Updated on 09.12.14

I Have No Debt. When Can I Live Off Investment Income?

Trent Hamm

A young, forward-thinking man wrote to me and asked this simple question:

Right now, I’m twenty years old. I am willing to take a large percentage off the top of my salary for the rest of my working life in order to be able to retire very young and live off of my investment income and do volunteer work. How many years would I have to work if I saved 20% of my income?

He went on to name a number of other specifics about his situation, but they’re really not important. If you were to take 20% of your annual income starting at age 20 and put it in a S&P 500 index fund, that index fund continues to grow at the long-term historical rate (12%), and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary, or quit at 43 and be able to give yourself a 4% “raise” each year from the interest, which is probably the better plan because it combats inflation. Raise the amount to 25% and you’re done at age 38 and able to live in perpetuity at age 40.

Obviously, some people are going to balk at this and state that it “can’t” be done. The truth is that it can be done if you have the willingness to live below your means and authentically behave as if 20% of your total salary doesn’t exist.

It is challenging, don’t get me wrong. Let’s take the case of Roger, who makes about $60,000 a year. He brings home a paycheck every month in the amount of $3,200. In order to save 20% of his whole annual salary ($12,000), Roger would have to be willing to immediately take $1,000 of that take-home paycheck and put it straight into an investment and not touch it at all. This takes an amount of financial fortitude and willpower that, quite honestly, most Americans don’t have the courage to do.

My advice to this young man is that if this is truly your goal, then it is achievable, and I offer the following points of advice:

Make that saving automatic. Figure out what exact dollar amount you need to remove from each paycheck to equal 20% of your total salary, then set things up so that amount is withdrawn automatically. Since you’re planning on retiring so young, it will have to be placed into a non-tax sheltered investment account, which is fine if you invest it right…

Buy and hold. Buy into a very broad-based investment, like the Vanguard 500, and just keep adding money to it and don’t move it around. This will set you up to pay only long-term capital gains tax when you withdraw it, meaning that your tax time in the future when you start liquidating it to live will actually be quite pleasant (just long-term capital gains tax, if that even exists then).

Learn to appreciate frugal living. With an email like that, I’m already sure that you are more likely to buy a sturdy late model used car than a new Lexus, but it’s important to state just the same: you can easily save that 20% you’re wanting to save by making good lifestyle choices. You’ll find that if you’ve made the investments automatic, you’ll easily learn to live on whatever’s left over.

Good luck, and I hope to hear from you when you’re 40 and retired!

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  1. Matt says:

    Really, he could probably even retire earlier than that. If he’s saving that much, he’s probably living off of somewhere around 50% of his gross pay after taxes and savings. If he’s willing to maintain the same lifestyle he has, he only needs his investments to produce that 50% of his yearly income in order to retire.

    Still, I think he should probably examine just what exactly his goal means. Does he ever want a wife? Children? What about his own home or an education? Retiring at 40, or earlier, sounds very glamorous until you start examining just what you have to give up to reach that goal. All the financial independence in the world may not mean much if you have to live alone as a miser for the next 60-70 years.

    Of course, I have no idea what his level of income is. He could be making $120,000 a year, in which case saving 20% and achieving other goals should be no problem for him. However, at 20 years old, I doubt that’s the case.

  2. Derek says:

    The other challenge with a lot of these models is what are you going to do with all that new found spare time once you retire? It’ll probably take more willpower to live below your means once you are on that fixed income. If he can pull it off, more power to him.

    One question – does the the above calculation assume living off of returns indefinitely, or assume you’ll stop living off of the returns at some point (i.e when your dead)?

  3. D says:

    Love this post. Thanks!

    I wish I had saved some of those dollars I wasted in my teens and early 20’s.

  4. Brad says:

    Your 12% return figure seems a bit high. I am sure it was likely true during the recent “boom years”, but I doubt we will see that level of return for the next 40 years.

    What is the time frame for that return?


    I do agree with the comments about how useful a goal of “retiring” really is for most. I suspect some of it is an artifact of the temporary blip where people could retire early and still live off the system. I expect much bumpier times in the next 40 years.

    You can do a lot of volunteer work with a full time job and then still have money to pump in many good things as well. :)


  5. Grant says:

    I think you have to define what “20% of your annual income” means. You are using the gross, before-taxes number to calculate the dollar amount, but the money being invested is after taxes (take-home pay). So this is actually more than 30% of his take-home pay. Is that the right amount he is talking about?

    Also, I think assuming a long-term 12% return is overly optimistic. This is the high-end estimate of returns for retirement savings (Low is usually 6%, Medium 9% and High 12% for aggressive portfolio, before inflation is taken into account).

  6. Neil says:

    You say that at 41 he could live off the interest. I’m confused. How was the age 41 computed? His current income definitely needs to factor in this, but wasn’t mentioned.

    As somebody who could probably retire at 42, I worry about healthcare. One bicycling or chainsaw accident could consume a lot of savings. I wonder if I retired, would I become so risk adverse that I would quit juggling chainsaws.

  7. Jon Morrow says:

    That’s one way to do it, but it’s not the path I’ve followed. At 24, I have approximately 2 years of living expenses in my savings account, and I’ve only been saving for two years. I’m saving approximately 20% of my income, investing about 40%, and I’m living pretty well off the rest.

    I did it by:

    1) Insisting on working in a field where I made six figures as my starting salary
    2) Focusing on growth, taking equity in projects rather than smaller salary increases
    3) Living frugally off of my earnings, which is less than 50% of a rather high yearly income

    I’m not saying it’s the right way, but it’s worked for me.

  8. I recently graduated from college and am in my first job. Your reader’s plan is very similar to what I’m planning on doing with my income.

    I’ve got 20% going to my 401(k) and 5% to my Roth IRA. I intend to save another big chunk of my income (between 10-35%, to be determined once I see what my living expenses are like in a new city), which I’m currently throwing into a money market account but will later also put into something else as the balance increases.

    “Retiring early” isn’t actually my goal here, despite the crazy amount of savings. I want to not have to *worry* about having enough money later on. I think I’d get very bored without a job to do — but if I didn’t have to worry about income too much, I could take whatever job suited my fancy. I also hope to travel on my savings.

    I agree with Matt above that things may change drastically once I have a house and a family. (I’m not a lonely single now, though, so I don’t see why being frugal equates with loneliness.) But until that time comes, I’ll be saving as much as possible!

  9. MossySF says:

    Shrug…don’t want to get into this subject on yet another blog so I’ll just drop some quick stats so we can get a different perspective.

    Median Personal Income: $23K
    Median Household Income: $46K
    $25K Personal Income Percentile: 35%
    $25K Household Income Percentile: 28%
    Mean # earners @ $25K Household Income: 0.9
    Mean # size @ 25K Household Income: 2.2

    The theoretical 3200-1000 number gives you $26K after taxes or roughly 30K-35K before taxes (depends on married or single). About 100 million people in the United States live on less than this as their household income. And from looking at the household size at 25K, low income doesn’t stop people from getting married or having children. I’m not saying this is the good life — just saying we may be out of touch with the bottom 1/3rd of the economic ladder in this country and perhaps utterly clueless on what’s possible/not possible.

  10. CT says:

    I would add that filling your 401k up to the match and maxing out a Roth IRA every year would probably still be a good idea. Even though you can’t take out the earnings until 20 years after you retire at 40, you will obviously still be around at 60 so you will get the earnings eventually.

