I couldn’t decide what to title this post as both “How to Retire as Soon as Possible” and “How to Retire in 10 Years” sounded good to me. So…I went with two titles. Hahaha.
I almost threw in “Seven Steps to Retire in a Decade” as well. LOL.
They are just a bit different. “As soon as possible” works well if you already have a good amount saved for retirement. Or anything of significance, really (as I’ll note below). In this case, your ASAP retirement could happen in as little as a few years.
The “10 Year Retirement” is more for those who have little (or even nothing) saved for retirement. How can they retire in a few years? They probably can’t. But with some (very hard) work they can generally retire (or get pretty close to it) in a decade.
The ESI Scale
Before we get into specifics, let’s revisit the ESI scale.
This site is called ESI Money because it focuses on the three areas that drive financial independence: earning, saving, and investing (ESI).
As you might imagine, the more you do of these three, the faster you’ll get to financial independence.
But “do more” as guidance is a bit vague and doesn’t provide a clear path to retirement.
To reach early retirement you’ll need to get specific and determine what level of commitment you can make to each of the three steps, then make a plan to work on those.
As I’ve learned from both the Millionaire Interviews and the Millionaire Money Mentors forums, there are many paths that can get you home, so consider where you can make headway and where you’d rather pull back a bit. The following steps in this post are ones I think give the best chance for quick success, but you’ll need to determine whether or not they fit your lifestyle.
With that said, let’s get to the steps…
Step 1: Create a retirement budget.
Before you climb a mountain, you size it up. The retirement equivalent of that is setting a post-retirement budget.
You need to know what you want to spend in retirement in order to understand what you’re shooting for. Once you do, you’re off to make it happen.
If you have a budget now (and the longer you’ve had one the better), setting an estimate should be easy. Developing my retirement budget was a breeze because I had over 20 years of spending data in Quicken (I now have over 25 years of information — anyone want to know what my spending was in the late 90’s? Hahahaha). I knew exactly what our family required in every category. Yours will be equally simple if you’ve been keeping a budget for at least a few years.
If you haven’t, you’ll need to start from ground zero. You should develop a budget for the next year (we’ll use it in a few steps) as well as draft an estimate of your retirement spending. The best sources for spending estimates will be bank and credit card statements.
Step 2: Work to grow your career.
Here are two great pieces of news about your career:
- Your career is your largest asset and is literally worth millions of dollars.
- There are proven actions you can take to make it worth millions more.
No, I am not over-stating the value of your career. But I am emphasizing it because a career is the engine that drives the early retirement train.
I have detailed my seven steps that will grow your career and help you earn higher than average raises. The good news for you is that you can start these right away. It took me a couple decades to learn some of them and I was still able to earn over 8% annual raises during my 28-year career. In other words, you might have a big head start on me and thus have the potential to perform much better.
Review the seven steps and develop a plan to put them into action. Your bank account will thank you.
Step 3: Scour your budget for savings.
As your earnings grow, also look to increase the gap between earning and spending by regularly updating and reviewing your budget.
As you become more familiar with it and see how the money is flowing out, you’ll be able to identify steps to maximize your savings rate.
I recommend reviewing your budget and making adjustments monthly. This is what we did and it was quite effective.
By this process of regular review and changes, you’ll ensure your budget is efficient as possible.
Step 4: Begin investing immediately.
As you create an ever-larger amount of savings (as your income grows and your expenses decrease), you’ll want to get that money working for you immediately.
When it comes to investing, time is your biggest asset. The more time invested, the more your savings will grow.
Begin investing immediately as it can make a huge difference. This is the area of my biggest financial mistake — I waited for five years after college to begin saving and investing and those five years are worth a fortune. So don’t waste them.
Investing can be difficult if you have a short time horizon, but as long as you have 10-15 years, I’d start investing with low cost, US stock-based index funds to maximize growth.
Get as much money as you can working as fast as you can and soon your money will be helping you achieve financial independence.
Step 5: Develop a side business.
Having a side business can help your finances in a couple ways:
- First, having an extra income will allow you to earn more and thus save more in a shorter period of time.
