What is Early Retirement?
When most people hear the word 'retirement' they immediately conjure up the image in their head of a bunch of blue-haired men and women in Hawaiian shirts playing shuffleboard on a cruise ship or endless rounds of golf. Some people might think of something more along the lines of owning a sailboat or moving to a piece of land far from the city. These are all great plans if that is what you want from retirement, but it's not what I mean by Early Retirement.
Early Retirement is something that you can do after you achieve Financial Independence. Financial Independence means that you have enough assets saved that you no longer need to work for money to support yourself. At this point, you can stop working and live whichever life you want, as long as it fits within your budget.
Did you always want to learn to paint but never had enough time to really apply yourself and practice? If you retire early, you can spend a year making learning to paint your full time job, and not worry about money the entire time. Maybe you wanted to backpack Europe but never got to do more than a whirlwind guided tour of a few of the major cities in France and Germany. With Early Retirement, and a few of the other strategies I'll discuss on this blog, you could spend a year slowly making your way across the continent and soaking in the culture instead of rushing yourself to make sure you get all the important selfies. The possibilities are truly only limited to what you can imagine.
There is some relatively simple math behind the idea of Early Retirement and what it comes down to is budget and assets. First, you have to establish what your budget for retirement will be. Will you be frugal and live off of $25,000 a year? Or will you be more extreme and want to spend $100,000? It's up to you, but the more you want to spend in retirement the more you'll have to save and invest.
Once you settle on your budget, you have to start saving and investing. The best known study in the Early Retirement community is the Trinity Study. This shows that you can withdraw 4% of your balanced portfolio every year for 30 years and, in 95% of cases, you will not run out of money. That means your goal for savings and investments should be roughly 25 times your annual budget. $25,000 x 25 = $625,000.
Now you'll probably say, "That's a lot of money. If I start trying to save that much I won't have any money to spend on anything else." That's true if you aren't savvy with your spending and you aren't willing to take advantage of the benefits we all have living in modern American society. We in the military also have another ace up our sleeves: a guaranteed pension after 20 years of service. Combine the average officer's pension with 20 years of reasonable savings and investing and you would be hard pressed not to have $50,000 in real money a year in income indefinitely. That's basically the median household income without having to work another day in your life!
Early Retirement is possible with the military. You just have to take a few risks, put in the hard work, and avoid lifestyle inflation. If you can do all that, it should be a quick 20 years to financial mission accomplishment.