  11. Wylie says:

    Kind of off topic, but a lot of people are focused on should they save a lot to retire young? One of the most wonderful things about very aggressive saving when young is that you can quickly acquire enough money to handle being unemployed for a while. Why does this matter? It means you do not have to EVER stay in a job that you hate to pay the bills. It gives you the freedom to take risks in deciding what kind of work you want to pursue and what options you pursue, when you encounter them. You may not live to 41 (which is why I appreciate your use of the word “appreciate” about frugal living) but as soon as you have a few years worth of savings, your options open up big and wide if you have the courage to think about it that way…


  12. MaddHatter says:

    While I’m not the author, I think the answer to the above question is: 12% is the return of Vanguard’s S&P fund since inception.

    On an aside, I save a great deal for the afore-mentioned “not worrying”. Get the company match on 401k, got the mortgage interest portion to a reasonable level (I get no tax benefit), and now I’m sitting on the sidelines on getting my Roth started (at 28 no less) waiting for the S&P to come off it’s 6 year high. Surely stupid, I know.

  13. Khurram Farooq says:

    Trent, wouldn’t it be better if he divides his savings into tax-sheltered and non tax-sheltered accounts, both.

    For example, he might contribute the maximum to his IRA, and contribute the rest in any other investment. Then when he retires, he can tap his non tax-exempted returns, and tap into his IRA when he approaches retirement age.

  14. r says:

    I think the increasing cos of medical care as you age shouldn’t be underplayed here. I can live off 15k a year in my 20’s, but my grandparents pay more than that entire amount in medical costs some years.

    And noone knows for sure, of course, but as someone who works in the field, my personal expectation is that it will only get worse before it gets better.

    I also agree the 12% is pretty optimistic.

  15. Brad says:

    Insisting on working in a field where I made six figures as my starting salary

    Not many people can insist on that. :)

    Having an ability/talent/proclivity in an area can help, but making such an income is a bit more than just wanting to make such an income!


  16. J says:

    Nice information. If he has the money and will power to save, more power to this guy. I’m in my mid 20s, and I wish I had this much say on where my money goes. If he can/wants to retire by his 40s, more power to him.

    I used to have similar goals until I started to live with my girlfriend. She isn’t a big spender, but being single and living together with a significant other (married really) is two different worlds. I know if I was single, I’d be saving more money than I have right now. But I’m happy where I am so far.

    I’m not from the USA, so I plan to retire (by early 50s) back home so I get more bang for my buck. I plan to have some sort of small business to pay for some bills and keep me busy. My girlfriend likes the plan as she isn’t from the USA either. We are both professionals and at least two kids before we are 30. We are looking into the best way to save right now. We may have to settle for a small simple wedding ceremony and hold our dream wedding until we can afford it (last time I checked dream weddings leave a huge hole in the pocket).

    I just don’t like the idea of being put in retirement home and/or use my hard earned/saved money to pay for high medical bills, medicine, etc.

  17. Toby says:

    @ Jon Morrow:

    1) Insisting on working in a field where I made six figures as my starting salary
    2) Focusing on growth, taking equity in projects rather than smaller salary increases
    3) Living frugally off of my earnings, which is less than 50% of a rather high yearly income

    I believe that anyone can get rich using this method. The only problem is that your plan sounds like the Johnson-n-Johnson heir explaining how he got rich. Or the underpants gnomes from South Park.

    Item 1 is impossible for almost everyone. There is a staggeringly small pool of jobs that allow one to start fresh out of college at over 6 figures and I bet those jobs are located in a staggeringly small number of cities in the US *cough* New York *cough*. So not an option for the vast majority of people.

    Item 2 just adds to the frustration. The owner of company I work for is worth billions, the company is growing like gang-busters. Would I trade a “meager” raise for a slice of that success? Probably. Do I have the opportunity? Like most workers in America, not really. At least, not on the ground floor. I can go out to the market and buy some stock, but it’s not really the same thing as having equity in the success of specific projects, is it?

    All-in-all, you have a good plan that is obviously working for you but remember that you are fortunate to have the stars align the way they have.

    While I think that people need to take risks to make it big, it is seldom as simple as:

    1. Collect underpants.
    2. ???
    3. Profit

    Best of luck to you Jon.


  18. UncleOxidant says:

    Actually, my advice to the young man would be entirely different: Do the volunteer work now and enjoy life while you’re young and healthy. There will be plenty of time for working later. The problem is that if you decide you want to retire when you’re 40 to do volunteer work, you probably won’t end up doing it. The “cares of this world” will prevail. You’ll get used to the security.

    I’m not saying he shouldn’t save and be frugal as well as prepare for a career (going to college, etc)… but don’t be overly serious when you’re young as you’ll be overly serious in your middle age and old age as well. If your intention is to volunteer, go out and volunteer now.

  19. Great advice, Trent. I’m 20 years old, too, and here’s my rough guide to retiring early.

    1. Max out Roth IRA contributions annually.
    2. Invest 10% of my income in the stock market (including options).
    3. Dedicate 5% or less of my income to web-based investments (domains, websites, and other income producing vehicles
    4. Living frugally as you mentioned, although sometimes it’s hard to resist spending money on your investments.

    I’d love to retire in my 30’s, and just focus my time on things I enjoy, instead of punching someone else’s time clock and making them rich.

    Your posts on 20-something’s are very helpful. Please keep it up!

  20. Babs says:

    Your suggestions are very impressive, but your reference is always to hight earners what about the lowerners like 24,000 anually. How much can they stash away as we living frugally currently. Where do you find the money to put away and how much should one try and save?Retirement is out of the whole picture right now.Babs

  21. jake says:


    You start out small like 2%-3% of your income. Your yearly income increases over time (well it should increase overtime) so as your income increases you increase the percentage of investments along with it. People hear that you should invest 10% of their income and they freak out. Some actually invest 10% of their income when they know that they can’t afford to and they become frustrated because it causes so much hardship. Remember that these numbers can scale to your needs.

    Please don’t take offense but I see a lot of people who keep saying they don’t have the money to invest but buy 2-4 cups of Starbucks daily. On top of buying new gadgets and expensive clothes.

    If it’s hard to see yourself saving you can use a technique where you break it down to smaller figures. Here’s what I mean, lets say I tell you that you should save 10% of your income which comes out to be $2000 a year on an income of $20,000. That’s a lot of money for some, so you can break it down which comes out to be about $38 a week or $5.50 a day.

    So you can tell yourself that with a little over $5 a day I can invest towards retirement. $5 sounds more encouraging then $2,000.

    The whole point is in changing the way you view investing. Just imagine if it was a debt you would find ways to pay it off. Think of retirement as a debt to yourself, slowly pay it off.

    Don’t forget to look into retirement plans at your work. There are many people who don’t even ask about retirement plans when their workplace has one and it matches. That’s free money!

  22. Ronbo says:

    I love this post! Mossy SF — right on! And Wylie: IMO your point goes to the heart of the matter. Money in the bank gives you options!

    But let me share a conclusion that I came to after years of pursuing the idea of total financial independence — it is overkill.

    I was pursuing that same goal but it would have taken me years to get there. I finally figured out that it wasn’t work that I was looking to escape, it was the five days a week at a job that was high stress that was eating me alive.

    I saved enough so that I could afford my same life by working three days a week at a job I enjoy. But the real trick was where I put the majority of my savings at first: I paid off my mortgage.

