I’ve talked about invisible scripts before. They’re the things we tell ourselves that are so deeply embedded that we don’t even realize they guide our attitudes and behaviors.
- “I need to go to college to get a degree if I want a good job.”
- “After I graduate, I need to get married and settle down.”
- “Having more Twitter followers means more people like me.”
And early retirement is no exception.
Our society has mistakenly idealized the idea of retiring. So much so that people are willing to clip coupons for hours a week and live ultra-frugally so they can retire in their 30s.
Take a look at this thread on a subreddit dedicated to early retirement. The original poster posits a provocative question: Do you all hate your jobs?
And the answers were equal parts interesting and sad.
- “I really enjoy the work that I do and the people that I work with. I just don’t want to have to do it 40hrs/wk and I don’t want to have to depend on doing it to get by financially.”
- “It’s not my job itself that I dislike. I dislike the general structure and rigidness of corporate work life.”
- “I don’t hate my job, but it is very, very boring. What’s worse is that I accidentally got too good at it, which means I’ve been put in the position of managing other people, and that part of the job I do not care for at all.”
If you dislike your job, I have one question for you: Why aren’t you working to enjoy yourself right now? Why put it off to some magical date in the future?
Top Performers aren’t thinking about how awful their jobs are. Instead, they aim to do work they truly love AND live a great life.
I’m not anti-retirement. I have my own retirement accounts and have been investing money in them since slap bracelets were fashionable. But I’m against the idea that you need to seek out early retirement in order to start enjoying life.
Instead, I suggest you start investing money for retirement early instead.
(See what I did there?)
Because for many of us — even the Top Performers — knowing you have a growing nest egg for retirement enables you to be aggressive in other areas. (And maybe there’s going to come a time when we’re going to just want to sit on a beach all day with a drink in our hands.)
So I want to outline a system you can use that’ll help you reach those goals. Just understand that it’s entirely possible to work AND still live a fulfilling life.
To start preparing for early retirement, though, you need to first understand what early means.
What is early retirement?
The Social Security Administration defines “full retirement age” as the age you get to cash in on Social Security benefits.
The age wherein you can get full Social Security benefits varies. Check out the table below to find out precisely when you can cash in on full benefits.
Year of Birth
Full Retirement Age
66 + 2 months
66 + 4 months
66 + 6 months
66 + 8 months
66 + 10 months
If you were born after 1960, you’re eligible for all of your Social Security when you turn 67 years old.
However, ANYONE can start receiving benefits at the age of 62, but there are some penalties.
So is retiring before 62 early retirement? Not quite. Aside from the Social Security penalties, there’s another problem with defining retirement at 62: Medicare.
If you retire before you turn 65, you have to attain health insurance for yourself because Medicare kicks in when you turn 65 — which is a drain on your expenses. And when it comes to early retirement, the most important factor in your financial life is your spending.
So for our purposes, early retirement is any age before 65.
How to retire early in 4 steps
Early retirement step 1: Find out how much you need to save
How much you need to save is entirely contingent on how much you spend. This is important because this will be money that you’ll be relying on for the rest of your life (assuming you don’t have another income stream).
To come up with how much you need to save, we need to look at three numbers:
- Income. How much you make a year after tax.
- Expenses. How much you spend each year. This includes everything that you might possibly spend money on in the year including rent, utilities, groceries, clothes, insurance, gas, etc.
- When you want to retire. This is the timeline for your early retirement plans. How are you going to know how much to save each month if you don’t know exactly when you plan on retiring?
NOTE: All these numbers are malleable. Life likes to occasionally throw a wrench into your plans and you won’t always make the same income or have the same expenses…and that’s completely fine. What matters is that you roll with the changes and adjust your plan accordingly — even if that means your retirement plans are pushed back a bit.
If you’ve been reading this blog for a while, though, you’re a Top Performer — which means you’ve already implemented a few systems in place that allow you to know exactly how much you’ve been earning, spending, and investing.
If you haven’t, that’s okay. I suggest checking out my Ultimate Guide to Personal Finance to help you get started on this.
Once you have all these numbers, you’ll be able to come up with a proper monthly savings rate. This is the percentage of money you’ll be putting away each month in order to hit your yearly goal.
Luckily, you don’t have to strain too hard with back-of-the-napkin math as there are trillions of retirement calculators.
This one is my favorite. It assumes an annual return on investments at around 5%, which is pretty conservative, and outlines exactly how many years it’ll take to save depending on your savings rate.
Play around with the calculator until you’ve come up with a savings and withdrawal rate that works for you.
“But Ramit,” I can hear some of you say now. “These numbers are way too daunting. There’s no way I’ll be able to save that much every year!”
That’s why we’re going to help you with BOTH the savings and earning sides, by showing you exact systems to do both.
Early retirement step 2: Cut costs to save aggressively (with scripts)
Chances are, after entering your information in the retirement savings calculator, you’re going to want to make some adjustments to your expenses in order to save more each month. Luckily, I have a number of systems that can help you reach your savings goals.