- Second, a side business in retirement will mean you’ll need to earn a lot less from your assets, speeding up your retirement date by many years.
There are many side businesses that can be started these days. I’ve made extra money as a freelance writer, blogger, soccer referee, website buyer/owner, and consultant. I’ve considered ideas like becoming a pet-sitter or developing my own products for sale.
Take some time and consider the options, then pick something you enjoy which has a fair earning potential.
For more on this subject, see How a Side Hustle Business Can Get You to Financial Independence in 10 Years.
Step 6: Don’t accumulate debts.
During this entire process, debt will be an absolute killer. Yes, you may already have some debt which will impact your numbers for sure, but don’t make it harder on yourself by adding more.
Drive used cars, rent versus buy a home, and don’t succumb to the constant urge for the latest and greatest gadget.
You are focusing on SAVING money with this plan, not SPENDING it haphazardly (i.e. spending so much that you have to borrow).
Of course you’ll have money to spend and enjoy while you’re working on early retirement. But spend within your means and don’t go into debt or you’ll most certainly delay your retirement date.
Step 7: Keep at it.
Implement the above steps and stick with them. Time will take care of everything else.
Run your numbers at least once a year. Update your retirement spending (especially as you get more current living expenses) so the estimate of your needed retirement income becomes more and more refined.
Eventually you’ll reach the point where your retirement income is higher than your expenses. At that point you can retire from full-time work as detailed below.
Running the Numbers
To see how the steps above can play out, here is an illustration to consider.
Let’s begin with the following assumptions:
- You make $70,000 a year at your current job.
- You need $50,000 in retirement to cover living expenses. (This should be easy since you’ll be living on less than this in getting to retirement.)
Here’s how to work the above situation to retire asap…
Begin by initially saving $25k per year and investing it immediately. That’s a 35% savings rate and is certainly healthy, but is just average among extreme early retirees. It’s completely do-able (and I speak from experience). Keep your standard of living low so you can invest more as you earn more.
And before someone says “it can’t be done in [insert name of city they currently live in]” let me say that you may need to move to make early retirement happen because where you live has a major cost impact on your budget.
Work at your job to get top raises. Follow the steps noted above and you should be able to earn 5% raises rather easily (this is on average — some years will only be 3% but some could be 10%). We’ll be conservative and say you earn 5% average raises and save all the increases.
So now you’ve set up a system where you are saving $25k every year plus every amount of income you receive over $70k.
Assuming your investments earn 8%, taking these steps alone will yield you almost $585k after ten years.
Add in Your Side Business
Here’s where you’ll see a great benefit from your side business.
Let’s say you get that side hustle up and running in year one. In the first couple of years you’ll probably not earn much and anything you do earn will be plowed back into the business to help it grow. Let’s say that by year three you are able to earn $4,000 a year (less than $100 a week) and after that add three thousand dollars a year to it. We’ll say you save all of this income too and invest it at 8%.
If you add the side business into the mix, after 10 years you’ll have over $727k saved/invested and a side business churning off $25k per year.
You are now ready to retire from full-time work. Here’s how:
- Using the 4% rule, you can withdraw $29k from your savings each year (4% of $727k).
- Add in the $25k from your business and you’re now able to generate $54k per year — you’ve covered your retirement spending needs with some room to spare.
BTW, if you don’t want to or can’t develop a side business, you could down-shift to a part-time job that earns you $25k per year. That shouldn’t be too hard for someone with the career skills you’ve developed over the past decade.
It Can Be Even Better
I used the numbers and results above because they represent a reasonable set of assumptions that could apply for many people. But these numbers can be improved upon significantly with just one or two extra pushes.
Consider the numbers above with the following changes:
- You could earn $80k per year instead of $70k. Or maybe $90k or even higher.
- You could save 50% of your income instead of 35%. Or maybe 60% or even higher.
- It’s difficult to say you could earn a higher rate of return than 8% (especially given today’s market valuations), but what if you could earn 9% or even 10%?
