upbeat attitude and asked him how important optimism is to making a go of this. “Optimism is the key to making anything work well,” he says. “Without it, people end up paralyzed and afraid to try new things, which means they can become stuck in the same rut for decades.” Optimists, he adds, can fire up themselves and the people around them. “This creates a team of people all working for the same goals and supporting each other, which is a recipe for greater accomplishment in life, and a lot more fun as well,” he says.
Hmmm… Could it be that these guys are on to something?
Greg Daugherty is a personal finance writer specializing in retirement who has written frequently for Next Avenue. He was formerly editor-in-chief at Reader’s Digest New Choices and senior editor at Money.