As another commenter said, it depends a lot on your lifestyle goals. Obviously the answer will be different if you want to spend your time sleeping in a hammock on a beach in Nicaragua eating whatever fruit grows on the nearby trees, versus if you want to pop champagne on your yacht every night with IG models. This is the biggest split in the FIRE community - leanFIRE, or fatFIRE. LeanFIRE emphasizes reducing lifestyle cost in order to retire earlier, while fatFIRE emphasizes increasing income in order to enjoy a more luxurious retirement. As a lemming, I think I am safe in assuming you are more interested in the former.
So then, among leanFIRE, you should decide exactly what flavor you want to pursue.
A fairly traditional leanFIRE would be something like working a somewhat lucrative job, like software or accounting, while you live a very modest life. eg, buying a house, renting it out, and then building yourself a tiny house in the back yard to live in, so you can live rent free. Keeping some chickens and a vegetable garden, and riding a bicycle for most of your transportation needs. You then work your job, saving as much money as possible until you have 20x your annual COL in some stable index funds, and then you quit.
An important note here is that for this to be worth it, your leanFIRE must not be a “starvation FIRE”. You can be happy living a modest lifestyle, and you can learn to be happy living an even more modest lifestyle - but if you aren’t happy with the lifestyle you are building for yourself, then what is the point? So probably the biggest asterisk in all of this is that YOU SHOULD NOT BE WAITING FOR RETIREMENT TO MAKE YOU HAPPY. If you are accepting misery during the period in your life when you are working 9-5 and hoping that quitting your job will make you happier, then you are, at best, simply delaying being happy for years. Because while your happiness can be influenced by ourside factors, at the end of the day, happiness is about what is going on in your head, not what is going on in the world. So regardless of your flavor of retirement, retiring should be about going from happy to happier, not about going from misery to happiness - because the latter ends up actually being a transition from misery to misery but with more free time. So if you are eating rice and beans shivering in a cold apartment in order to save a few bucks to retire sooner, and you hate it, then this is counterproductive. If you are miserable in your life right now, I won’t tell you not to work towards FIRE. And I won’t tell you not to tighten your belt and suffer a little. But at the same time, you should recognize that the biggest thing that will impact your happiness is accepting that you have the ability to be happy right now, and working on that at the same time.
Anyway, suppose you want to get to a semi-retirement even sooner. One strategy here is coastFIRE. This is where you plow money into your investments as quickly as possible so that they will then eventually reach maturity at a traditional retirement age as long as you don’t touch them ahead of time. So suppose you are happy living on 20k/yr. The 4% rule says you need $400k in the market as principle. So then your goal is to put enough money in the market so that you will have $400k when you are at traditional retirement age - which depending on how old you are right now, is significantly less because of the power of compound interest. Lets do some math.
PV (present value) = how much you need invested when you hit coastFIRE such that you will have 400k in the bank at retirement age.
FV (future value) = 400k. The amount you want invested when you start withdrawling cash to live on.
r = anticipated real annual return (all these numbers are inflation-adjusted. That’s the “real” part)
n = number of years in the market. The difference between your official retirement date and your coastFIRE date.
The formula is PV = FV/(1+r)^n
So suppose you want to hit coastFIRE at 30, and retire at 60. So n is 30. And lets assume a conservative 7% real return in the market. Then
PV = FV/(1+r)^n = 400000/(1.07)^30 = $52,200
So plunk $52,000 in your 401k, and now you only need to work to cover your living expenses. Which you can do as an accountant by, say, just working during tax season. Or as a software developer by just picking up occasional contract gigs.
Another option here is what is called baristaFIRE. This is coastFIRE, but rather than continue working your lucritive (but often unenjoyable and stressful) job, you switch to working a job you enjoy. For many people, that might be being a barista. Or it could be any number of similar enjoyable but low paying jobs, like raft guiding or teaching martial arts or making art. This is currently my strategy, where I work as a rigger for concerts for part of the year, then bounce and do whatever for most of the rest.
And another option to consider is what is called geoarbitrage. This is essentially just moving somewhere with a lower cost of living before or after retirement. For example, if you get a software job in SF, then get a remote work option and move to Thailand and decide you want to live the rest of your life there, you can retire very quickly.
So if you want to retire early, your main priority is creating a lifestyle you are happy with which has as low of annual expenses as possible.
Then, don’t neglect working to increase your income via chasing raises and promotions and switching companies.
Then, invest the difference in index funds (most traditional), real estate (a factor in most FIRE peoples portfolio, at least for their own residence), and/or a personal/local business (highest yield, but the most work and biggest risk).
Finally, do note that by pursuing early retirement, you are officially a capitalist. You are using the money you earned as the investment capital of some sort of business enterprise, and are then getting paid by the enterprise for the privilege of using your money. So everyone here hates you. Sorry.
