“Hey man, it is all well and good that you guys lived like paupers for a decade, but you have to admit… that was totally unsustainable!”
The popular corollary to this statement is, “I don’t want to live like I’m poor forever. I want to live a little.”
If I had a dollar for every time I’ve heard this line of reasoning, I could probably afford to retire, or something.
Or maybe the correct pronoun is they.
Saving 50%+ of Income
I can definitely appreciate the sentiment… I too don’t want to live like I’m poor forever.
Which is precisely why we exercised the choice of saving a high percentage of income early in our lives. Saving 10% of income, it takes a decade to save enough to fund even one year without work. But save 50% of income and you reach that milestone in just one year. Repeat for 15 years (plus or minus) and work becomes optional.
The idea isn’t new… in the 1950s it was common advice to save one salary and live off the other. Yet, imagining living off only 50% of income, and then expecting to live that lifestyle FOREVER is disconcerting to many.
“So you want me to live like I’m poor for the next 15 years, just so I can live like I’m poor for the rest of my life? NO THANKS!”
Rightfully so… but work 16 years maybe?
One More Year
The idea of working One More Year is frustrating to many aspiring early retirees. But it’s better than working 40 more years, is it not?
Previously I explored how long it takes to become Financially Independent over the course of modern history. For visual thinkers I borrowed the following chart from that earlier work. What it shows (roughly) is that saving 50% of salary for 15 years +/- leads to assets worth 25x annual cost of living (aka the 4% Rule.) Faster, if you grow income faster than inflation and eschew lifestyle inflation.
An additional 3 and 5 years of work, on average, are required to reach 33x and 50x, respectively. (3% and 2% withdrawal rates.)
Increasing assets to 33x current cost of living is the same as increasing purchasing power by 1/3 at the same risk (again, 4% rule.) If assets increase to 50x cost of living, spending can DOUBLE!
Doubling outlay sure doesn’t sound like being poor forever…
Case In Point
When we were working for the man we were spending about $20k/year.
Our first full year of “early retirement” cost about $40k.
Last year (our 4th full year without a paycheck) was the most expensive year of our entire lives. This year will be even higher.
We doubled our expenditures, and then doubled them again. How does that even make sense?
Simple: I worked 3 full years longer than necessary, and we were saving much more than 50% of income. As planned, we have yet to come close to spending as much as the 4% Rule allows.
By “living like we were poor” (a phrase of privilege if there ever was one) we were able to put as many dollars to work as possible, as early as possible. Compound interest did the rest.
There is no competition to see who retires the youngest, and no bonus prizes at the finish line. In a typical life time, a year or two of hard work and intense savings isn’t a large time percentage, but it can make a substantial difference in terms of “rich” or “poor.”
Where time does play a factor is in the “when.” Saving early is substantially more powerful than saving late. A dollar saved in your 20s will grow more than a dollar saved in your 50s.
Early and intensive saving provides options. The only thing that is truly unsustainable or leads to a “poor” life, is not saving at all.
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