    On average, we spend 70% of our income on three expenses: housing, transportation, and taxes. By lowering that to 20%, you will only need to earn half as much. Once I reached THAT goal, I was able to reduce the total of my monthly nut to less than $1200.

    Anyone one smart enough to read and post on this site can figure out to do the same! Four day weekends every week, money in the bank, and a monthly nut that doesn’t keep you awake at night — that is the good life! (IMHO, of course.)


  23. Romek says:

    on the subject of student loans and future debt and investment . . .

    i’m about to get a student loan to live and study in london, i wiil probably be spending about fifteen to twenty thousand pounds in rent over the three years but i’m thinking wouldn’t it be great if i could somehow invest that rent into some kind of a mortgage.

    i have two friends who will be working full time in london who can live with me in a house which i think is usefull for some at the moment un-thought of reason.

    any ideas anyone?

  24. Dave says:

    What formula did you use for this calc?

  25. Trent Hamm Trent says:

    There is no straightforward formula, Dave, but it is pretty easy to figure year-by-year in Excel.

  26. Edd says:

    I turn 41 in July 2007. I can retire in April 2008. I started saving a little over 20% while in my 20’s. As my pay increased, I was able to save a greater percentage of my gross pay (Jake’s post). Today, I save about 55%. My primary investment option has been the S&P 500.

    Medical costs are my biggest concern if I retire (r’s post). I am healthy, so there are many options. One possibiity is to buy a high-deductible policy through Sam’s Club for under $100 a month. It has a $5,000 deductible but the annual out-of-pocket limit is $7,000 with a maximum $2 million lifetime benefit. This is often called a major medical of catostrophic policy.

  27. Will says:

    I can’t believe this article wasn’t submitted to reddit. Fixed:


  28. Abz says:

    I don’t know much about the stock market, so forgive me if this is an ignorant question. To me, calculating on an AVG % increase seems very problematic once you start taking money out. Several months/years of even 1 or 2 percent decreases could change things dramatically. Does anyone have a graph of how this 12% increase (over 70ish years right?) really looks?

  29. Boler says:

    Unfortunately this won’t work at all. It is purely an assumption that economic growth will continue unabated for the next 25 years.

    Based on Peak Oil occurring between now and 2010, economic growth in the US at least is sadly on its way out.

    It wouldn’t surprise me at all if the US stock markets and the US$ are worth next to nothing by 2030.

  30. Nutter says:

    Not very exciting I’m afraid!

    Me, I’m thinking of spunking my 20% on ancient chinese tea antiquity. Seems to be the craze at the moment, well at least in China.

    It’ll be BOOM or BUST!

    Time will tell …

    For those who think I’m mad, well I am but the ref articles is here >> http://www.puerhcha.com/Articles/Captivation_of_Puerh_Tea3.htm

  31. 3stripe says:

    Interesting reading. I’m in the UK and would like to know how a similar theory could be applied here.

    Basically I am in my mid-twenties and have just bought an apartment. After another 6-12 months or so of furnishing and decorating it, I hope to be able to have 20% of my pre-tax salary to spare each month.

    Should I use it to help pay back my mortgage early? Or invest it?

    I’m thinking that I don’t want to put all of my eggs in one basket, and so might be better advised to tuck it away somewhere…

  32. James A. Cherry says:

    12% historical S&P returns? Not according to Yahoo! finance (see http://finance.yahoo.com/q/bc?s=%5EGSPC&t=my&l=on&z=m&q=l&c=).

    The S&P has gone from about 16 in 1950 to about 1500 at the end of 2006.

    According to my calculations, this is 8.45% compounded every year (since 16 * (1.0845^56) is 1503). And this is nominal returns; real returns will be less, due to inflation.

    The consumer price index in 1950 (see http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=4)
    was 24.10, and at the end of 2006 (see http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=0)
    was 201.60, meaning inflation has averaged 3.87% per year (since 24.1 * (1.0387^56) is 202.1).

    So S&P real returns from 1950 to 2006 have been 8.45% – 3.87% = 4.58%, not 12%.

  33. Mike says:

    Late ’94 we had no retirement savings and I was working your basic cube job. I started working as a traveling consultant with a big bump in pay and rather than buy a bigger house and a BMW I started putting away 20% (sometimes more) of our *gross*… maxed out 401(k)’s and non-deductible IRA’s and the balance in low tax-impact mutual funds.

    Today, not including the value of the house, we have just over $1M… this includes a major portfolio hit during the tech bust, 12 weeks unemployment in 2003, and putting two kids through college.

    If you can stand it, a job with a lot of travel has advantages for the frugal (other than the pay increase):
    – Free vacations with the hotel and airline miles
    – You won’t need that second car
    – Piles of rewards points on your credit card

    It’s not what you make, it’s what you don’t spend.

  34. Retired Actuary says:

    For the younger folks:

    (a) You should not expect anything like an average 12% annual returns from the S&P over the next few decades. As the boomer generation starts to retire — and thus begins to liquidate their retirement accounts — you should expect a marketwide decline in returns, if not perhaps in absolute terms. You’ll probably do better investing “right now” with a portfolio balanced between typical orphans-and-widows stocks, emerging and foreign market indices, and some bond funds for insurance; the later you are to the party the less point there will be in buying up the widows-and-orphans stocks.

    (b) Homeownership can be a good investment, but carries easily-overlooked risks for the young that will be substantially amplified in the event of a (in my opinion, inevitable) housing price correction: owning a home makes it much harder to pack up and leave for a better job in another city, and especially so if you’re temporarily in the hole on resale value. By fixing yourself to a single location you can be paying a substantial opportunity cost in terms of opportunities in other locales you’re not even looking for anymore.

    (c) When running your calculations you should also use an inflation figure in the 5-6% range. As a “retiree” — and as a presumably frugal retiree at that — food, energy, transport, and health care are going to comprise a much larger portion of your budget than for the sorts of peoples whose consumption patterns match how the CPI is calculated.

  35. mind says:

    the answer to this question isn’t financial. the key is to take time off -now-, and do what you want -now-. waiting until you’re 40 is only setting yourself up for disaster if the dollar (or the whole world economy) tanks (and there’s plenty of warnings signs for that).

    i worked for about 2 years. i made 70k gross, with living expenses of about 18k. the rest i’d generally save. this past year i did a lot of travelling (europe for a month, cross-us trip visiting college friends for 4 months). right now i’m working on an early startup idea. if that doesn’t pan out, i plan to go back to a 10to6 job. the key is to be able to justify this time to a future employer.

    the key is to enjoy life when you’re young, when you aren’t supporting a family, paying for a house, etc. if you wait until 40, your base level of comfort will have changed (you’ll probably stay in hotels rather than hostels or camping when travelling). do you want to settle down with somebody? that’s going to be a lot harder to do when you’re not pulling in money.

  36. Using an 8% inflation adjusted yield, with a 6% yield after retirement, you could replace your entire income in retirement by saving about 33% of your pre-tax income in 21 years. If you only want to replace the income you’ve been living on in retirement, saving around 24% will get you there in 21 years. For instance:

    Income: $120,000
    Save: $2500/month for 21 years
    Retirement Income: $91,692

    You can play around with your own numbers here:


  37. Jeff says:

    Of course, the 12% annual return is just an average. The exact dates of investment and retirement can have enormous impact on the outcome. Dr. Savage at Stanford has written some excellent pieces about the phenomenon, which he calls The Flaw of Averages

  38. Sam says:

    He could work a 16 hour day for 45 years and retire fat and cancerous with a real shitload of money. Of course, he won’t be able to enjoy it, but he can die with the satisfaction of knowing he won.

