How we achieved financial independence and retired early

Maybe not financially, but they’re independent too…

My wife and I achieved financial independence in our early 50s.  We retired soon thereafter.  That is early in conventional terms, but it pales in comparison to what quite a few others have achieved.  Some folks have left their jobs as early as their 20s and 30s – achieving so called “extreme early retirement”, or ERE.

So our story is by no means extraordinary.  I believe that financial independence and early retirement are within reach of many people.  And I hope that this blog will help and inspire readers who are interested in achieving their financial goals.  Here’s how we achieved ours.

our Journey to financial independence

Our path towards financial independence and early retirement began sometime back in 2002 – more accidentally than anything else.  My wife and I had always tried to live below our means and build up a financial cushion – in case of unexpected hardship such as a job loss.  But that was generally the only role our savings played for us at that time.

Taking a look at our finances one day back then I suddenly realized that we could live quite a long time on just our savings alone – something like 20 years or so.  That wasn’t long enough to be able to retire, but it started me thinking.  I slowly became intrigued by the idea of financial independence, early retirement, and gaining more control over my own time.  So what kind of nest egg would we need to build to retire at various milestones?  How much for 45, 50, 60, etc.?  At our current spending and savings rate, what would be the earliest possible date?

I built a spreadsheet, ran the various scenarios, and began tracking our progress regularly – some would say obsessively!  I didn’t really have a hard and fast age or date in mind.  The idea was just to get to financial independence as soon as possible, and then have more options and flexibility in life.

We ended up reaching FI sometime in early 2015, and about a year later we took the plunge into living without a paying job!

That was eight months ago.

So how did we get here?  What worked? What were the challenges? Has early retirement lived up to expectations so far?  Those are just some of the questions I’d like to explore further in this blog.

Secrets to Success

As you can probably tell, there was no special strategy, no unique set of skills, nor some other secret sauce that enabled us to get there.

We did it by saving and investing in a reasonably disciplined manner over many years.  Still, a couple of things stand out in my mind:

First, we always tried to live off of one salary and bank the other one.  For example, we never took a mortgage that we couldn’t afford on just one of our incomes.  Of course, it helped that we both had well paying jobs over our careers, but often times people have the tendency to buy as much house as they qualify for.

Second, we kept life style inflation well below our income growth.  Yes, we spent more as our salaries grew, but the majority of our pay increases went to savings.

Could we have retired earlier?

Sure we could have.  So why didn’t we?  For this purpose, let’s leave other qualitative factors aside for now (e.g., I love my job, I wouldn’t know what to do with myself, I’m afraid what the neighbors might think, etc.).  Let’s just assume you want to retire as soon as you reach financial independence (i.e., passive income >= spending), or as soon as your planned portfolio withdrawal rate gets low enough for your risk tolerance.

Therefore, focusing purely on the numbers for the purposes of this post, it seems there are three main factors one needs to consider:

  1. How much of my current and future income am I willing to save in order to reach financial independence?  In other words, how much of a sacrifice am I willing to make now to achieve an earlier retirement later.
  2. What spending level am I comfortable with in retirement?  Obviously, the less I plan to spend when retired, everything else being equal, the earlier I can retire.
  3. What withdrawal rate am I comfortable with once I retire and begin to draw down my nest egg?  Am I OK with the 4% rule, or am I more comfortable with a higher or lower number.  The answer will depend on my risk tolerance.
Our Path to early retirement

Here’s how we answered the above questions to best fit our needs:

  1. We were looking for a balance between living for the present and living for the future.  We were willing to save a high percentage of our incomes.  However, we we still wanted to enjoy life in the here and now.  After all, that is all we really have.  Everyone has to find that unique, personal balance that maximizes his or her own overall happiness.
  2. We wanted to be able to live the same life style in retirement as we did before retirement.  At least that is what I needed to ensure to convince my wife that early retirement was a good idea! 🙂
  3. Our answer was 3%.  Again, this is just for us personally.  Some are comfortable with 4% or higher, and some wouldn’t take the plunge unless they can get down to 2%.  This is an individual choice.  Given our potentially long retirement horizon, we felt like we should be more conservative.  I do plan to write a future post diving a bit deeper into the (in)famous 4% rule.

Different answers to the questions above can either accelerate your path to retirement, or push the date a little further out.  The answers we chose worked well for us, but they are not necessarily the best answers for everyone.

Which answers work(ed) best for you?

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