- Let’s say you converted your investments from index funds which you withdrew at 4% to real estate syndications that pay 7% income plus part of the upside appreciation (at time of sale). Now your savings are earning you almost $51k per year instead of $29k a year in withdrawals.
- Your side business could easily earn more than $25k per year (you can earn $25k from a blog — certainly there are other ideas where you can earn more, right?). Even if you just earn $100 a week, that gets you to $5,200 as a start, well ahead of the $4,000 we suggested. And it’s likely it won’t take you three years to get to this level.
- We assumed you have zero savings currently. If you have some, you already have a head start on your retirement nest egg.
These numbers are especially attainable for a couple who both work. As such, they could be looking at retirement well within a decade.
Wrapping It All Up
Of course your exact circumstances will vary, but you can use the principles above to run your own personalized numbers.
Maybe you can earn more and save less. Or perhaps you’re better at saving than earning. Or maybe your side hustle can become a $30k per year business. Simply run the numbers with your particular likes and dislikes, see where that puts you on the road to retirement, and adjust as needed. We all take different paths, so don’t stress if you don’t do “as well” as others. It’s not a competition.
Now the retirement police may say “well you’re not really retired if you’re working part-time or on a side business.”
I think you know what I think of the retirement police! Haha!
But with this plan you are retired from your career and instead you’re doing something you love with your time (I assume you wouldn’t start a side hustle you hated.) Besides, working in retirement keeps you challenged and your mind engaged — both of which are very important to a long and happy retirement.
And if you want to be “completely” retired, simply put more effort into the steps noted and save/invest more. Or take the steps as they are and add a bit more time. The plan can be as flexible as you want it to be.
And if it takes longer than ten years to retire, who cares? You’re still retiring in 15 to 20 years, which for many reading this post is much sooner than they’d retire without following these steps. 😉
In summary, if you live like no one else for some time (working hard and saving a ton), eventually you’ll be able to live like no one else (retired early and living the life most people only dream about.)
Now go get ’em!
This is a great post. Thanks for taking the time to share this information.
Thinking aloud here…I think the “X factor,” so to speak, for some of us is kids. At least in my situation, my financial picture will change significantly once the kids are out of school and the house. Right now, I pay for private schooling (obviously discretionary but money well spent in my opinion) and can save enough to max out my retirement contributions. However, as my kids grow and tuition payments cease, that will free up a large amount of cash flow. Looking forward to being able to supercharge my savings and investments then. 🙂
As someone who lean-FIRE retired at the age of 34, I have a couple of objections. 😉
“Step 1: Create a retirement budget.”
“If you have a budget now (and the longer you’ve had one the better), setting an estimate should be easy.”
This implies you want to maintain the same standard of living, and/or in the same location, when you retire. That’s fine and all, but that’s not “retire as soon as possible.” Geographic arbitrage is a beautiful concept, and far too many people overlook it. Just off the top of my head, a couple ways to accelerate this: simplify your life in retirement, as in moving to a smaller house, or selling the car, etc. The other way is to move someplace that’s much cheaper but has the same (or better) standard of living. For example, I’m enjoying life in Quebec City, and my total monthly expenses are somewhere near $1,000 USD. 😉 Other possible destinations: Vietnam, Portugal (the cheapest country in the EU, IIRC), Costa Rica, etc. It always saddens me when people don’t even bother to daydream about relocating someplace nicer and cheaper after their FIRE.
“Step 6: Don’t accumulate debts.”
“rent versus buy a home”
While I personally prefer to rent (less stress that way), my financial situation would’ve been a lot sadder if I hadn’t bought a condo near Seattle back in 2016. Not all debt is bad: if it finances a good real estate acquisition (retrospect, I know), or helps pay for your education and becomes an investment, then go for it.
I think at some point you might have forgotten what your own headline was. 😉 In my book, the 10-year horizon isn’t all that great: I achieved a positive net worth in May 2016 and then lean-FIRE retired exactly 5 years later. 🙂 If I could do it, chances are many others can, too. Good luck, eh. 🙂