How to retire in 10 years | Hacker News Reader

How to retire in 10 years

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41 pointsrachbelaid55 comments

Looks like we're having the same discussion as we had a few days ago [1], with all the same irrational dismissals. I might as well go ahead and grab the top comment again...

It's unfortunate that the author uses the term "retire" in this context, since that seems to be the thing people pick up on when deciding that this is all totally impossible and made up and won't work anymore and so forth.

Instead, how about we come up with a better word for "hitting a point where you never ever have to save even a single dollar ever again". That is, after you've socked away a certain amount, you can stop actively saving and the market will take care of your retirement planning from there on out.

So sure, you can stop working at that point and scrimp along. But you can also take a silly bartending job on the beach and spend every last penny you bring in. Or you can go do a crazy startup and know that nobody will take away your house if you blow it. That's a pretty nice place to be.

So yes, we're agreed that it doesn't mean you get to buy a tropical island and pay your servants for the next sixty years. It just means that you're now officially free to coast.

I'd highly recommend getting yourself to that spot. Life's pretty nice thereafter.

[1] https://news.ycombinator.com/item?id=5616143

I'm not sure if it's any better, but the standard term for what you're describing is "having FU money", the state of being able to say "FU" to your boss. You can and probably will keep working, but it's on your own terms.

What I find so astonishing about the response from the people here to the two recent articles about MMM is that they think that this is advocating a life of poverty. I assume that a large number of people frequenting this board are in the top 10% of income earners, there isn't any reason someone making around 150k or higher can't live off 40-50% of their income.

We (my wife and I) were able to live off 30% of our post-tax income, not because we wanted to live in poverty, but because we made a lot of money. We did live frugally, drove older cars, ate out only 1-2 times per week, cut cable and replaced with hulu+netflix, and bought a small house. However, I also bought a new phone essentially every year, a new laptop every 1.5 years, and took nice vacations.

The key here I think, was avoiding "lifestyle inflation" when we got raises and things like that. That extra money went straight into savings. We don't even follow a budget, we just save "a bunch" and then live off what is left, if the bank account is still increasing in size after that, we save more. We save most when we feel like at the end of the month the bank account our checks go into will be close to zero, this scarcity prevents us from spending too much.

If you work in tech and your spouse works, it isn't a far stretch to say many here are making over 150k/year. At 150k, say 30% for taxes and say you start living today off 45% of your post-tax saving, that give you 47k (after tax dollars) to live off of (and a savings rate of 57k/year). If you can manage this, you can retire in 20 years.

Median household income in the US is 50k (pre-tax), so I find it hard to believe that you can't get by quite nicely on 47k post tax. True, in many places the cost of living is higher, but you're probably earning more than 150k in those areas anyway.

Saving like this isn't going to work for everyone, but if you're making a lot per year, you should be able to swing living like a "median" American for a few years to boost your savings.

EDIT: I thought I'd also mention that you don't need to wait until you retire to enjoy life either. My wife and I quit our jobs last year to travel for 8 months through South America and Europe. That isn't such a scary prospect when you're able to save large portions of your income to help fund the travel and a sizable cushion for returning home.

I think the author nails the key flaw for me - what experiences are you going to miss out on by living so frugally? Would I have gone travelling round the world had I'd been worried about saving 70% of my income? Or risked it on a new startup idea? Probably not. And by retiring so early surely you're condemning yourself to a life of careful spending so you don't run out of cash? No thanks.

It's worth avoiding unnecessary indulgence and everyone should probably save more but I personally feel a better strategy is to find a happy work/life balance and try and set some passive income streams up so you can at least relax earlier if not entirely retire.

When people talk about retiring early, "retiring" usually doesn't mean the same as when you talk about it in the traditional context (ie. sitting on the porch all day). I can't speak for others, but for me this kind of article is about establishing enough financial security to not have to work every day if I don't want to. Not necessarily quitting my job just because I can, but knowing that I could without significantly affecting my quality of life.

