Would you do what it takes to retire decades ahead of schedule? Both Gwen Merz and Derek Sall were crushing their early retirement goals -- then they started second-guessing their decisions.
"Financial independence, retire early," or FIRE, is a lifestyle movement that encourages you to build a cushy nest egg -- at least 25 times what you'll need for annual expenses in retirement -- so you can leave the workplace before the typical retirement age.
The FIRE movement hit the scene in 1992, but it really took off with millennials over the last 15 years. While the path to FIRE looks differentfor everyone, and there are various approaches within the movement, most of the journeys begin the same way: Land a well-paying job in your 20s, save a significant chunk of money (anywhere from 50% to 75% of your take-home pay), and live far below your means. Many FIRE participants also boost their incomes with a side hustle (or several side hustles) or through real estate investments.
It can also mean developing an obsessive focus on hitting your FIRE number, the specific amount of money you need to save to retire by your desired age.
The idea of retiring early has a universal lure that's attracting plenty of followers, but FIRE is also getting its fair number of detractors. Some are dropping out because it's exhausting. Others are realizing that it's costing them relationships and experiences that no amount of money can recover.
"It takes a lot of discipline and sacrifice," said Jovan Johnson, a financial adviser at Piece of Wealth Planning in Atlanta. In order to save so aggressively, some FIRE participants give up years of doing important things like traveling with friends and family, Johnson noted.
That's what happened to Merz, a 32-year-old IT professional from Missouri who went all-in on FIRE but became disenchanted with the lifestyle. "I could save a lot of money," she said, "but I didn't earn enough money to save a ton and also live the kind of life that made me a happy, fulfilled person."
For Sall, a 37-year-old personal finance blogger and founder of Life and My Finances from Michigan, being committed to FIRE meant putting his marriage at risk. After severely cutting back on spending, he focused on procuring more passive income, but that meant limiting quality time with his wife and newborn child. "Thankfully, I snapped out of it," said Sall. "I wasn't going to end another relationship just to achieve my goals versus our goals."
That's not to say they didn't learn any practical tips from the FIRE movement about paying down debt, saving or spending wisely. For many, striking a balance between extreme FIRE principles and living an enjoyable life is the sweet spot. This desire for equilibrium gave rise to offshoots of FIRE, like Barista FIRE and Coast FIRE, which still focus heavily on front-loading your savings, then switching to a lower-stress job to provide some residual income.
Whether you're fascinated with pursuing FIRE or are planning to retire at the standard age, stay in line with your values and priorities, said Tyler Dolan, a certified financial planner and vice president of the Boston-based Keenan Financial. "It really boils back to checking in with what are your financial goals, what are your personal money beliefs, how do you handle money, what's important to you?"
An all-consuming quest to save every penny
If you have the bandwidth to dive into FIRE, it can pay off significantly. In fact, both Merz and Sall found success early on when they started aggressively saving.
Merz went all-in on FIRE, living in the cheapest home she could find and keeping her expenses to around $22,000 a year. She earned $65,000 a year, plus bonuses, and took on multiple side hustles. At this rate, she planned to hit her FIRE number of $635,000 and retire by 35.
Sall was also on the path to financial freedom. After paying off his mortgage and all other remaining debts, he lowered his expenses to just over $400 per month (food, phone bill, car insurance and utilities) and put the rest toward investments and savings. To earn passive income, he bought a house, fixed it up and rented it out to tenants, a pursuit that required significant time and effort away from his family, though it was paying off.
"At the age of 29, I was earning $60K a year at my job, I had just paid off my house, and I was cruising toward FIRE," he said. What appealed to him most about early retirement was the idea that, in just a few more years, he could spend his time how he saw fit.
The idea of flexibility and financial freedom are key drivers of the FIRE movement. "What is most appealing about FIRE is just the idea that you kind of are truly free and independent from depending on a traditional job," said Johnson.
Falling out of love with FIRE
Despite staying on track and saving a sizable amount of money, Merz wasn't satisfied. She felt trapped in her corporate, 9-to-5 job, and wanted more control over her time. It didn't help that her workplace felt toxic.
After five years of pursuing FIRE, Merz realized it was mathematically impossible for her to earn and save the same amounts as her married, dual-income friends. She was also burning herself out working multiple side hustles.
"I became really disenchanted with FIRE when I realized that it was difficult for one single person to retire incredibly early at a high-to-above-average salary," said Merz.
Plus, the effort it took to sustain this lifestyle was starting to catch up to her, and it was leaving her little time to relax or connect with friends.
Sall's relationships, most notably his marriage, were also starting to suffer as a result of his early retirement goals. He remembers the exact moment when he knew his FIRE obsession was destroying his personal life.
