Retire at 40 (I hope)

Posted on by in General, Guest Posts, Opinion, Saving Money & Finances

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Credit: http://www.flickr.com/photos/pgoyette/This is a guest post by Eric.  He has a finance degree from the University of Colorado and an MBA from the University of Denver.  He is a financial analyst at a large, public company.  He blogs about personal finance at Narrow Bridge.

I am a pretty young guy.  At 25, I am only a few years into my career.  I have begun moving toward finding my dream job, and I earn enough to live comfortably as a single 25 year old.  I am doing all of the “right things,” of course.  I am putting about 12% of my gross income into a combination of a 401(k), Roth IRA, and investment accounts.  However, I have begun to realize that saving 12% of my pay will not get me to my real goal, being able to retire at 40.

When I say retire at 40, I don’t mean quit working.  I think of retirement as the freedom of being able to quit working.  I hope by that age I have either a dream job that I love or a company of my own.  Rather than simply quit, I want to be able to quit whenever I like without any worry of finding a job for the rest of my life.  I want to work, but only if I feel like it.  I want the mental freedom of retirement without the boredom that some people find when the leave their jobs.

I decided to do a little number crunching to find out what I need to “retire” the way I want.  I picked the arbitrary number of $200,000 per year as a comfortable living point.  At $200,000 per year, I can do any traveling I want and afford a home that I will be happy with.  So the question is, how do I put away the $4,000,000 I need to live on the interest alone at $200,000 per year (I estimated about 5% interest per year to be conservative).  How do I put away $266,667 per year for the next 15 years when I don’t even make $100,000 per year?

My story is not about conquering thousands of dollars in credit card debt (I’ve never had thousands in credit card debt).  It is not about overcoming all odds.  I have managed to pay all but $12,000 of a $90,000 MBA while in school, but I believe anyone can do that if they work hard.  My story is the part that is not yet written.

Like many of you, I am often perplexed by the idea of saving enough to retire early.  I don’t even know how I could afford a house as nice as the one I lived in growing up, let alone retire at 40.  So now, I am trying to figure out how to make more money and save more money.

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I have several ideas for what to do.  Some of them are from great books and blogs.  Some of them are my own.

To start, I need to get a promotion or a raise.  I had a raise of more than 10% when I switched jobs in November.  I have to keep going on that track to reach my goal.  When I find my next job, I plan to find one at the next level up on the pay scale.  Even in a bad economy, there is no reason a smart, hard worker cannot find a good job.  I know many people who have done well during this recession, and it is entirely possible for each of us to find success regardless of economic conditions.

I have also found that simply living a frugal lifestyle will not be enough.  While living a thrifty lifestyle is a goal, budgeting to get rich is like exercising to lose weight.  It makes a difference, but it will not get you there alone.

As I build up my wealth by saving my extra income, rather than adjusting my lifestyle, I plan to find a way to start my own business.  As the famous quote goes, “why should we work hard for someone else to take all of the profits?”  In almost every success story I have read, the successful person got there by starting their own company and working at it until he or she became a success.  While that is a highly simplified version, I am working out a plan to start my own small business and grow it into a large business.  I am taking bit of many strategies, including the “muse” proposed by Tim Ferris, to make it big.  Ultimately, I hope to be the employer with a lot of workers doing everything they can to make me profits.

Because it has not happened yet, this story is not written in permanent ink.  It is just an outline for my plan to retire at 40, using my own definition.  Everyone needs their own goals, and an action plan, to live a successful life.  After all, what is the point of being an expert in personal finance if we don’t take the steps needed to turn our ideas into actions?

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22 Responses to “Retire at 40 (I hope)”

  1. krantcents

    17. Feb, 2011

    I retired when I was 38! The way I achieved this dream was investing in income property. There is no easy way to achieve this goal, but there are many ways to get there. It takes a great deal of work, time and insight. Let’s face it, everyone wants financial freedom!
    krantcents recently posted..2011 College Class- Bigger PaychecksMy Profile

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  2. JT McGee

    17. Feb, 2011

    You might want to replace those links…they go to Google docs :P

    All these “I want to retire with this much income” posts drive me nuts…mostly because I live in probably one of the most affordable places in the US: the midwest. Seriously, $200k in retirement income could have me living like a king, despite Indiana’s hellacious tax policies.
    JT McGee recently posted..Are you a Knowledge WorkerMy Profile

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  3. Yakezie

    20. Feb, 2011

    I wholeheartedly believe you can do it mate! Once you set a focused goal, you can surely achieve.
    Yakezie recently posted..You Might Be A Blogging Addict If ……My Profile

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  4. Jeff @ Sustainable Life Blog

    21. Feb, 2011

    Nice work erik. Switching to a new job is always a good way for getting a raise. I think that you’re right that putting away more than double your salary is difficult, but you’ve got to suck it up and step up your side income. I think that 200k per year would be more than enough to live like a king where I live – it could buy a house on its own and still have 50% left over.
    Jeff @ Sustainable Life Blog recently posted..High Cost of Being a Moron- Round 2My Profile

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    • Forest

      21. Feb, 2011

      Hey Jeff, thanks for the comment. $200k is my goal too. Nice life, nice savings and plenty to help others out too :)

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    • Eric

      25. Feb, 2011

      I wish I could get a house here for $200k! I have been looking at tiny condos and duplexes in Denver that are well over that.
      Eric recently posted..Guest Post- Cheap Shoes Spendy ShoesMy Profile

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  5. retirebyforty

    24. Feb, 2011

    Good luck Eric! ;)
    My goal is more modest at around 60k/year.
    retirebyforty recently posted..January 2011 Credit Card BillMy Profile

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  6. Ken K

    25. Feb, 2011

    I am stunned by people who actually believe they need 200k a year to retire. It is completely completely unnecessary and rediculous. Instead of praying you will save 4 million by 40, try to look at things from a realistic perspective. I can live in the Carribbean for $1000 a month. Think about that for a minute. That includes rent, utilities, food, drink and medical.

    Time to rethink what is truly possible.

    Ken

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    • Forest

      25. Feb, 2011

      Hey Ken, sure, you don’t need anywhere near that to live well in some places and although I stated $200k would be nice I imagine I would retire happily on a fraction of that.

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    • Eric

      25. Feb, 2011

      I could live at less than $200,000 per year, but I don’t want to. I don’t want to live in the Caribbean on $1,000 per month. I understand how that is appealing for some people, but I want to jet around the world and stay at lavish resorts and downtown hotels. I can’t do that on $60,000 a year and still live comfortably the rest of the year.
      Eric recently posted..Guest Post- Cheap Shoes Spendy ShoesMy Profile

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  7. Amanda L Grossman

    04. Mar, 2011

    Wow–that is gutsy to put out there–retiring at 40. I hope you are able to realize your dream!

    One thing that bothers me about others profiting at my work: I am an environmental investigator, and I bring in hundreds of thousands of dollars to our state in the form of penalties that I find in my investigations. I don’t see a single dime of it! I understand the need to keep it separate from our merit raises, as it could lead to a sort of witch hunt of industry, but it is a downer none the less.
    Amanda L Grossman recently posted..Different Paths Leading to the Same Place- Your Saving AccountMy Profile

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    • Forest

      07. Mar, 2011

      Hey Amanda, it’s always hard realising how much money you are making for others!

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  8. William Digerati

    05. Mar, 2011

    …”I want to jet around the world and stay at lavish resorts and downtown hotels” -Eric

    Eric, do you know what your problem is? “Greed”

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