Yeah, the capitalist part or definition of freedom. The freedom to chose is vital. Think back to all those articles posted about silly insane interview, bad employers, etc. If you are financially independent, you can simply walk. You can choose. You are free.

I often wonder is this is partly what goes on in the UK with our welfare state. We have, or once had, that freedom to chose because we could rely on a base level safety blanket.

The goal for me is to not to have to worry too much about money - build up assets (saving, investments) at a sensible rate and enjoy life. The most utterly miserable people I've known personally either had no money (and therefore had to spend a lot of time worrying about it) or actually had plenty money but spent all of the time worrying about spending anything at all and therefore made themselves equally as miserable as people who actually had no money.

Aim to maximise happiness, after all "you're a long time dead".

> Notice that I can retire by age 33 if I live on 30% of my earnings.

...and continue to live within that same 30% means for the rest of your life. Most people scrimp and save so they can "live the good life" later on. This is scrimping and saving for the purpose of... more scrimping and saving. Find it a bit odd.

This is an interesting point ... and I'm not sure the author of the original post understood it to this level. Mister Money Mustache's actual words are: "take your annual spending, and multiply it by somewhere between 20 and 50" (as a basis for a savings target)

The key there is "annual spending". One might naively assume that the author is still aiming for the 25x savings amount based on his annual spending prior to deciding on this "retire at 39" plan. I know I sure as hell did at first.

However, I see no way to do that based on the Savings Rate vs. Working Years Until Retirement chart that's presented in the post. The last line item "Savings Rate: 100%, Years: Zero" can only work if you're doing what derefr points out: continuing to live at that same spending rate for the remaining years of your life.

Only by saving 100% (and thus spending 0%) could you retire instantly at any time, since you have no costs - so it wouldn't matter how much you saved.

This doesn't mean the article is invalid. The author may truly understand how much of a permanent life change is involved. The trial run at 1 year may be an attempt to see how well he could live the rest of his life at a spending rate close to 1/3rd what he's accustom to. ... But reading it more and more, I'm not sure that's the case.

Is it not stranger to scrimp now for an entirely theoretical future?

Yes. I would say that the truly "pragmatic" among us today are those who live the good life by leveraging long-term debt (mortgages, student loans, etc.), pay only the interest, then, in the fullness of time, default by dying of old age.

Since the rich can easily pay down these debts, and the poor can easily carry them until death and when they then "evaporate", the US basically has a strange, Corporatist version of a basic income already--as long as your credit is good.

Being someone who mostly spends what he has (with expenses rising steeply when a lot of cash comes in; most probably because of deferring purchases until there is a certain surplus), I have found that setting up a dedicated bank account for daily expenses really helps. If you have 1k in the bank, you act differently than when your balance says 10k. I think in the US it's a bit different (with CC spending much higher), but setting up any budget should help cutting down useless luxury or impulse buying. I'd not call myself frugal (e.g. I have no budget for food), but I definitely want to save up, at least for unexpected journeys or other awesome experiences. Good thoughts in the article about that!

About retiring: I'd never consider retiring in 20 years if I'm not forced to do so. Whenever I'm fully idle more than 3 days, I'm drawn back to creating something. Retirees around me have to fill up their days with boring or unjoyful stuff, because there's only so many crosswords and trips to the spa/whatever you can do every day. If by retiring, the OP means "do whatever you want without worrying about the money" - that's not retiring for me, but the result of gaining enough funds to do whatever you want.

The blogger referred to in this article, Mr. Money Mustache, adresses this interpretation of the word "retired". (In this case we are unfortunately down to arguing semantics). If you take "retired" to imply "don't have to work on anything for the sake of making money ever again" rather than go to the spa every day, it sounds like your goals are more or less in line with the goals of this article.

http://www.mrmoneymustache.com/2013/02/13/mr-money-mustache-...