He was headed out to work on fixing his latest "project house," which he planned to rent out for additional income. As he neared the door, his wife stopped him, angered over the fact that he was once again stranding her and their infant daughter.
"When is this going to end? I'm sick of it!" his wife said. "Is this what life is going to be like with you?"
Something shifted in Sall, and he found himself reconsidering his priorities and reflecting on mistakes from his past. He'd become so hyperfocused on his goals, that he had forgotten about their goals as a couple -- a problem that ended his previous marriage.
Finding balance
These days, Merz spends a fair amount of her income on a comfortable home in St. Louis. She no longer lives in cheap housing, and she has a new job at a nonprofit where she feels empowered and supported.
What's more, she no longer has qualms about spending money to enjoy quality time with her friends. Recently she took out $200 in cash to spend the day with a friend at a massive annual garage sale that her former FIRE-focused self would have never even considered.
Though Merz has put the brakes on her FIRE pursuits, she doesn't completely regret having saved aggressively. "I will have more money than I know what to do with when I retire at 55," Merz said. "That money is going to compound and grow and become millions of dollars."
Now, she's built more room into her budget for things that make her happy. "It's great to save," Merz said. "But also don't sacrifice your relationships and ability to make memories while you can."
Sall's decision to exit the FIRE movement helped rescue his marriage. He and his wife sold the project house, as well as their primary house, and bought a new place in the woods with the profits.
"Looking back, I can honestly say it's the best decision we ever made," said Sall. "I'll still likely retire early, but instead of doing it by 34, I might be 44. Better to do it with my beautiful wife and children that love me, versus achieving it broken and alone."
Both Merz and Sall are now in better financial positions because they attempted FIRE. But you don't have to go to the extremes of the FIRE movement to prioritize saving. To start, Johnson recommends thinking about retirement and what it means to you so you can drum up a plan. Then come up with a budget, or a system to manage your money. Johnson said that instead of being extreme about budgeting, aim to be flexible. That way, you can enjoy life today while also saving enough to enjoy life later.
Some tenets of FIRE are useful for anyone who wants to evaluate where their money is going, to make sure they're not overspending and to keep prioritizing savings and paying down debt, according to Dolan.
Both Johnson and Dolan agree that FIRE offers an excellent strategy for getting free from debt, but don't get too consumed. You should still have wiggle room in your budget for nights out with friends, family trips or any other type of connection that is important to you.
What makes one person feel fulfilled and accomplished won't be the same for another. "At the end of the day, everyone has their own money beliefs. They have their own values, they have their own kind of habits with money that have been developed throughout their lives," said Dolan. And everyone should understand what those are for themselves.
It is possible to retire at 40, but you have to be proactive—and really good at deferred gratification. So run the numbers and take advantage of every opportunity to save (and earn). The sooner you start planning, the better your odds of retiring early with the money you'll need to enjoy it.
Pros of retiring early include health benefits, opportunities to travel, or starting a new career or business venture. Cons of retiring early include the strain on savings, due to increased expenses and smaller Social Security benefits, and a depressing effect on mental health.
67-70 – During this age range, your Social Security benefit, if you haven't already taken it, will increase by 8% for each year you delay taking it until you turn 70.
According to IRS tables, the average life expectancy for a 40-year-old is 45.7 more years. Rounding up to 46 years, this means that if you plan to spend a relatively modest $40,000 per year on all of your expenses in retirement, you'll need at least $1.84 million by the time you retire.
Retiring at 45 has its perks but there is one major drawback: taking money from tax-advantaged plans prior to age 59.5 could result in a 10% early withdrawal penalty. You may also face income taxes on the funds you withdraw. Early withdrawals from a Roth IRA are an exception.
So, to answer the question, we believe having one to one-and-a-half times your income saved for retirement by age 35 is a reasonable target. It's an attainable goal for someone who starts saving at age 25. For example, a 35-year-old earning $60,000 would be on track if she's saved about $60,000 to $90,000.
If you retire more than 36 months early (up to a maximum of 60), your Social Security benefit will be reduced by an additional 5/12 of 1% per extra month. This means that the maximum number of retirement months is 60 for those retiring at age 62 when the full retirement age is 67.
If you are planning for early retirement, you definitely aren't lazy. Like I said before, it takes a lot of planning and forethought to retire early. It's not at all for the lazy!
More than two in three (68%) people who have retired early say their happiness improved since leaving work. 44 percent of early retirees say their family relationships improved and 34 percent found their friendships also improved.
“Continuing to work for as long as possible will absolutely give you more choices and financial freedom in retirement,” Duran explains. “Working for a longer period of time not only gives you more savings and builds your safety net, but it also provides health benefits which you don't have to pay for personally.”
