Today, I want to share a post thanks to Alex from Mutilate The Mortgage. He’s giving away some free gifts just for readers of Reach Financial Independence (RFI). Check out www.MutilateTheMortgage.com to learn how you can pay off your mortgage in less than 10 years!
Last year, my wife and I escaped to Fiji and enjoyed some time alone on a beautiful beach. We spent the whole day by ourselves, soaking up the sun, listening to the gentle waves, and feeling the warm sand between our toes. It was both relaxing and surprisingly entertaining.
The tranquility was unbeatable. Imagine watching one of those nature videos they play on gigantic TVs in shops, but experiencing it live.
You might think relaxing in such places is something reserved for rock stars, billionaires, or those born wealthy. For most, it’s years of sitting in a drab cubicle, hoping for some golf in retirement if they’re lucky.
However, there’s a new approach that requires much less work and yields better results. It involves smart planning and a futuristic mindset.
The Traditional Path
The traditional path to retirement is familiar: go to school, attend university, land a decent job, and grind away at it for about 40-50 years. Then, hopefully, retire and play some golf before old age relegates you to a retirement home.
Many of us dread this monotonous loop. Our parents, bosses, and career advisers advocate this route because it’s what has always been done. But the world has changed a lot since the 1950s. Surprisingly, many still believe this career path is the best way to reach retirement.
What’s Changed?
Our productivity has skyrocketed. In 1960, finding information meant trips to the library and tedious searches through card catalogues. Today, we just ask Siri for instant answers.
Everything is more productive now—this includes smartphones, cars, and even food production. We can produce more with less effort. Studies show that an average worker today can produce as much in 11 hours as a 1950 worker did in 40 hours.
Despite these advancements, many still work 40-hour weeks, spending extra income on luxury items, which has led to some peculiar infomercial products.
The New Path
Instead of working 40-50 years, there’s an option to work full-time for just 8-10 years. During these years, you save a large portion of your income—about 65-80%—and invest it wisely. After this period, you can retire early.
Living on 20% of your income might sound tough, but many people manage it, including high-profile examples like Mr. Money Mustache. This wasn’t possible decades ago, but today, all the necessary tools and efficiencies are available.
How To Use The New Path
This isn’t a magic formula to skip all responsibility. You still need to go to school, get a good job, and earn a decent wage. The difference comes in what you do after landing the job.
Your savings rate—the percentage of your income left after expenses—is crucial. For example, if you earn $60,000 annually post-tax and spend $25,000, your savings rate would be:
[ Savings Rate = frac{($60,000 – $25,000)}{ $60,000} = 58% ]
A 58% savings rate can help you retire in about 13 years. The higher your savings rate, the shorter your working career.
Two other core components are essential for this plan:
1. Living off 25% of your salary.
2. Investing the remaining 75% wisely.
The first point is about deciding how much you value your time versus material possessions. Do you really need a new car every few years or multiple streaming subscriptions? Making these choices can dramatically shorten your working years.
Understanding investments is the second key. Whether you’re conservative or bold in your approach, your extra savings should be directed toward retirement funds.
Your Results
With time, patience, and discipline, your savings will grow rapidly. For example, saving $35,000 a year with an 8% return can compound to over $800,000 in 13 years. This allows for a conservative annual withdrawal of $30,307, easily covering $25,000 in expenses and even allowing growth against inflation.
This plan doesn’t hinge on winning the lottery or receiving an inheritance. It works with virtually any income level and is resilient to variations in investment returns.
In conclusion, working doesn’t have to be a lifelong sentence. Thanks to modern financial tools and efficiency improvements, you can choose a different path and retire early. Follow this plan and you can retire like a boss!