This is something I see a lot in people who don't have a very creative nature (unlike yourself obviously). A lot of people appear to need someone telling them what to do all day, or they'll just stare at the wall all day and be miserable. I imagine for these people, financial independence could be a curse rather than a blessing. But assuming you are able to come up with rewarding ways to spend your time, I can't really imagine an existence that is more rewarding than being able to spend your effort and creative energy on whatever you want.

Thanks for the clarification! In this case, I'm ok with retiring tomorrow :)

I do the same. I have an account for everyday expenses during the month, and then another for long term expenses. It is a major pain to transfer money between the two. Electronic means takes 5 business days. Wires take 3 hours [if it is at the first of the day]

Wow. In the EU wire takes 0-1 days, but often in a matter of minutes.

I don't disagree with the author's logic in calculating the different variables about when he can retire. My issue is that retirement in general shouldn't be held out to be some kind of promised land.

There have been plenty of detailed studies carried out recently (one about Shell workers here http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1273451/) that demonstrate how the life expectancy of a retiree drops the earlier they reitre.

I am all for frugality and am currently saving roughly 50% of my take home pay but a significant portion of that goes into my 'outlandish expenses fund' which is spent on travelling, living well etc during different periods of my life. What is the point of scrimping if you're going to spend your retirement years living like a bored domestic house husband/wife?

I'm lucky that I work at a job I love and would not know what to do if I retired. As informative as this article was, I think the overall focus is misplaced as retirement in my book equates to a life of mediocrity and boredom.

"There have been plenty of detailed studies carried out recently... that demonstrate how the life expectancy of a retiree drops the earlier they reitre."

The main finding of the study you link to seems to be that early retirement doesn't increase life expectancy, as some have previously assumed.

It did find that "employees who retired at 55 had a significantly increased mortality compared with those who retired at 65", but with the proviso that "poorer health status of some early retirees may play some part".

Good point baha_man, that's a fair comment. It was just one of a number of studies available that seem to highlight this.

Using the word "retirement" is odd too. Maybe "financial independence" would be more correct.

Agreed.

"What is the point of scrimping if you're going to spend your retirement years living like a bored domestic house husband/wife?"

Who said that? This is hacker news, financial indipendence means being free to work full time on the projects that matter to you, who here would not want that?

Interesting, but I think there's are poor assumption about fixed costs there. What is getting married going to cost? Kids? A house for the kids. Tuition.

Well Mr. Money Mustache has done all these things (except maybe for the house for kids parts).

> A house for the kids.

Psst, make them create their own wealth.... When you go they can fight over yours.

> A house for the kids.

Could mean a house big enough to support the family.. a studio wont do the job and to support the average family of 4 you'd need at least 3 bedrooms, maybe 2 of they are both large but that gets into other issues..

Early retirement only works if you're part of a very small minority. If there are more people spending money than making money, inflation will climb and/or investment returns will drop. Try out the MMM calculations with a negative real return: it's pretty ugly.

Luckily this doesn't seem very likely in the short term, but what does seem very likely is a population inversion where the number of retirees is larger than the number of working people.

So all of you MMM folks should be encouraging everybody else to have more kids. Of course, those having kids can't follow MMM so easily: spending $30K/year on day care (or forgoing one income) makes it much more difficult to save 65% of your net income...

The kicker, for me, is the prioritisation between happiness now and happiness later.

To give an example, I live fairly frugally life and stick ~20% of my salary into a pension. But a friend has invited me to their wedding across the Atlantic. That's a couple of thousand pounds right there.

Let's call it £5k after flights, food, hotel, etc.

£5k @ 5% interest for 25 years is ~£17k.

Is seeing a friend get married to the love of his life worth seventeen frickin' grand?

That's lens through which you have to view every financial decision when you're on a savings plan like this. Not how much it costs you now - but how much it will cost you in the long run.

(PS - the answer is unequivocally yes. Totally worth it for me. YMMV).

The question isn't "is seeing the wedding worth 17k", it's "Is having a notable life experience now worth 17k in 25 years time, given also that inflation isn't far behind that 5% interest".

