How To Live off 35% of Your Income & Retire by 40

In the age of Silicon Valley, a lot of us dream of launching the next Warby Parker, Instagram, or Airbnb—a wildly successful business that will leave us financially set for life. But the game is kind of rigged. Research says that, on the whole, entrepreneurs aren’t the fearless, high-achieving heroes we imagine them to be. They’re just rich kids—people with inherited wealth and safety nets who can afford to take risks that would bankrupt the rest of us. A 1998 paper published in the Journal of Labor Economics concluded, “individuals who have received inheritances or gifts are more likely to run their own businesses.” And economist Ross Levine told Quartz last year that the chances of becoming an entrepreneur “drop quite a bit” when your family isn’t loaded.

But those of us born without trust funds need not cry into our IPAs. What if, instead of going into business to get rich, you got rich so you could go into business? Take Peter Adeney, better known as the blogger Mr. Money Mustache. Adeney initially won Internet fame because he “retired” at age 30. Working as software engineers, he and his wife, Simi, saved and invested their income until they’d amassed a nest egg of about $700,000. At that size, their small fortune could generate returns substantial enough to live on. So Adeney quit his job and set about doing, well, whatever the hell he wants. He’s since become the face of the early retirement movement—sometimes referred to as FIRE, for Financially Independent Retired Early—and inspired thousands of people to follow in his footsteps.

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I’m one of them. For the last five years, my husband and I have been using Adeney’s basic blueprint so that we can retire decades early, too. And we’re in good company. Mr. Money Mustache now racks up around 750,000 unique visitors and about seven million page views a month. Like Adeney, I don’t conceive of retirement as endless leisure. Forty years of golf and reruns would turn my brain into applesauce. To my mind, the most interesting thing about Adeney—and his relevance for would-be entrepreneurs—isn’t that he retired so young. It’s what he’s done with his retirement. Namely, as he explains on his blog, “the Mrs. and I started a cozy new two-person company that does whatever we want it to do.” So far, that’s included carpentry projects, building and selling a house or two, and the Mr. Money Mustache blog.

It’s almost as if Adeney built his own trust fund and turned himself into a rich-kid entrepreneur. Some of his achievements are directly attributable to the fact that he didn’t need that business to generate a profit in the short term, or even much of a profit in the long term. Adeney’s success as a blogger has been expressly built upon his financial independence. It gave him his subject, for starters, and allowed him to write in whatever tone he wanted, instead of catering to advertisers. Readers took to his irreverence—and no wonder, when most personal-finance writing is gratingly chipper and seems like filler in between credit-card ads.

Readers could also trust Adeney, knowing that his advice wasn’t contingent upon what would fatten his own bank account. While this kind of personal credibility probably should be de rigueur for a money guru, it’s still more the exception than the rule. It’s not a great big leap to say that Adeney ended up making around $400,000 a year from his blog in large part because he didn’t need to. The advantages don’t stop there. His self-built trust fund also insulated him from the brutal realities of the online media business, in which Google and Facebook scarf up around 90% of new ad dollars and many fledgling outfits crash and burn. He’s also been able to take breaks and work on the blog when he wants to, rather than adhering to the sort of ruthless schedule many entrepreneurs are stuck with.

I totally get that saving up your retirement nest egg decades early might seem like an even tougher dream to realize than just going ahead and starting your business. Judging by the “Mustachians” who post and comment on the site, the demographic appears to be reasonably high-earning folks with naturally frugal tendencies. Not everyone is in a position to save and invest, of course. A single person earning $70,000 in New York might not have much left over after taxes, rent, food, and the odd late-night Uber. A married couple in Cleveland earning $200,000 (nearly four times the median household income, let it be said) probably wouldn’t find this tactic very difficult at all. Such high-paying jobs are very much the exception, not the rule—and that’s to say nothing of those who can’t find jobs at all.

Personally, I’m not exactly frugal—I just prefer to live like a grad student because it keeps life simple. Right now, my husband and I live on about 35% of what we make, net. We earn more than we used to, but we’ve been able to avoid lifestyle creep because our tastes haven’t shifted much and certainly haven’t improved much. (We splurge on food and travel. But we still drink $6 wine, buy used books, and get t-shirts from Uniqlo, none of which I regard as any kind of sacrifice.) In business, you’d call this operating leverage. Market willing, we should be able to retire in five years, when we’re 39 years old. Then we’ll start a company that “does whatever we want it to do.”