  39. K.C. says:

    At 47 I’ve just taken the past 2.5 years off with one more planned. In hindsight to do what you want I’d do the following:
    a) Get into business for yourself. By far the best opportunity!
    b) Consider the software, music, or Hollywood entertainment business. You perform work once and get paid for it the remainder of your life.
    c) Get a great education MBA/medicine/law.
    d) Don’t spend – period, save like a banchee.
    e) Don’t have kids.
    f) Location**3 – live outside the U.S.
    Don’t ignore the following:
    1) The $30k federal debt each of us currently owes (and its growing).
    2) Health care growth rates > inflation.
    3) Inflation and the ability of the government to print money as it desires.
    4) Use a 8% historic long term return rate.
    5) Diversify**3.

  40. Peter Cooper says:

    The younger you are, the better it is to put your money into high risk investments that will yield significantly higher gains than 12% p.a. and then move into less risky scenarios if it doesn’t pay off once you get older.

    So.. in our current society that means starting a business. A successful business, of which there are millions, will easily return more than 12% p.a. to its owners after a certain period of time, and with the right hiring practices, may even run itself in time and enable you to get a persistent income and retire within years.

  41. Christopher says:

    I am 18 years old and attempting to retire by 30.
    In a sense I already am retired in my lifestyle, but I’ll explain that momentarily.

    My monthly expenses (rent, food, gas, utilities) comes out to 350-400 dollars a month. I accomplish this by living in a small and poor town plus having a roommate. On 400 dollars a month, I buy groceries from Aldi’s, split rent with my roommate, split my only (required) utility (electric) with my roommate, have Cable Internet, and have a cellphone with a texting plan.

    To counter living in a poor’ish area, I do not have a job. Sounds counterintuitive yah? I make income catch-as-catch-can through various business avenues such as custom high-end workstations sold through ebay, as well as reselling various warehouse liquidation lots via ebay.

    This gives me the maximum ratio of costs to income possible. My estimated (using empirical data, projected over the year and averaged) income this year should be somewhere between 75k to 100k. At the very smallest 50-60k, but that’s only if sales plummet.

    I do about 5 hours “real” work a week, (building our custom computers). I do another 5-10 hours computer work, (sales research, finding suppliers, finding ideas).

    All that combined, plus my ability to spend most of my time doing whatever I want, I think I am doing pretty well. If took on a salaried programming job that was offered I could probably increase my income to a minimum 120k this year, bu t I rather like the amount of time (or lack thereof) that I spend working. Gives me plenty of time to be an auto-didact and spend time with my girlfriend.

    Speaking extremely conservatively on all fronts, if I invest 50k this year, and 50k a year for the next 12 years (increasing quality of life, as opposed to increasing investment), at a compounding rate of return of 12% (conservative as well, as I have some higher return investments in mind, my savings account alone gets 5.5%). I should have a sum of $1,546,254.26 waiting for me when I am 30. (or 31, w/e)

    Thrown into my savings account, that 1,546,254.26 would give me $85043.98 a year in interest. Compensating for taxes, that’s 55k a year. Will inflation eat at it? Perhaps, but I could invest more per year, and give me an inflation adjusted in perpetuity income of 55k fairly easily.

    Any thoughts?

  42. Steinar says:

    Get a job in Schlumberger or some other oil business which require them to accomodate you at some remote location in Sahara or such. Because you just work and dont spend any money, and the company gives you bed and food, you should be done by 35!

  43. Jenny says:

    Investment is not a good option in certain countries where the inflation rate is extremely high.

  44. Andrew says:

    I think if your goal is “to retire early” you are aiming for the wrong thing. Why spend your youth in poverty and hard work? I say spend your 20’s traveling, meeting new people, studying, or whatever you want to do. Broaden your world, enjoy your life, and then you can have some perspective on what you want to do.

  45. Saif RA says:

    I have some concerns about the advice being given here. While such aggressive savings plans are not bad advice by any means, I dont think the full picture is provided.
    1. The historical return of the Vanguard 500, is not 12%, it is lower because mutual fund companies deceptively use average returns rather than compounded geometric returns. Basically, in down years, you start with a lower base so you grow less as well.
    2. Furthermore, the 90’s bull market was likely a once-in-30-years increase in asset values. Values went up far more than inflation adjusted earnings, so while we can expect growth, we cannot necessarily expect more irrational price increases above such growth. It could happen, but the fundamentals would suggest it will not.
    3. The returns will further be less because of taxes. Since the blog speaks about taxable non-retirement accounts, any dividends or realized capital gains will be taxed, decreasing the reinvestment amount. Granted, there isnt a lot of turnover in the Vanguard 500, but i’m still surprised you werent recommended SPY, which would provide the same assets at a lower fee, plus eliminate the tax issues due to being an ETF.
    4. If you are really serious about this, I would consider a more diversified portfolio with mid-caps and small-caps and some international component as well. Vanguard offers a variety of funds you could use to better balance your investment. Note, DO NOT LET THE FEAR OF NOT UNDERSTANDING THIS POINT KEEP YOU FROM STARTING YOUR INVESTMENT PLAN. THE MOST IMPORTANT THING IS TO START THE PLAN, YOU CAN ALWAYS FINE TUNE IT LATER.
    5. Please reconsider your plans to live frugally. What is life if all you are doing is stashing away all your money. After all, you could die at 40. Do you really want to waste the best years of your life?

  46. Richard says:

    I know of one job where you can start at six figures for an income. Certified Registered Nurse Anesthetist. avg starting income around 140k plus great benefits. Jobs everywhere from large urban areas to the smallest of towns (reasonably small– a few thousand with a hospital).

    Saving this amount and still living good not too much of a problem.

  47. Allan says:

    guess I’m not going to have much of a 21st party next year….

  48. Chris says:

    Edd, what type of income are you planning to grant yourself in retirement? Is it 100% of your current income or something different?

    This is really interesting to me for a few reasons.

    1. Those who retire young will spend far more money in the early years by doing all the things they’ve wanted such as travel and leisure activities. Things slow down in the middle years of retirement a bit and then icrease again in the later years (healthcare).

    2. If you’re making (hypothetically) $10,000 and you’re investing $5,500, that means you’re living off of $4,500 a year. Will your post retirement income be $4,500 or $10,000? In that way, giving yourself your ‘full’ salary and not saving any more is already a big bump up.

    To me, the principles I’m using to guide my behavior and saving while preparing for an early retirement similar to Edd’s is the following:

    1. Stay single and childless until retirement.

    Most people couldn’t/wouldn’t do this. It takes discipline and patience and sacrifice. My interpretation of single is not having a wife or girlfriend that is dependent on me for monetary assistance in any way. I will not enable my own failure through generosity or the delusion that they share my vision. I’m working for something that will have a legacy to pass on to my potential future family so that my children and their children will reap the rewards of my labor.

    2. Watch what I spend and always compare it in terms of ‘tomorrow’s’ dollars.

    A nice Tag Hauer watch would set me back 2K right now, but 5 years from now, would I have valued that watch at nearly twice that?

