I remember a conservation I had last year with 2 women in their late 30's who asked me what I did for a living. The conversation went something like this:
Two Ladies: Where do you work now?
Me: I'm semi-retired at 30. I travel the world and just work on projects that I enjoy.
Two Ladies: (cue Laughter) Why? You are supposed to work until after 60. Can you really retire in your 30's?
Me: Sure, some people do.
The above conservation explains what's wrong with society and how too many people don't understand why they are working until 65 and how to pursue early retirement (anyone can do this).
Acorrding to TheBalance, the average American man retires at 65 and women at 63. Most Americans enjoy around 20 years of retirement until they kick the bucket. While the average American waits until their 60's to leave their jobs, I strongly disagree.
Retirement in your 60's is as outdated as VHS tapes or pagers. It doesn't make sense in a modern way driven by high speed communication and information. The game has changed.
A better strategy is to model your finances and retire like a millionaire NBA player or singer who earned a lot of money from their career then walked away from their craft in their 30's, 40's and 50's with a nice personal fortune.
Now, I know what you're thinking. Celebrities earn millions of dollars over their careers and it's much easier for them to retire rich. That's true but they serve as a good example of how saving up a lot of money when you are younger means you don't have to work as hard in your later years.
Why Working Until 65 is Outdated
Working until 65 was an old way of thinking from much older generations who often lived off of 1 household income and remained at the same job for decades.
For example, my grandfather grew up in Virginia (USA) and worked for 40 years in a dirty factory to take care of my mom and her 4 siblings. When he retired, all he received was a small pension for his decades of hard labor that slowly eroded his health over time (working in a factory made his lungs weaker).
He never owned any of the company.
He never owned a single share of stock.
Yet he dedicated all of his best years only to retire with poorer health and not enough energy to actually enjoy those retirement years to the fullest.
You see, companies get rich off of your life energy. Plain and simple.
That's why the “work until 65” adage is so popular. After age 65, most people don't have anything left in the tank to do their job well enough. After that, your company simply replaces you and the cycle continues.
So let's stop and think about this for a second: does working until 65 serve your goals & inspirations at the highest level? Could thrrebe a better way to solve your financial problems?
Time Is More Important Than Money
The recent death of Kobe Bryant shocked the whole world but it also served as an important lesson: Time > Money.
Kobe had a massive $600 million net worth but he ran out of the most important resource: time. Once your time runs out, you cannot get it back (at least on planet earth in the same body).
Working until 65 is a silly idea for most people because you are spending your precious time doing a job for money. 99% work a job for money.
Ask yourself this question: Is money the only motivation for your current job?
If your answer is yes, then your soul will be crushed if you continue to work that job until your 60's. You need to get out ASAP so start planning your exit.
I'm not saying to quit your job. We have bills, expenses, kids, etc. Instead, be realistic about your situation and plan on an early retirement so you can spend your time doing what you want to do.
Don't allow the lack of money to control your precious time on earth!
The Real Reason Most People Work Until 65
There is a BIG reason why most people must continue working until their 60's and it starts with something called a savings rate. If you want to pursue early retirement, then you must become obsessed with increasing your savings rate as much as possible.
Mr Money Mustache wrote a good article explaining the math behind early retirement and it's basically focuses on savings rate.
The chart below shows that a high spending & low savings rate contributes to a much later retirement:
If you only save 5% of your income then you will be working for a long time.
According to Financial Samurai, the average American saves around 7% of their income. That corresponds to most Americans working well into their 60's. 93% of the money they receive goes to either the government or somebody else at the end of the year.
This is exactly why so many Americans live paycheck to paycheck.
That's bad. Giving away 93% of your hard earned money is a terrible financial strategy. If you want to pursue early retirement, then change your habits and stop giving away all your cash.
Aim for 50%+ Savings Rate
I know firsthand how hard it can be to save money. I know how it feels to not have a lot of money while raising a child at the same time. But I also know firsthand from my grandfather what working until 65 looks like. He was a good man but could have used a different financial strategy to prevent his gradual decline from working so many years in a toxic environment.
Instead of saving 7%, aim for 50% savings rate. The more, the better.
Your Savings Rate = Monthly Savings / Total Income
For example, if you save $2,000 per month on a $4,000 monthly income, your savings rate is 50%.
Lots of FIRE bloggers save much more than this. Sometimes 70% or more. I actually got the 50% number from Shaquille O'neal who did a segment on CNBC. Shaq recommends 50% for beginners and 75% for “smart investors”. Shaq personally saves and invests 75% of his income.
You can watch it below:
At first, it can seem impossible to save half your income but it's possible. Here are a few suggestions to make it happen:
- Pay yourself first. Transfer a percentage of your income into your savings & investment when you get paid. Better yet, set up an automatic transfer every paycheck.
- Give 100% effort & energy at your job. This will help you add value to your boss and reduce the chances of you getting fired.
- Start a side hustle to earn extra money.
- Cook your meals at home and stop eating out so much.
- Cancel your cable bill and buy a cheaper Netflix subscription.
- Quit alcohol & smoking.
- Get rid of your car and take public transportation or Uber to save money (Owning a car is expensive)
- Don't spend money to fill an emotional void in your life. Pursue hobbies that you enjoy. Can't think of any hobbies? Ask yourself what activites you enjoyed as a kid.
Save & Invest Your Money to Reach FIRE (Financial Independence/Early Retirement)
Remember the chart above? A 50% savings rate means you only work for 17 years. If you get your first real job at 23 after college, you can retire at 40.
I'm currently traveling the world because I semi-retired at 30 thanks to my internet business. My goal is to retire from dividend income at 40 and grow my own food on an organic sustainable farm.
There are two simple ways to reach early retirement: dividend paying stocks & index funds.
Your goal is to earn enough passive income through dividends to cover your expenses.
Once your passive income exceeds your expenses, you can leave the rat race.
Check out my article on high dividend paying stocks for some good investment ideas.
If you don't like stocks, then try Fidelity's zero fee index funds.
Open a brokerage account and starting investing in dividend paying assets. Your dividend snowball will grow bigger over time.
Spend Your Time Wisely
Personally, I don't want to worry about money after 40. I want to only spend time doing the things I love and watch my son grow up.
The idea of living on my own farm, growing my own food, and learning new languages sounds more interesting than worrying about money.
I started earning my first paycheck at 20 years old and I'm ready to call it quits after 20 years.
That doesn't mean I won't do anything. I'm ready to take on tasks unrelated to how much money I earn.
I want to learn farming, mediation, yoga, languages, cooking, etc. Things I've dreamed of mastering but never had enough time to focus on.
What hobbies do you want to pursue in early retirement? List them below!