@[email protected] This is the correct answer.
As another commenter said, it depends a lot on your lifestyle goals. Obviously the answer will be different if you want to spend your time sleeping in a hammock on a beach in Nicaragua eating whatever fruit grows on the nearby trees, versus if you want to pop champagne on your yacht every night with IG models. This is the biggest split in the FIRE community - leanFIRE, or fatFIRE. LeanFIRE emphasizes reducing lifestyle cost in order to retire earlier, while fatFIRE emphasizes increasing income in order to enjoy a more luxurious retirement. As a lemming, I think I am safe in assuming you are more interested in the former.
So then, among leanFIRE, you should decide exactly what flavor you want to pursue.
A fairly traditional leanFIRE would be something like working a somewhat lucrative job, like software or accounting, while you live a very modest life. eg, buying a house, renting it out, and then building yourself a tiny house in the back yard to live in, so you can live rent free. Keeping some chickens and a vegetable garden, and riding a bicycle for most of your transportation needs. You then work your job, saving as much money as possible until you have 20x your annual COL in some stable index funds, and then you quit.
An important note here is that for this to be worth it, your leanFIRE must not be a “starvation FIRE”. You can be happy living a modest lifestyle, and you can learn to be happy living an even more modest lifestyle - but if you aren’t happy with the lifestyle you are building for yourself, then what is the point? So probably the biggest asterisk in all of this is that YOU SHOULD NOT BE WAITING FOR RETIREMENT TO MAKE YOU HAPPY. If you are accepting misery during the period in your life when you are working 9-5 and hoping that quitting your job will make you happier, then you are, at best, simply delaying being happy for years. Because while your happiness can be influenced by ourside factors, at the end of the day, happiness is about what is going on in your head, not what is going on in the world. So regardless of your flavor of retirement, retiring should be about going from happy to happier, not about going from misery to happiness - because the latter ends up actually being a transition from misery to misery but with more free time. So if you are eating rice and beans shivering in a cold apartment in order to save a few bucks to retire sooner, and you hate it, then this is counterproductive. If you are miserable in your life right now, I won’t tell you not to work towards FIRE. And I won’t tell you not to tighten your belt and suffer a little. But at the same time, you should recognize that the biggest thing that will impact your happiness is accepting that you have the ability to be happy right now, and working on that at the same time.
Anyway, suppose you want to get to a semi-retirement even sooner. One strategy here is coastFIRE. This is where you plow money into your investments as quickly as possible so that they will then eventually reach maturity at a traditional retirement age as long as you don’t touch them ahead of time. So suppose you are happy living on 20k/yr. The 4% rule says you need $400k in the market as principle. So then your goal is to put enough money in the market so that you will have $400k when you are at traditional retirement age - which depending on how old you are right now, is significantly less because of the power of compound interest. Lets do some math.
PV (present value) = how much you need invested when you hit coastFIRE such that you will have 400k in the bank at retirement age.
FV (future value) = 400k. The amount you want invested when you start withdrawling cash to live on.
r = anticipated real annual return (all these numbers are inflation-adjusted. That’s the “real” part)
n = number of years in the market. The difference between your official retirement date and your coastFIRE date.
The formula is PV = FV/(1+r)^n
So suppose you want to hit coastFIRE at 30, and retire at 60. So n is 30. And lets assume a conservative 7% real return in the market. Then
PV = FV/(1+r)^n = 400000/(1.07)^30 = $52,200
So plunk $52,000 in your 401k, and now you only need to work to cover your living expenses. Which you can do as an accountant by, say, just working during tax season. Or as a software developer by just picking up occasional contract gigs.
Another option here is what is called baristaFIRE. This is coastFIRE, but rather than continue working your lucritive (but often unenjoyable and stressful) job, you switch to working a job you enjoy. For many people, that might be being a barista. Or it could be any number of similar enjoyable but low paying jobs, like raft guiding or teaching martial arts or making art. This is currently my strategy, where I work as a rigger for concerts for part of the year, then bounce and do whatever for most of the rest.
And another option to consider is what is called geoarbitrage. This is essentially just moving somewhere with a lower cost of living before or after retirement. For example, if you get a software job in SF, then get a remote work option and move to Thailand and decide you want to live the rest of your life there, you can retire very quickly.
So if you want to retire early, your main priority is creating a lifestyle you are happy with which has as low of annual expenses as possible.
Then, don’t neglect working to increase your income via chasing raises and promotions and switching companies.
Then, invest the difference in index funds (most traditional), real estate (a factor in most FIRE peoples portfolio, at least for their own residence), and/or a personal/local business (highest yield, but the most work and biggest risk).
Finally, do note that by pursuing early retirement, you are officially a capitalist. You are using the money you earned as the investment capital of some sort of business enterprise, and are then getting paid by the enterprise for the privilege of using your money. So everyone here hates you. Sorry.