    3. Educate myself on the business of money.

  49. Ben says:

    12% returns via Stocks would be unrealistic.
    The latest figures for long term growth (100 years) have been skewed by the big run up from 1994.
    His basic plan is good but maybe he should focus on spreading the investments around. If he has a good mix including easy conversion to cash he could pick up some good bargins along the way or finance his own business.

  50. w says:

    The catch is “live off the interest at age 41 matching your current salary”.

    With an annual 4% salary increase, your salary will have more than doubled by the time you have reached 41. So retiring would imply a sudden steep decrease in revenues.

    And it’s tough to raise children with the salary of a 20-year old… (although I know that it’s being done)

  51. seo blogger says:

    Love this post. Thanks!

    I wish I had saved some of those dollars I wasted in my teens and early 20’s

  52. Alex says:

    Interesting take… Well, I see lots of North Americans approach this topic from this perspective – try to retire early, but until then live crappy life, saving on everything and anything and denying yourself most of the pleasures of this life. Well, I have only one question – does this guy (or any other who plans on doing this) looked into the future to see that he’s going to live until (s)he, let’s say, 60 or 70? Or even 40? You gotta live NOW not THEN.. Life can stop at any point and no one knows when. Like a week ago I saw a bad car crash – driver was dead. Young, nice car. Probably wasn’t planing on that. And the use of all that money in this case? Gone.

    I personally think – live to the fullest, enjoy every moment, take opportunities, definitely take vacations and go see the world, meet people, laugh and spend money – what’s the fun in working hard if you don’t see the result apart from numbers in a bank? Life is mostly memories… of good, interesting, fun stuff that we’ve done. And a handful of people around.

    And who told you that american economy is going to survive much longer? It’s in an awful state now and nobody is trying to recover it..

    Anyway, good luck with the crappy life..

  53. Roseanne Curtin says:

    I have 3 suggestions:
    – Join a good network marketing company
    – Read Rich Dad Poor Dad by Robert Kiyosaki (http://www.richdadpoordad.com/)
    – Invest in property

    It is definitely possible to retire at a younger than 40 if you educate yourself about financial matters. I am 28 now and I certainly intend to. Make your money work for you.

  54. Dell says:

    Thanks for this article. This is encouraging as you make it seem like retiring at forty thru saving and cutting expenses is actually possible.

  55. Joel says:

    When I was twenty years old, I spent half of my income on beer and fast women. The other half, I just wasted.

    Not really, just kidding.

  56. fred says:

    Interesting discussion and I congratulate the young man on this. I think that the goal is obtainable, but not nearly as easy as the article would make it out to be. I set the same kind of goal for myself 20 years ago and am still about 10 years away from being able to retire.

    The one big error in the reasoning is the assumption that one will earn 12% annually. This is simply not correct if one wants a portfolio that one can actually earn income on for an early retirement. For income you will need bonds. You also need real estate for a place to live. And a large cash reserve to even everything out. All of this will serve to reduce you annual return. I really wouldn’t count on much more than 6%.

    A million dollars will earn you 50,000 a year at 5%, about what you can expect from treasuries. 30,000 – 40,000 for municipals, less income but tax savings. About 15,000 in dividends from the S&P 500 (1.5% dividend yield).

    In my reasoning one needs a base of 1,000,000 in bonds. About another 1,000,000 to be allocated between stocks and bonds to meet your capital gains and income needs. And the additional money to purchase a house. And that is just to live a modest life.

    If this is really what you want I wouldn’t have children. And if you do remember that as expensive as children are, child support is WAY WAY more expensive.

  57. Mops says:

    I’m 26 and i’ve been saving alot since i started fulle time employment(IT), but i’m in New Zealand, nit in USA. All though I already saved quite a hefty sum of money, I don’t really see myself retiring any time soon (or ever really). perhaps this is just the earnings/price ratio in my country… I read all robert keyiosaki’s books, and what he suggests in those books cannot be applied to NZ property market. I’m investigating business opportunities not because at this stage i see it the only way forward. Good thing about nz is that there are no property capital gain taxes. but i kinda dont get this property capital gains… once you sell your property and realize your capital gains… all the other houses went ip in price too and you have to sink your capital gains back into the next mortage/deposit… or move to different town/country and take your money with you….

    Aswell there are some confilicting opininons in this thread. Some ppl say, save, save, save other people say, enjoy life now when you are young – but that implies you will be stuck working till your are old – or really to your last days. My grandparents died already, and they were working till their last days and it looks like my parents will be working till their last days aswell… I just dont want to be in the same boat… I make quite a reasonable salary and i kow how to live frugaly and i make bit of monies on the side, but after 5 years i make progress, but at this page i’ll be doing it till i’m 55….

  58. K.C. says:

    To Mops in NZ. Evidence suggests property costs are growing > inflation throughout the world. Raw materials prices aren’t going down with China and India sucking them up. Property ~tripled here in Florida 2000-06. NZ seems an inticing place to live so don’t be surprised to see people moving there. Then again all bets are off if the US government continues with its gross debtor spending and we encounter a serious downturn. It’s coming, its just hard to tell when.

  59. victor says:

    I really don’t see the hubbubalu.. with a destabilized environment, the dollar isn’t really going to mean anything. Think about it, our security is based upon the future acting in the same manner as it did in the past which has become a pipedream. Bush’s refusal of the Kyoto protocol and embracing of middle-east politics only sets this assumption in a concrete tombstone. The past will be set into a tombstone and life will move on to an importance of utility, without real change and dedication to green politics instead of chasing wars of aggression to parade the triumphal arch.
    We’re not just talking about 45 mpg cars really, we’re talking about a commitment to reduce, reuse, and recycle. Our future is not our Dad’s. Just look at the dwindling resources available while Rates of consumption increase. No the economy might not tank, but money isn’t going to mean much if the person isn’t willing to sell.
    This article seems to presuppose that early retirement is of utility. I suppose that it might be if the assumption that the past is going to be future, but why expect that in the face of fast paced climate change? It really is all about the strain rate. Fact is, you have no idea..

  60. JC says:

    If you get married and your wife decides to leave you, there goes half your $. Ouch. I know some guys who’s wives married specifically for this purpose.

  61. SL says:

    Looks like the perfect plan for someone who plans on never have a family.

  62. RPC says:

    In any event, he should still contribute to a 401(k) to avail of the tax benefit. Once he retires he could roll it into an IRA and take money from it using SEPP (substantial equal periodic payments) whereby the IRS allows you to take a predetermined income stream without having to pay a penalty. He’ll also have non-qualified savings due to the fact that his annual savings over the 20 years will likely exceed contribution limts on both the ROTH and 401(k). Since the SEPP is a fixed income stream, he can draw from the non-qualified savings when inflation forces him to increase his spending. Another option is to draw from the ROTH to supplement the SEPP. Don’t forget that you can withdraw ROTH contributions (not earnings) at any time without a penalty.

  63. Dani says:

    Trent –

    This post was mentioned by the Philly area ABC affiliate on the news around 6:30 this morning. I didn’t catch the bulk of it, but the lead-in was “How would you like to retire when you’re 40?” The finance anchor said that she read about it “on something called The Simple Dollar”.


  64. Rob says:


    You’re being a little bit too optimistic about well… everything.

    Assuming that you can easily get over 12% average return just because your savings gets 5.5%. True, you can easily earn over 12% through other investment means, but the fact of the matter is, over a course of 10/20/30 years, you’re unlikely to consistently hit those marks (especially during heavy bear markets). Experts have long struggled to beat the average market returns over a longer period of time.