Negotiate your bills
It’s a little-known fact that you can negotiate your bills. In fact, with a single phone call, you can potentially save THOUSANDS of dollars annually on things like:
- Bank fees
- Your rent
- Car insurance rates
- Cell phone plan
- Gym membership
…in order to put away more money for retirement.
It’s incredibly simple too. The system boils down to doing 3 things in order to negotiate your rates.
It goes like this:
- Call up the company.
- Say the following: “I’ve been a loyal customer for X years, and don’t want to leave because of a financial problem.”
- Ask them: “What can you do for me to lower my rates.”
This formula will change with each company that you call, but the framework will be the same.
Check out my video on how to negotiate your bills for more on this topic.
If you want even MORE negotiation strategies that can help you save thousands a year, here are a few of my articles on negotiating that’ll help you bring your expenses down fast.
- How to get your overdraft fees waived
- 4 steps to negotiating lower car insurance — with scripts
- How to negotiate your rent
Implement the A La Carte Method
Often times we overspend on so many things we never actually use. This is especially true when it comes to things that require a monthly subscription.
And this is money that can go towards our investments for early retirement.
That’s why I’m a big proponent of the A La Carte Method. The system requires canceling all discretionary subscriptions — things like:
- Gym memberships
…and buy what you need a la carte.
So instead of paying $8.99 a month for a Netflix subscription that you never have time to watch anyway, buy the movies or shows you want on Amazon and iTunes.
Instead of getting another issue of The New Yorker sent to you and letting them pile up on your coffee table (and let’s be honest, you only have those there to impress your guests), buy the magazine when you want to from your local bookstore.
Or, instead of dropping $10 a month on Spotify Premium, just buy the songs you really want on iTunes or Amazon.
Of course, this isn’t for everyone. I encourage you to use this if you find yourself short on cash and wondering why you can’t save more money each month.
If, after about 2 months, you find yourself spending enough money on these items to justify the subscription, by all means pick it up again. If not, then you’ve saved.
For more systems and tips on saving, be sure to check out how to save money, where I detail even more techniques for painlessly cutting expenses.
Once you’ve cut your costs down to allow you to save enough each month, it’s time to grow your money.
Early retirement step 3: Invest to grow you money
Now that you’ve freed up some expenses in order to save more, you need to put that money to work for you through smart investments.
My suggestion: Invest in a mutual fund that tracks a low-cost, diversified index such as the S&P 500.
But your priority will shift because traditional retirement accounts penalize you if you withdraw before the age of 59 ½, whereas a mutual fund through an individual brokerage account won’t.
Two other advantages of investing in index funds:
- You don’t have to spend money on a mutual fund manager and other BS costs that comes with normal mutual funds. While you’ll still encounter an expense ratio, it won’t be nearly as much as a non-index mutual fund.
- You’re all-but-guaranteed a rate of return of at least 7% based on the S&P 500’s performance historically.
In order to purchase mutual funds, you have three options.
Both your Roth IRA and 401k allow you to invest money into mutual funds. You should take advantage of this, but if you want to retire early you’ll likely need to do a bit more — because withdrawing early from a Roth IRA and 401k hits you with a sizeable penalty.
Banks, credit unions, and stock brokers offer avenues to invest in mutual funds. In fact, there are plenty of fantastic brokers that offer a wide variety of mutual funds for you to choose from. My suggestions:
Both of these places offer high-quality index funds and have fantastic customer support teams who are ready to answer any questions you have regarding their funds.
So sign up online for an investor’s/broker’s account now. Afterwards, find out what index funds they have and start investing. I suggest investing in the S&P 500. For Schwab, their symbol for it is SWPPX, and for Vanguard, their symbol for it is VFINX. You can buy the fund just like a “normal” stock.
The mutual funds
Some funds allow you to create an in-house account wherein you can buy and sell funds offered by other firms — though you might run into extra fees if you decide to go this route.
If you want more information on mutual funds, I’ve written up a primer all about mutual funds that’ll help you make a sound decision when purchasing one.
Early retirement step 4: Earn more money
In the immortal words of UFC champion and boxing’s most famous amateur, Conor McGregor:
Get in. Get rich. Get out.
— Conor McGregor (@TheNotoriousMMA) August 12, 2014
If you want to truly be able to invest more money into early retirement, the best way to do that would be through the incredibly powerful combination of saving AND earning more money.
That’s why I created something for you that I think you’ll really like: The Ultimate Guide to Making Money.
In it, I’ve included my best strategies to:
- Create multiple income streams so you always have a consistent source of revenue.
- Start your own business and escape the 9-to-5 for good.
- Increase your income by thousands of dollars a year through side hustles like freelancing.
Download a FREE copy of the Ultimate Guide today by entering your name and email below — and get on your way to early retirement.