I was perusing a large, respected consumer finance website when I saw one of “those” headlines. The ones that grab your attention and make you do a double take. This one was entitled “Early Retirement Without a Fortune.” The introductory paragraph went on to say that it’s “not as hard as it looks.” This grabbed my attention, because I’ve always believed early retirement was indeed a challenge for most people not blessed with large inheritances or very high income. What did these people know that I didn’t? I plowed into the reading.
The article profiled a number of people who had quit work well before their sixties. And none of them had struck it rich as investors or entrepreneurs, nor had they hit the lottery or inherited millions. How had they managed to retire in their fifties, forties, and even earlier? It’s instructive to look at two examples of the people that were profiled.
Contestant #1 is age 62, and retired at 49. He and his wife live on $50K/year, deriving $17K of that from Social Security, and the other $33K from their investment portfolio. Only the value of the investment portfolio is just $350,000, meaning they are withdrawing at a rate of more than 9% per year. At that rate, they will likely run out of money before they run out of life expectancy. It looks even worse when you add healthcare to the mix:
One of the big unaddressed issues in many retirement plans is the rising cost of healthcare as we age. A study by The Center for Retirement Research at Boston College estimates that a pair of married 65-year-olds should expect to spend $197,000 in uninsured healthcare costs over the rest of their lives. And that’s not including the costs of a potential stay in a nursing home. So this couple did retire early without a fortune…but also without much long-term financial security.
Contestant #2 “retired” at the unbelievable age of 33. He probably lived with his parents. The article doesn’t actually say that. But it did say that he managed to save 80% of his take home pay each month while he worked. How does one do that while living independently?
Then he quit working, and managed to live on just $7,000 per year, spending $1,000 on hobbies, and the rest on basic living costs. That’s just $500 per month for food, housing, clothing, transportation, utilities, medical expenses…. It sounds like the parental basement to me. Oh, and his exit from the workforce lasted just four years, after which he got a job. That’s not early retirement; it’s a sabbatical or just extended unemployment.
The best description of most people’s goal that I have ever heard is this: having enough money to retire comfortably, and to stay comfortably retired. That’s doing it right. Retiring early is a great goal, but it’s not as desirable as retiring right.