You have to pace your life experiences - you can't save them all up and have them 'at retirement'. If you do, you'll be a more boring person and will likely get less out of those experiences. And do you really want to risk waiting until retirement to think "by god, why did I wait until I was old and grey before I started seeing the world?"

Also, the purchasing power of 17k in 25 years might be closer to today's 5k than today's 17k, so in this lens, also not much lost.

He's using 5% which I assume is the real (after inflation) growth rate.

Mr Money Mustache sets some pretty low standards for himself but he advocates some sound concepts, I would suggest reading: http://www.amazon.co.uk/The-Millionaire-Fastlane-Lifetime-eb...

Advocates better practice (yet similar) and in 5 years.

> NOTE: I have no idea why I thought I’d want to retire so late…

Yet, this article seems to skip the question of why one would want to retire early in the first place. When you're 30 or 40, not having to work a day for the rest of your life will likely seem attractive for a week or two and then get incredibly boring. Unless you want to do (near)full-time volunteer work until a real retirement age, but that's not the vibe I get from the blog.

I'd like to propose an alternative: save less than you were originally planning, spend more money on your life now (e.g. travel to a place you've always wanted to see or support a charity close to your heart) and work for longer. I haven't reached this age so I cannot comment from first hand experience but I believe most people would be happier this way.

If you get bored after 2 weeks and want to work, then go find a job... Retiring in your 30's or 40's is probably better called financial independence.

This also gets around the being bored and missing out on life argument. If you want to fund your around the world trip, get a contracting gig for a few weeks or months, and use the money from that without having to worry about it.

Assumptions: Stock Interest Rate: 7.5% Bond Interest Rate: 4% Inflation: 3.5%

Time Machine to last century: Priceless

If you are certain that the returns on any investment will be very low during the next 20 years, presumably you could make a lot of money by using some sort of long-term options strategy. Why won't you just do that? (I'd actually strongly advise against this, I'm just attempting to prove a point).

There is no way of knowing what the future will hold other than attempting to extrapolate from the past. Besides, if the future is going to be as poor as you seem to expect, you're screwed regardless of how you position yourself.

They just want people to start pumping all their life savings into a stock market bubble happening right now that's about to pop, so goldman sachs can get other people to take the wrong end of the trade in 9..8..7...

Correction. Inflation in the US about 10%. Unless, of course, you believe everything what the Government says.

I don't really understand what people who retire so early do with themselves. Employment brings activity and social interaction. It is often challenging and keeps you sharp.

When you retire what do you do? Take up painting? If you retire young a lot of your friends will still be working.

The OP talks about living off 30% earnings if he retires at 33. Downgrading your life style is fine but surely you would be spending more on activities to keep yourself busy?

Currently I cannot see myself completely retiring. I like the idea of optional employment. Choosing to work part time for the challenge the work brings rather than the money. I look forward to that day.

I currently dread the idea of full retirement.

That is so sad. All you can think of is employment? Really?

All I can think of is anything but.

I'm really surprised to see this comment on Hacker News of all places. I would imagine the commenters here would embrace with open arms a period where thy can stop working and really do the things they want. Really do anything. All of those projects you've been kicking around. Do that. Its' really not far off from what you said about working part time for the challenge, but instead you're working for yourself.

> I don't really understand what people who retire so early do with themselves. Employment brings activity and social interaction. It is often challenging and keeps you sharp. When you retire what do you do? Take up painting? If you retire young a lot of your friends will still be working.

It's really more about financial independence than retirement. You can do nothing for a few weeks, realize that you need some purpose, and then find a job/create a job/create a business/make a trek across Eurasia/anything within you financial means.

I don't get why people are so hung up on the usual connotations of retirement. It's not like if you reach a point where you retire, you sign a contract to never do paid/unpaid work or exert any effort again ever.