They spent more time on things like personal care, eating, household activities, shopping, leisure, civic activities and talking on the phone. In all, a typical retiree took 2.5 hours per day away from activities like work and added those 2.5 hours into activities like leisure. Too much T.V.
Key takeaways. If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect a 30% reduction in monthly benefits. For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit.
With some planning, you can retire at 60 with $500k. Keep in mind, however, that your lifestyle will significantly affect how long your savings will last. If you're content to live modestly and don't plan on significant life changes (like travel or starting a business), you can make your $500k last much longer.
The traditional rule of thumb from financial advisors is that by the time you reach age 40, you should have three times your salary in retirement savings. So, if you earn $60,000 per year, this means that you should have a total of $180,000 in your 401(k), IRAs, and other retirement-specific accounts.
A good retirement income is about 80% of your pre-retirement income before leaving the workforce. For example, if your pre-retirement income is $5,000 you should aim to have a $4,000 retirement income.
You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement.
If you retire with $500k in assets, the 4% rule says that you should be able to withdraw $20,000 per year for a 30-year (or longer) retirement. So, if you retire at 60, the money should ideally last through age 90.
How long will $300,000 last in retirement? If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. That's $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place. Luckily, that $300,000 can go up if you invest it.
Pixie Curtis, the creator of Pixie's Fidgets, a toy company, and Pixie's Bows, a hair accessory company, may retire at 15, becoming the youngest person in the world to retire. An Australian girl, Pixie Curtis, is on her way to retiring as a millionaire at the tender age of 15.
Can I Retire At 62 with $400,000 in a 401(k)? Yes, you can retire at 62 with four hundred thousand dollars. At age 62, an annuity will provide a guaranteed level income of $25,400 annually starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease.
Most millennials hope to retire early and the generation, as a whole, has made great strides when it comes to long-term savings. Still, there are some guidelines that can help determine exactly how much you'll need to put away to reach your retirement goals.
The rule of 55 is an IRS provision that allows workers who leave their job for any reason to start taking penalty-free distributions from their current employer's retirement plan once they've reached age 55.
Some of the top emotional signs you might be ready to retire include: Becoming resentful of your work, or daydreaming about retirement during work hours to the extent that it distracts you from getting your work finished. No longer identifying who you are with what you do (your job).
The finding echoes a few others, the New York Times reports: “An analysis in the United States found about seven years of retirement can be as good for health as reducing the chance of getting a serious disease (like diabetes or heart conditions) by 20 percent.
Doing nothing is okay, but it can be challenging to slow down in your activities after working for like 30 or 40 years. It's all about finding the right balance of doing nothing in retirement, slowing down, and spending time on the activities you like to do most.
Returning to work can provide financial security for retirees who may be struggling to make ends meet on a fixed income. While working full-time may not be necessary, even part-time work can make a big difference in covering expenses.
Early research on the relationship between retirement and happiness is derived from psychology, and mainly describes the relationship between retirement and happiness. These studies concluded that retirement is associated with lower life satisfaction, depression, and lower happiness (9, 10).
However, in general, $150,000 is a good retirement income. This will allow you to cover most of your living expenses and leave some money for leisure activities and travel. Additionally, if you have other sources of income, such as Social Security or a pension, this will help supplement your income in retirement.
Average Retirement Income in 2021. According to U.S. Census Bureau data, the median average retirement income for retirees 65 and older is $47,357. The average mean retirement income is $73,228. These numbers are broken down into median and mean to more fully understand the average retirement income.
According to Bankrate's study, Florida is the best state for retirement in 2022, followed by Georgia, Michigan, Ohio and Missouri. Alaska, on the other hand, held last place in our ranking. The state was dragged down by back-of-the-pack scores in affordability and weather.
Retirees enjoy over seven hours of leisure time per day, according to 2019 data from the American Time Use Survey. They use their newfound free time in a variety of ways, including taking up new hobbies, relaxing at home, watching TV and lingering over daily activities. Many retirees also continue to work or volunteer.
Retirees typically get up at 8.30am, giving them an additional one-and-a-half to two hours' sleep than their younger, still-in-work counterparts. Most over-60s do this daily, rising at the same time at weekends too, meaning every day is an opportunity for a lie-in.
You must pay taxes on up to 85% of your Social Security benefits if you file a: Federal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000.
If you start receiving benefits at age 66 you get 100 percent of your monthly benefit. If you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase.
Yes, you can retire at 55 with one million dollars. You will receive a guaranteed annual income of $56,250 immediately and for the rest of your life. This income will stay the same and never decrease.
