I spent the holiday break with my wife’s family in Caborca, Mexico. Their homes and possessions are pretty simple, but they have nice celebrations and full lives. The median annual household income in the US is about $29,000, in Mexico it is about $4,500. Costs for food, electricity, water, and clothing are very similar in both countries. As we look at spending plans and retirement planning it made me think that there is a lot of room for choices.
Early retirement can seem impossible, even retiring at 65 or 70 may not seem practial. If it is a priority, this can be a reality for diligent savers. One well-known example is the man behind MrMoneyMustache.com, who retired with his wife at age 30 after just nine years of working. They did this on two normal salaries. They are very careful with their spending and feel that they are living full lives.
How quickly you can retire depends on how much you can save. If you are able to save the often-recommended 15 percent of your take home pay, it will take about 45 years to retire. Assuming your investments earn a real return (after inflation) of 5 percent, and that you live off of 4 percent of your nest egg once you do retire.
If you are frugal and able to save 30 percent of your take home pay, your working years fall to about 30. At 40 percent, the necessary work years before retirement falls further to about 20. If you are able to save 50 percent of your take home pay, you’ll begin enjoying your golden years in less than 20 years.
I know what you’re thinking. The math may be accurate, but saving 30 percent or more of take home pay is impossible. Don’t tell Mr. Money Mustache or the bloggers at “Early Retirement Extreme” and “Can I Retire Yet?” The fact is that early retirement is a reality for many people, including those who earned an average income during their working years.
While each early retirement story is unique, many share several common themes. Early retirees shun certain expenses many of us take for granted, such as expensive cable and cell phone packages. They tend to spend less on cars and transportation, often living close enough to work to either bike or walk. They also spend less on food, eating out less frequently than most. Finally, they are often more self-sufficient, choosing to handle home and car maintenance and repairs on their own, rather than paying others for these services.
It comes down to choices and priorities, but it may be comforting to know that there many of people with full lives getting by on less than you may think you need.
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