How to Retire on $1 Million or Less

Summary: This post tells how to retire on one million dollars or less at age 35 or lower.

I’ve noted from time to time that I read a ton of money blogs.

One popular sub-group is the FIRE bloggers.

In case you don’t know, FIRE is an acronym for “Financial Independence Retire Early”. These blogs focus on reaching financial independence and retiring at a very young age — in their 30’s and 40’s.

It used to be that my retirement age of 52 was “early.” Now I’m just a slacker, at least when age is the primary consideration.

How to Hit Financial Independence by 35

The steps to FIRE won’t surprise you. They involve earning, saving, and investing. 🙂

There are many ways to work those three to reach FIRE, but there are also some common threads. Here are the basic steps of the FIRE movement:

  • Earn a very high salary. Many in the FIRE movement are in the technology, engineering, or medical fields where even starting salaries can be quite high. Several also have spouses with similar positions, so when the two salaries are combined, they are substantial.
  • They keep debt low, usually paying off even their mortgages before hitting financial independence.
  • Save a large percentage of income. In fact, 50% seems to be an entry level to get into this club. Most save 60% or more.
  • Invest savings in low cost index funds and let it grow.
  • After 10-15 years, they are in their mid-30’s and have a good chunk saved up. They’ve reached financial independence!

There’s usually more to it than this, but these are the steps that seem common to most FIRE bloggers.

How to Retire Early on $1 Million or Less

The next question is how they afford retirement. Here are the details:

  • It seems that most decide to retire once they hit $1 million in net worth. I’ve heard of retiring with lower levels of savings (like $750k), but we’ll use $1 million as a reference.
  • Since most of them own their homes debt free before they retire, they limit retirement spending.
  • They are used to living on a small portion of their earnings, so retirement is no different. They just keep their spending under control and are fine.
  • Using the 4% rule (here’s the definition in case you don’t know what that is: “The four percent rule is a rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. This rule seeks to provide a steady stream of funds to the retiree, while also keeping an account balance that allows funds to be withdrawn for a number of years. The 4% rate is considered a “safe” rate, with the withdrawals consisting primarily of interest and dividends.”) they can take $40,000 each year from their $1 million and live on this.
  • $40k without a mortgage is a decent living in many areas of the country.
  • Some move to cheaper locales within the U.S. or even internationally to make expenses even lower and help their money go farther.

Bam! That’s how you do it! You’re now retired at 35!

Extra Income Requires Less Assets

All the above assumes that you earn no additional income during retirement.

But some early retirees do want to work and/or have a business that brings in extra money. It’s just that during retirement they can work on things they WANT to do versus things they HAVE to do. I can certainly relate to this.

Among the FIRE bloggers, many actually earn a very healthy income by writing about retiring extremely early. There’s nothing wrong with this, of course. However the retirement police seem to think it’s less than appropriate for people who espouse being retired and not having to work to work and make a good living. Whatever.

Let’s say you wanted to downshift your career (i.e. limit your work hours), “retire” early, and work on a few things here and there just because you enjoy them. Plus you want to earn a bit extra on the side.

This extra allows you to quit your “normal” job much sooner. Consider these numbers:

  • Let’s say you need $40k in annual income to retire.
  • Let’s also say that you can make $20k per year blogging or doing whatever side hustle you love (BTW, many FIRE bloggers make way more than $20k per year).
  • Then you only need to generate an extra $20k from your savings to retire. Using the 4% rule this means you only need $500k in savings/investments to retire.

Of course, it’s much, much easier to save $500k than it is to save $1 million. This now allows you to retire even earlier! Say hello to retirement in your 20’s!

This is the basic formula for retiring on a million dollars as well as retiring extremely early.

If you make the right earning, saving, and investing decisions and start early enough in life, the math proves that it’s certainly do-able.

Any thoughts on this? Could you see yourself doing something similar?

FYI, if you’d like more information on retiring early, check out my FREE ebook on the Three Steps to Financial Independence.


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