So how much money are we talking? To size your nest egg, you calculate your yearly living expenses and multiply them by 25. Then you invest and use the magic of compound interest to help you reach that goal. (Adeney suggests index funds—simple, low-fee investment vehicles that typically track the returns of the stock market.) Once you’ve hit your number, you withdraw funds at a rate of 4% a year, known as the Safe Withdrawal Rate. A $1 million nest egg, for example, would yield $40,000 each year. A $2 million nest egg would yield $80,000. Simulations of model portfolios suggest this rate allows for lifelong withdrawals in nearly every market scenario. That means that you should still have money left at the time of your death, even 30 or 50 years hence.

I’m aware that the tone of this advice could seem money-obsessed or money-grubbing. But I don’t say it out of the conviction that the world’s already abundant supply of rich jerks needs adding to. (Parts of this article were written on January 20th, an auspicious day for rich jerks everywhere.) Rather, I think the dream of financial independence is worth chasing because I’m convinced that freedom is one of the worthiest goals around. If you’re a person with big-time creative dreams, it would be a tragedy straight out of Arthur Miller to spend your life working for someone else—or waiting around for the world to change. We seem to be decades away from instituting a universal basic income. So it might be time for you to try to DIY one.

Rich kids may dominate the entrepreneurial landscape. But over time, you could become one of them yourself—a person for whom many of the usual risks don’t apply.

  • QZ

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Planning for a Non Retirement

Much of financial planning focuses on retirement. But what if your client isn’t planning to retire?

Trish Wheaton, former global managing partner of one of the world’s largest communications groups, is grateful that she could work 30 years in advertising — an industry notorious for employing youthful “mad men.” She wasn’t surprised when she was told that her time was up at age 65, but she also wasn’t ready for a traditional retirement.

Wheaton mused:

“Sixty-five is the new 45. I had to ask myself ‘what’s next?’ I realized I didn’t have a clue. When I talked to my female peers in the same situation it turned out that they were feeling the same way. We were all used to being successful. People still want to invest in their passion . . . it’s just a question of where do they invest it now.”

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She decided to form a Leaning Out™ salon: a gathering of high-achieving women who discuss finding post-career success and purpose. “With the same energy, goal orientation, and drive that propelled them to lofty career heights,” Wheaton explained, “these female professionals are radically redefining ‘post-career’ and turning it into a time of abundant purpose, goal redefinition, and personal well-being while over-turning some well-entrenched approaches to ‘retirement’ in the process.”

I participated in one Leaning Out session, where we discussed a host of topics, including what motivates women to non-retire. Most successful women truly enjoy working. That message came through during our salon with comments like:

“I hate saying I’m retired.”

“After my job ended, I would go to my computer in the morning and when I looked at my email, I would feel like I don’t exist.”

“I miss the intellectual stimulation from work.”

“I want to do something different now . . . something that will matter to me.”

Opting out of retirement might even be good for longevity. Shigeaki Hinohara, a Japanese physician, worked 18 hours a day, seven days a week until his death at the age of 105. He spoke to Judith Kawaguchi of The Japan Times about the secret to living a long life:

“There is no need to ever retire, but if one must, it should be a lot later than 65. The current retirement age was set at 65 half a century ago when the average life-expectancy in Japan was 68 years. Today, people live longer so they can work longer.”

Five Non-Retirement Scenarios

1. Boards of Directors

Many professional women assume that after they move on from their roles as senior executives, they will immediately be asked to sit on corporate boards. They have heard that women directors are in demand, and they expect to be invited to serve based solely on their experience and gender.

“Be careful. Don’t make the grand assumption that you will be in demand the day after you move out of the executive suite!” says Joanne De Laurentiis, a corporate board member and former president and CEO of The Investment Funds Institute of Canada (IFIC).

“Often people think that the simple fact that they have been an executive qualifies them to sit on a board. But the skill set required can be quite different from their work background. Board members must have a strong combination of skills such as strategic thinking, problem solving, and leadership, but perhaps most importantly . . . they need to have specific expertise related to the business dealings of the organization.”

If you are planning on sitting on a corporate board, you need to have developed the full spectrum of skills required and should be known for your expertise.

The best way to plan for life on boards?

As De Laurentiis explains:

“Start developing your board skill set in the early years of your career. I started volunteering on boards right out of university and I have been on boards throughout my entire working life. When the time came for me to leave my traditional job, I didn’t need to seek out any board positions, I was already well-known as an expert in my field.”

  • Read the full article here

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