    I know a lot of people who do what you do. In fact, I used to do what you do. However, do keep in mind that there are a lot of factors to consider and a streak of bad luck (market change, sales drop, new costs, etc…) could greatly affect your income. You do realize the variability already. Over 10 years, you could make more, you could make less, but it isn’t what people would consider steady income.

    A programmer’s average salary is 60k-70k. That I believe is all inclusive, meaning even the more experienced folks should be included. One of the glaring exception is Google, whom I’ve heard has an average programmer salary of 190k. I’m not saying you can’t get a 120k salary (you even said minimum…), but it’s unlikely. First year, 18 years old, no college, minimal programming experience (assumption, but you’re 18, the most you could’ve done this, meaningfully, is 5 years) isn’t going to be that attractive to companies no matter how you look at it.

    Sorry to be so pessimistic about everything, but a reality check is in order. I’ve learned that life throws a lot at you and it pays to consider the worst. This is coming from someone with just three more years of living…

  65. Adam says:

    For those of you stating that you can take your return rate minus inflation to get a real rate are wrong.


    ie. the market rate equals the real rate plus the inflation rate plus the real rate times the inflation rate.

    Ok, I know it introduces only small errors, but when it come to retirement one should plan well.

  66. You need an automated and generalized personal financial planning model to project what might happen. Even then you will just have a set of possible scenarios about the future. Given all the variables and the complete lack of any reliable crystal ball about the future, it is important to look on lifecycle financial planning as an evolving process. When you think you have built up enough assets to retire (at any age), you need to run a range of reasonable assumptions and then make decision on whether you could manage in the future in those circumstances. Even in retirement, you need to adjust consumption in real time if the economic and investment situation were to change and the trends are running against your plan. The bottom line is that financial planning is an evolving process. Hope that’s vague enough for y’all! :^)

  67. “it can be done if you have the willingness to live below your means”

    That’s quite a trade-off and one most people would never be happy accepting. Let’s face it, we live to our means, but it’s also important to bear in mind that there are ways we can save from our existing spend and put that into savings instead. I think that’s the seriously big secret.

  68. Jongasm says:

    Personally, I wouldn’t want to retire so early. What am I going to do all day? I intend to work as long as I can, and it’s going to be work that I enjoy.

    But investing early is always a good idea. It doesn’t hurt to have a lot of cash in the bank!

  69. Another tip would be that when he gets raises or extra income, make sure to save it. In other words, get used to the current frugal lifestyle and stick with it even when you have more money. That’s what works for us.

  70. Stacey says:

    Smart to think about the future and assume you will not be taken care of by the government after retirement, but I think there needs to be a happy medium. Work a normal 40 hours a week like most Americans, have a family, get a 401K and put some in savings in the bank in the meantime. You may have have to work until normal retirement age, but you can still have a normal balanced life. I would think that would make a person more fulfilled than being retired early and not having anything to do at all. If you do meet the love of your life, what are you going to do when you take her on a date? She’ll have to order off the 99 cent value menu at Burger King. If you think you are going to use all your spare time traveling after retirement, you probably won’t be with a family to share it with. Sounds like a bleak, boring future to me…all to retire at 30. To each his own I guess.

  71. Why retire early? Dave Young, now President of Paragon Wealth Management, retired in his late 20’s and got bored. He retired for about a year after he sold his 12 franchise businesses and decided to keep working. Now he owns a money management firm. His plan is to work for 9 months and travel for 3 months of the year. It has been going good so far. He’s been to Africa, Alaska, Europe, Australia, Canada, Mexico, etc. and he’s loving life!

  72. I admire this 20 year old because at least he is thinking about his future. At least he is planning which is the least i can say for a lot of other people that are this age.

    Just talking about compound interest here for a second. Let me give you an example of how rich this guy could be in say 20 to 30 years. Just by making a single and once off deposit.

    If this guy invested $20 000 initially once off and invested his money @ 15% compound. In 30 years his money would be worth $1,324,235.44. Just from making that once off payment!

    If he decided to initially invest $20 000 @ 15% compounded for an extra 5 more years .. so in total 35 years his money would have grown to $2,663,510.47. Meaning to say that he made $1 000 000 sitting on his ass doing nothing.

    So i guess the point that I’m trying to make, is that being young is great because time really works for you.

    So no matter how much or little he chooses to invest, the main point is that he should start now!

    Young Investor


  73. webtag.ru says:

    May be it’s wiser to invest 20% from salary in things like antique or stocks or something like that. I know people who already bought a piece on a moon to grant thier children then time comes

  74. Ace says:

    Well, I am 24 years old now, and have quite literally spent EVERY dollar I have ever made.

    I pay the bills to build up my credit, and blow the rest. By the time I’m 30, I will have been in my current career for 10 years, will have a nice salary (170-200k), and will have great credit.
    I really don’t see a need to save cash now.

    I don’t want to save now and just watch my dollars lose their value, when I can spend them now and REALLY enjoy life.

    I think my model works well, but it does require 1 thing.

    A wealthy family. In case of emergency. If I really NEED the money, I can always borrow it interest free. I know that most people MUST save a certain amount.

  75. Jeremy says:

    WOW! These comments have been very amusing. Thanks for the post Trent.

    It is amazing to me how people try to justify their spending habits, but I suppose some of us just take a bit longer to learn our lessons.

    I’ve always used the 12% figure as well, and perhaps I should revisit that, but the nobel peace prize winning Modern Portfilio Theory suggests 12% to 14% even (all stocks) is very achievable while minimizing risk. of course once you start getting w/in 10 years of your retirement date you will need to transition to a certain percentage of bonds which will lower the average rate of return.

    As for the enjoy life now versus later debate, That argument will probably never be resolved…But, personally I plan on saving as much as I can so I have the options to retire whenever I’d like, live wherever I’d like and not feel “stuck” in a job I hated because I just “have to pay the bills”

  76. Meg says:

    Insisting on entering a field with a 6 figure paycheck at an early age isn’t that hard. I’m in pharmacy school right now, pharmacists start out at 100K+. My husband who is not science oriented at all joined the Army. The Army doesn’t exactly pay well, but if you’re good in combat private companies will pay 70K$ for a 3 month stint in the violent places of the world.

    Before everyone says that being a “hired gun” is too dangerous; after surviving combat once your chances of dying the next time (and every time after that) go down drastically.

    It’s all about the choices you make. If your passion lies with a lower income career path then take it. I’m just trying to show how a young couple can make 200K+, even with one of them only working for half the year (2×3 month deployments).

  77. Mike says:

    This realization is part of the reason I quit my job and gave up on the “spend your entire paycheck” lifestyle… compound interest is so ridiculously powerful if you start young, and it’s more about your power to save than your income.

  78. Jack says:


    I agree with retiring soon. I am twenty and in college and dead set against all debt. School loans included. How screwy is that. School loans out of the gate. It is like indentured servant hood. I started my own moving business on http://barefootstudent.com and am determined to avoid at all cost. Once I graduate I plan to build wealth. But not stocks for the long term. That is a baby boomer fantasy. With 70 million retiring soon, the demographics look like the majority will be selling. That means lower prices, for everything. Real estate (already crashing) stocks, you name it. People my age need to put their savings into real things for now. Ten years in the future. It might be time to start buying investments! So my advice. Avoid debt at all costs with a depression coming on, save every penny, and wait for the boomers golden years when virtually everything will be for sale. Then buy, buy, buy!