I feel bad for those who look forward to retirement because it means they'd rather be doing something else than what they are doing now. I mean this sincerely in a non-snarky way. I realize I'm very fortunate that I love going to work every day. I'm certainly going to miss it when I "retire" and I'm living in a cardboard box.

I generally try to limit my spending to those things that I get a really high return of value from, knowing that most things do not qualify. On the income side, I put a value on maximizing freedom.

I don't work backwards from a retirement date to the present, but forwards from the decisions I make today.

Looks that it is not available to general public - only for signed in readers. Any summary?

It's available for me, and I'm not signed in.

tl;dr: Save aggressively (for example, 33% of income) to retire quickly. Live frugal for this to work.

Edit: aggressively might be more like 65% of income.

How to retire in 10 years: Debunking traditional financial planning with Mister Money Mustache My senior year of college, I began preparing for a life of financial independence. I got a job, made a budget, and set aside some savings like anyone educated would do. After graduation, I checked the next most obvious boxes by building an emergency fund, paying back my student loans, and contributing to my company’s 401k. I was feeling pretty on top of my game.

But then, I thought to myself, what’s next? I knew my short-term saving was for the long-term goal of retiring, but it wasn’t clear what I needed to do to get there. So I started searching for answers…

Approach #1: Traditional Financial Planning

At the beginning of this process, I had one question top of mind.

How much should I save each year to set myself up for retirement? Answering this seemed important to me, because it felt like the kind of behavior-constraining fact that could abstract away the need to think about retirement altogether. This number would give me the flexibility to spend how I pleased on a monthly basis, with the confidence that one day I’d be able to retire.

Half an hour into my research, I came to some obvious conclusions:

You can’t calculate how much you need to save this year without deciding how much you want to spend when you retire. You can’t calculate how much you need to save this year without deciding when you want to retire. You can’t calculate how much you need to save this year without making a bunch of assumptions about your future. The top ones I identified were: income growth, life expectancy, interest rates, inflation, and the safe withdrawal rate (SWR). So, I started by trying to make good assumptions. I went back to the Interwebs, and discovered my mean life expectancy is 82, and then tossed that out the window and figured I’d likely live to 95 (I’ll probably live longer than the average, obese American, but 95 is totally random). I found my income will likely grow at 4%, post-inflation interest rates are generally about 5%, inflation is generally ~3.5%, and you’ll probably be safe forever with a SWR of 4%.

Then, I thought about how I wanted to live. I decided a pre-tax income of ~$85k would cover my expenses (see below for details). And I decided I’d want to be able to retire by age 70. NOTE: I have no idea why I thought I’d want to retire so late…

And I ended up with this: $17,300, growing proportional to my income at 4% a year (see below).

Until recently, this is the approach I’ve been using, saving diligently to hit this number each year. Following this plan, I’ve seldom thought and never worried about retiring happily.

Approach #2: Abnormal strategy, abnormal outcome

Okay, so what’s wrong with this approach? It presumes the objective of retirement planning is to minimize my annual savings. If we remind ourselves why I got a job in the first place though, we see that minimizing savings is not our objective. Financial independence is!

My brother was the first person to point this out, so I followed his recommendation and took a look into Mister Money Mustache, a blogger who preaches a path to early retirement by means of aggressive saving. If I had to summarize MMM’s main teachings, they’d be:

1. You can retire as soon as your savings are worth 25* your living expenses. 2. Income is not a part of the equation, you can only retire sooner by increasing your % savings relative to your take-home pay. 3. To maximize savings, focus on happiness. You can live better and retire sooner by not “focusing on convenience, luxury, or following the lead of the financially illiterate…TV-ad-absorbing Middle Class of the United States” What’s intriguing about this philosophy is how quickly one can retire by following this approach. Here is the corresponding number of years until retirement based on different tiers of savings:

Notice that I can retire by age 33 if I live on 30% of my earnings. Take a moment to think about that. Most people can’t imagine retiring before 60, 50, or even 40. If I chose to live a different lifestyle, I could be retiring in my mid-30s!