If you make $120,000, here's your calculated monthly benefit
Assuming that you earn an inflation-adjusted $120,000 for at least 35 years, and that the maximum taxable Social Security wage base is $120,000 or higher during these years, this would translate to a lifetime monthly average of $10,000.
Here's how much your Social Security benefits will be if you make anywhere from $30,000 to $100,000 per year. The average Social Security benefit is around $1,544. With inflation on the rise, retirees are expected to get as much as a 6% cost-of-living increase in their 2022 checks to shore up their budgets.
By age 40, your goal is to have a net worth of two times your annual salary. So, if your salary edges up to $80,000 in your 30s, then by age 40 you should strive for a net worth of $160,000. Additionally, it's not just contributing to retirement that helps you build your net worth.
Americans at this life stage are reflected in Federal Reserve statistics covering people ages 35 to 44. The Fed's most recent numbers show the average savings for the age group that includes 40-year-olds is $27,900. The median savings is $4,710.
The average income for those in their 40s is just above $50,000, but the median retirement savings amount for this age group is $63,000. Remember it's recommended to have about three times your annual salary saved by now, so see if your balance reflects that.
For those who are collecting Social Security at age 65, the average payment in 2022 is about $2,484 a month, according to the Social Security Administration. That's based on the agency's estimate that the average annual benefit is $29,806 for Social Security recipients who are age 65.
That adds up to $2,096.48 as a monthly benefit if you retire at full retirement age. Put another way, Social Security will replace about 42% of your past $60,000 salary. That's a lot better than the roughly 26% figure for those making $120,000 per year. How bend points work.
If you want a comfortable retirement, you should aim for a monthly income of at least 70% of your pre-retirement income. So, if you and your spouse currently bring in a combined monthly income of $5000, you would need to have a retirement income of at least $3500 per month. Of course, this is just a general guideline.
While the recommended retirement plan savings amount is up to four times your annual salary, this is not realistic for many Americans in their 40s. The average income for those in their 40s is just above $50,000, but the median retirement savings amount for this age group is $63,000.
WHO CAN RECEIVE BENEFITS ON YOUR EARNINGS RECORD? You can receive Social Security benefits based on your earnings record if you are age 62 or older, or disabled or blind and have enough work credits.
By comparison, if you choose to retire early, your Social Security check gets reduced by 5/9 of 1% for each month you collect benefits before your full retirement age (up to 36 months).
Retirement experts have offered various rules of thumb about how much you need to save: somewhere near $1 million, 80% to 90% of your annual pre-retirement income, 12 times your pre-retirement salary.
One suggestion is to have saved five or six times your annual salary by age 50 in order to retire in your mid-60s. For example, if you make $60,000 a year, that would mean having $300,000 to $360,000 in your retirement account. It's important to understand that this is a broad, ballpark, recommended figure.
By age 45, experts recommend that you have the equivalent of four times your annual salary in the bank if you plan to retire at 67 and keep up a similar lifestyle, according to a recent report by financial services company Fidelity.
The only people who can legally collect benefits without paying into Social Security are family members of workers who have done so. Nonworking spouses, ex-spouses, offspring or parents may be eligible for spousal, survivor or children's benefits based on the qualifying worker's earnings record.
For 2022, the special minimum benefit starts at $45.50 for someone with 11 years of coverage and goes to $950.80 for workers with 30 years of coverage. A financial advisor can help you plan your retirement taking into account your Social Security benefits.
If you make $120,000, here's your calculated monthly benefit
Assuming that you earn an inflation-adjusted $120,000 for at least 35 years, and that the maximum taxable Social Security wage base is $120,000 or higher during these years, this would translate to a lifetime monthly average of $10,000.
Delayed retirement credit is generally given for retirement after the normal retirement age. To receive full credit, you must be insured at your normal retirement age. No credit is given after age 69. ... Delayed retirement credit.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at age 70 in 2022, your maximum benefit would be $4,194.
But, generally speaking, most experts agree that you will need 70-80% of your pre-retirement income to maintain your standard of living in retirement. For example, if you earned $50,000 per year ($4,167 a month) before retiring, you would need approximately $35,000-$40,000 per year in retirement.
You may be starting to think about your retirement goals more seriously. By age 40, you should have saved a little over $175,000 if you're earning an average salary and follow the general guideline that you should have saved about three times your salary by that time.
By age 40, your goal is to have a net worth of two times your annual salary. So, if your salary edges up to $80,000 in your 30s, then by age 40 you should strive for a net worth of $160,000. Additionally, it's not just contributing to retirement that helps you build your net worth.
Introduction: My name is Annamae Dooley, I am a witty, quaint, lovely, clever, rich, sparkling, powerful person who loves writing and wants to share my knowledge and understanding with you.
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