  79. Roland Latour says:

    Read “Your Money or Your Life” by Dominguez and
    Robin. Spent 14 hard years in Silicon Valley,
    retired comfortably at 46. Target: house, a few
    acres, $500K. You can do it too, by simple
    living. It’s not about denial, it’s about
    setting priorities.

  80. galen says:

    There are a lot of comments expressing doubt about what the article says and a lot of pessimistic views on how the economy will progress from here. First off, 12% is not high, nor is it an estimate. It is the average performance for the fund. You can look it up. Sure, in any given year, you may expect to see less than 12% but you could also see higher than 12%.

    But I don’t want to argue point for point here, because the specific numbers really are not what you should take away from this. The point is, disciplined savings. Make your saving automatic, make them smart, make no excuses. Do that and you will end up with a substantial sum when you are ready to retire. Kids may very well force you to question the savings plan but it is not impossible. Owning a house is certainly not out of the picture, but its just not going to be as big. That is kinda the point of the article.

    So to everyone who says “you cant do that” and to all those who claim the world is falling to pieces, go ahead, pick apart the scenario all you want. Ignore the article, take your negativity and retire at 65 (if you can), hoping you have enough to last until you die. But don’t ruin it for the rest of us, who have goals to do something other than work and spend. Everyone should be encouraging this kid to take his dreams and make them reality. And no one should let a pessimist into their head telling them what they cant do.

  81. budi says:

    hi, i am just wondering, where did you get the 12% S&P500 growth rate from? I ran this spreadsheet and I realised that for any 10 yr period, the average annual return is hardly more than 10%. Did I do something wrong here? Thanks

  82. Patch says:

    One thing that is rather annoying are those who have been posting with 70k a year jobs explaining how investing is easy. If you have a nice salary and little responsibilities such as a wife or kids of course it’s not very hard. If you have a wife, 2 kids and make 35k total income taking a 20% cut takes on a new meaning…I’m just saying it takes alot more work for someone making an average income to retire at 40 or 45

  83. Investing for retirement is a very easy process. Create an automatic investment plan from your paycheck, determine an asset allocation which includes large cap, mid cap and small cap domestic and international stocks, some fixed income, some real-estate. Then set it up on autopilot. And that’s all the work you have to do.

  84. Eric Meyers says:

    I see that many of the replies look at the specific numbers or expected rates of return and I believe if all goes well for the 20 year old putting 20% to 30% of income away he could retire 20 years later. Other replies also indicate issue of marriage, children, etc.
    I did/have put away 20% or more away in both 401K and have also diversified into real estate but I am not in a position to retire and I am greater than the stated age. Accordingly, for one to retire early 40s, they would have to have a lot of luck and not have a family (we have seen the cost of what one child is to raise from 0 to 18 years old).
    Taking your recommended steps are highly recommended but plan for bumps in the road and an early retirement may be more realistic at 55 to 60 years old.

  85. DollarFlow says:


    ANNUAL INTEREST : 12,00% S&P 500

    Year cash profitability
    0 6.000,00 720,00
    1 6.720,00 806,40
    2 13.526,40 1.623,17
    3 21.149,57 2.537,95
    4 29.687,52 3.562,50
    5 39.250,02 4.710,00
    6 49.960,02 5.995,20
    7 61.955,22 7.434,63
    8 75.389,85 9.046,78
    9 90.436,63 10.852,40
    10 107.289,03 12.874,68
    11 126.163,71 15.139,65
    12 147.303,36 17.676,40
    13 170.979,76 20.517,57
    14 197.497,33 23.699,68
    15 227.197,01 27.263,64
    16 260.460,65 31.255,28
    17 297.715,93 35.725,91
    18 339.441,84 40.733,02
    19 386.174,86 46.340,98
    20 438.515,84 0,00

    Keep in mind that if after 40 years, you live another 40, you have to live with $ 10962.89 per year, and due to rises in the inflation, this money at that time will have less value it has today.

    Good luck

  86. JP says:

    i am currently serving in the army. my wife and i aare planning to have children soon. when i retire in 9 years, i intend to become a very involved semi-retired dad who coachs sports and leads cub/girlscouts. my wife is a teacher so we would like to keep summers open and enjoy life outdoors.
    what investment is recommended for semi-retiring at age 40-45? my wife and i both max our roths and contribute to 401 / 403, but we can’t withdraw the money in an early retirement. we are planning to live on her teachers salary and my pension.

    i would like to put money into an account i can use at age 45 in addition to my military pension. thanks for any suggestions.


  87. Matt says:

    I started up my own business when I turned 25. Once my business started to make money I started to invest in dividend stocks.

    I enjoy my work and do not mind working long hours. I also have a dream to sit on a nice warm beach somewhere when I am 50.

    Retiring @ 40 seems a little too optimistic. My goal is to be ‘in the position’ to slow down when I hit 50 years old.

    I would rather have my money work hard for me then the other way around.

  88. Janet says:

    Retire at 40? No debts?

    You’re in a league all your own. Most people aren’t fortunate to be in a situation where they can sock away so much money.

    What about:

    –student loans
    –car payments

    Can you tell me the secret to finding a six figure income directly out of college? I don’t know anyone under 30 who makes that much.

    Are you planning on ever getting married or having kids?

    I think that it’s very difficult to plan life, because life just happens. It’s great to plan for retirement (I’m 25, and I’ve been planning for a few years already!), but you have to be realistic.

    In our economy — you can’t be entirely sure that you’ll keep the same job, especially when you’re so young. Things change, just be prepared and realize that you may not be where you want to be in 20 years.

    Good luck.

  89. t-luck says:

    Unless you are the lucky few who just got a brilliant idea and opened a website and that suddenly raked in millions…

    otherwise, prepared to live life with all the due expenses!

  90. AFI says:

    Good post. Very informative.

  91. Looks like the perfect plan for someone who plans on not having a family.

  92. Ryan Vaught says:

    This is the very reason IRA and 401Ks are not always ideal for those looking to retire early.

    Use other tax shelter means such as custom pension plans, C corps, real estate depreciation etc instead. If you have a matching company contribution that is great, but otherwise it might be better to pay taxes now, while your income is lower, and not have to wait till your 60 something to get your own money without penalties. It kind of defeats the purpose to have all these savings if you can’t reap your rewards until you are in your 60s.

    I made a spreadsheet showing my progress on such a plan and compare savings, investment income and total net income to make sure I will make my early retirement. It is possible, just most people don’t see it as a priority. Perhaps some people are more tolerant of the grind them I am. :)

    SIDENOTE: Also whoever was dogging on six figure incomes, is just venting. The fact it is possible for most people, but not always worth the risk or sacrifice for everyone. Six figures is not a lot of money in todays world, especially if you have two income earners. I know a 60+ year old lady who makes six figures selling things on ebay, and another dozen of people who do other side businesses that net way more then six figures. Perhaps the only limiting factor is your negative attitude and motivation. The sky is the limit, so go for it!

  93. Interesting article and a topic that is very close to my heart.

    I was once a young college graduate with similar plans. Then I met my girlfriend and all bets were off. Trying to live frugally is one thing when living alone – trying to do it as part of a couple is something else. It can be done but it is more difficult.

    That said it is essential to set up your savings plan so that it is automatic and take directly from your bank account before you have a chance to realize that it is gone.