This presents a very interesting question for me and working professionals alike. Are the things I spend money on worth the extra years of work they implicitly require?

The nicer apartment? The vacations to the opposite sides of the world? Eating out frequently, and ordering expensive drinks at trendy bars? Buying designer clothes? Taking lots of taxis? And just generally having an attitude about spending money that promotes convenience over efficiency.

Is it worth it?

Takeaways

One of the things you’ll inevitably find yourself doing when planning for retirement is fudging the numbers a bit. It happens ever so subtly…

I can cut my rent down to $800, right? What if I retired just a few years later? I’m smart — I can get better returns than the market index funds. The problem with this is, we underestimate the pains of sacrifice, which lead us to planning for an overly-optimistic outcome. This is my primary concern in adopting a plan to simplify my lifestyle and become a “Mustachian”.

It’s not that I don’t believe I could save 70% of my income and retire in 10 years. It’s more I’m not sure I believe my quality of life will be as good as it is now. What experiences might I miss out on? What places might I not see? I know money doesn’t buy happiness, but it’s hard for me to believe I could be just as happy on half of what I spend now.

Despite this skepticism, I feel like I owe it to myself to find out. If the Mustachian life really is at parity, who wouldn’t want to retire 20 years early? Given this, I’m going to try out the Mustachian way for one whole year. I’ll start this once my lease runs out in September, a change I’ll need to tighten my spending. At this point, I’ll try and live off just 45% of earnings, a rate that will have me I retire in my late 30s (~39).

Until then, I’m going to try some impactful, but less-extreme means of cost-cutting. I’ll live off just 65% of my earnings, starting this June (I’ve already planned a big trip in May). At this rate, I’d be on track to retire in my late 40s (~49), a respectable time by any calculation.

I’ll report back on how things are going for me once I start.

The real inflation in the US currently is about 10%:

"Using the government's old methodology from 1980 - before politicians started to monkey with the formula - he calculates the real inflation rate is north of 10%."

http://www.marketoracle.co.uk/Article33502.html

BMW are up 20% year-to-year. Food is up. Medical expenses and insurance are up much more than 10% on average. All the necessities are 10% up or more. Again, if you use the US Government formula of calculating inflation from the Reagan years, we have 10% inflation right now. They lied about Iraqi weapons of mass destruction, no problem with lying about the real inflation rate. If you live in the US, it would be really very, very intellectually dishonest to say that inflation in the US is below 3% today.

"They lied about Iraqi weapons of mass destruction"

Looks like, according to US Attorney General Eric Holder on 22 April 2013, there were vast quantities of WMD's in Iraq http://www.guardian.co.uk/world/2013/apr/22/boston-bomb-susp...

"The charges include one count of using and conspiring to use a weapon of mass destruction – an improvised explosive device or IED"

Probably we'll never know. My point is not to trust in everything that the Government says, not to pick up on Bush or Iraqi war in particular. The inflation rate if calculated using the Government formula from 1980s in over 10% today. The Government changed the formula to accomodate for high inflation without facing public outcry. Which is huge manipulation and misrepresentation of the state of the US economy. And the both parties are guilty here, not one of them raising the issue of the real inflation rate.

The idea to "retire" and live like a rat is somehow not convincing for me. I have over $100k in savings and probably could retire on it in India or Eastern Europe (i.e. Ukraine has $6k gdp). But that would be dishonest to use word retire in that case. To take it to another extreme to put my point across: You retire at young age because you can live comfortable not because you can live in India on $1 a day.

I'll work till I can. And retire when I can't anymore.

What is dude going to do when he gets - God forbid - a cancer and $100k in the copayment bills alone? Did he save for his kids education? I mean who is he kidding?

$6k gdp? You mean $165bn? or perhaps $3k - $5k average gross salary? -- By the way, if you get a $100k cancer and live in a reasonable state with public healthcare it's taken care of.

1. $6k gdp per capita. 2. Even in Canada people wait for cancer treatments 6 months +

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