    That guy has the right attitude – start as you mean to go on.

    Good luck to him

  94. Charles Cohn says:

    One pitfall that nobody has mentioned yet is that when your friends and relatives find out that you have accumulated a major nest egg, they will be after you to loan them money or invest in their ventures. Also, if you have any religious involvement they will be pushing for donations continually. If you don’t have the gumption to say no to everybody, your nestegg will disappear fast.

  95. Chris says:

    How’s that early retirement plan working out for everybody NOW? HAHAHAHA!!!

    How is that 12% return looking to everybody? HAHAHA!!

    How is that awesome high paying job working out for you?

    Might as well laugh about it. What else can we do?

    Oh.. And BTW, the VAST MAJORITY of the richest people are all MARRIED.

  96. min says:

    great post. Agree with buy and hold strategy. only problem is capital limitations and cost of holding. And Q is buy what. stocks or indices or sectors? thinking of agriculture in general and sugar in particular. interesting article http://theinflationist.com/agriculture/how-to-invest-in-sugar

  97. How much cash money do you need to be able to “live well” off investments and interest alone? By living well, I mean earning about $100K a year.

  98. helen says:

    This post considers the absolute best case scenario in… well, everything. The best possible returns on index investments, no personal or health problems, dual income marriage, healthy and problem-free children (who will end up going to college on full scholarships, no doubt). Please point to one person in your own circle to whom this happened?

    I think it is the slightly older and wiser of us who are responding with potential pitfalls in the provided scenario. I have now been in the job market close on to 8 years (having graduated in the unfortunate 2001) and over these few years, I had seen ideal investment plans congeal, be put in action, and blown apart under the force of circumstances and shifting life values.

    I saved like insane in the first five years of my career and, making close to a six-figure salary, I was able to invest some, pay off college loans, put a healthy % down on a nice apartment, and continue living as usual during a recent two-year unemployment spell. So, saving and investing is super-important, yes. But putting one’s life on hold until retirement?

    You, in your early 20s, if you think you will be able to sustain such a lifestyle, put your thoughts down on paper now. You’ll get a good laugh out of them in about ten years. Delaying children until you are 50? Picking out the cheaper, frost-bitten apples at a local grocer’s? Getting the ever creaky furniture at Ikea for the next thirty years? Wearing the same suit till the collar starts getting shiny and threadbare?

    Please… No amount of future gain is going to justify not getting invited to friends’ birthdays because you always tip no more than 5%. With age, come shifting priorities. So, save heavily while you are very young, but don’t hope that one can continue at the same frantic saving pace in one’s thirties and forties. Please, add a dash of reality to that advice!

  99. Jeremy says:

    That’s a brilliant plan….assuming the stock market returns 12% per year.

    How did that plan work out for all the 20 year olds who started buying the NASDAQ in 1999-2000 at a high of 5000?

    Or what about everyone in Japan from 1989 through today? They are down from a high of 38,000 to about 9,000.

    There are a ton of 20 year time periods where the stock market WAY underperformed the mythical 12% annual return. Factor in inflation, and its even worse.

    The best bet is your own automated business along the lines of the 4HWW “muse” concept. Muses are hard to make–don’t let anyone tell you that you can create passive income easily–but so is saving 20% of your income for 20 years and averaging a 12% annual return in the stock market.

    Saving is great, get me wrong. Just saying that these phony annual return numbers from the stock-market snake oil salesmen create unrealistic expectations.

    Run the numbers with a more realistic long term target such as a real (after-inflation) return of 5%. Hate for you to turn 41 with your big investment warchest in 2000; or Japan 1989, trying to live off of your interest.

  100. Vanessa says:

    As a mum I can’t relate to this, although I was in the same situation in my early 20s, no debt and working. I’ve been renting since I was 18 and would have saved thousands of $ by staying at home.
    Since my daughter’s birth, my income is down by 50% and will probably be for the next 5 years, and (like everyone else) the money I had invested in shares since college has halved.

    Investing in real estate won’t be feasible until my child goes to school, so I can only try to earn more, save more, and find good investments.

    No retiring at 41 for me!

  101. Paul D says:

    Great, informative post, but in my humble opinion, there’s a time and a place to be financially responsible and frugal, and it ain’t when you’re 20.

  102. dlm says:

    What about Joe Dominguez, Your Money or Your Life, retiring about age 30 and living for 30 years happily on about $6,000.00 per year — from bonds.

  103. 22limit says:

    Your suggestions are very impressive, but your reference is always to hight earners what about the lowerners like 24,000 anually. How much can they stash away as we living frugally currently. Where do you find the money to put away and how much should one try and save?Retirement is out of the whole picture right now.Babs

  104. Ginger says:

    I am 25 and though I am only saving 5% now after I get married in a 1 year and 2 months we will be saving 20%. When I was 23-25, I was saving 20% as well. It is not hard to save that amount, however we will lower it down to 10-15 once we have kids but the early years are the best time to save 20% or more.

  105. Guy G. says:


    If he has no debts, he could even do more than 20%.
    If he follows your tips on budgeting and works towards increasing his income while keeping his expenses in check, then he should be able to retire quite young.
    Also, if he gets into business and finds alternative sources of income with more potential the process could go even quicker.


  106. Jonathan says:

    My strategy so far has been this:

    – Been a programmer for 6 years. Switched my career to contracting, after discovering that A) I’m highly employable and can pick up new work easily, B) contracting pays much better.
    – After tax I’m making $1800-2000 (AUD) p/week on average.
    – Lowest I can keep my expenses is $400 p/week.
    – Putting about $1500 p/week into savings.
    – Maintaining a social life by only having friends who are as frugal as me.
    – Staying single to avoid relationship/marriage expenses. Don’t really need kids; the relatives are popping out babies, so I can enjoy being “uncle” without the responsibilities of parenthood :)
    – Planning on doing some contracting in the UK and US, which will probably pay even better rates for my skills, and still allow me to travel.
    – Doing a Masters degree, all paid for by the government out of tax deductions (work-related education expenses).
    – I have a LOT of business/startup ideas, which could generate modest profit. I’m thinking of taking 3 months off work just to try them all out.

    All said and done, I’m not sure I’ll ever be a millionaire, but I still prefer saving and living frugally because:

    – Work is a big part of my self-fulfillment in life.
    – I like being financially stable enough to pick and choose my jobs and not depend on my employer.
    – A genuine relationship should be based on personal values and love, not on money, so I don’t see any point getting a girlfriend if doing so costs money.

    As far as the “doom and gloom” (financial markets collapsing, global warming, etc), that doesn’t change anything for me.

    I’d be pretty upset if I lost all my savings, but not devastated, because I’ve gained a lot of non-monetary benefits from working – i.e. having skills that are always be in demand, meeting lots of cool people, increasing my intelligence and problem solving abilities.

    So money is important to me, but not everything. But living responsibly and thinking long-term IS important.

  107. I only disgree with your advice about becoming a buy and hold investor. This would have completely wasted the past 11 years of an investor’s life. We are now halfway through the bear market – with 7-11 years remaining. Only a strategy centered investment approach that includes both and offense and defense will see your money grow.

    Other than that, great!

  108. Read This says:

    Have you ever thought about creating an ebook or guest authoring on other blogs? I have a blog based on the same subjects you discuss and would love to have you share some stories/information. I know my visitors would enjoy your work. If you are even remotely interested, feel free to send me an email.

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