Retire Early In 10 Years (or Less) – 3 steps to know

Surprisingly, it’s not that hard.

It doesn’t require hitting the lottery or inheriting a windfall.

Similarly, you don’t have to become a brilliant investor or possess any unusual skill.

It is no surpirse, the answer is “frugality” – extreme frugality by most people’s standards – accompanied by basic investing.

Anyone can do it, but almost nobody will…

Let’s start by some number cruching, and then, the rest of the strategy in greater detail…

How The Math of Saving Your Way to Early Retirement Works

Assume $48,000 per year net income to keep the taxes low and the math easy. That works out to $4K per month.

(By the way — the actual income level is irrelevant to the calculation as you will see below, so use whatever income works for you. The key is the savings ratio of your net income.)

Also, we will be applying industry norm numbers like 8% for investment return, and 3% spendable retirement income to support living expenses.

Assume a savings ratio of 70% or $2,800 per month, at 8% return, you would have $515,000 at the end of 10 years.

It is true that you only have $14,400 per year to live on (I’ll address this issue later), but the fact is you’ll be financially independent in 10 years because 3% of $515K is $15,450 in spendable income. This would be $1,000 per year greater than what you had been living on.

If you’re really in a rush to fire your boss, and can bear with extreme frugality, then try 80% savings ratio. You could be financially independent in less than 7 years, because $3,200 per month at 8% results in a $361,000 savings balance, providing $10,830 of annual spendable income at 3%. This is greater than the $9,600 ($800 per month) you would be living on for this scenario.

Step #1: Silent the Skeptics

The first and most obvious you might have is something like,

“Happy thoughts, CF, but I can’t even get by on 100% of my income. The idea of living on 20-30% is a pathetic joke! This looks good only on paper!”

Here’s the the thing.

That’s only true for the people making those lifestyle choices. It’s not “the truth”.

Don’t believe me? Read this about a couple who lived in a RV in Google’s parking lot and saved 80% of their income.

The fact is:

There are many people who have committed to extreme frugality as a lifestyle choice because they don’t want to spend any more of their life than absolutely necessary working for money. They would sooner live without the luxuries that others have claimed are necessities than pay the price of working to have all that stuff.

It’s an expression of personal values.

Also, ponder over this:

Living on 20-30% of your income doesn’t have to equate to extreme frugality.

If your income is $250K or $300K, 20% of that is $50k or $60k per year!

At that high level of income,  you could have paid your house off, and never become frivolous, but never need to suffer. You chose your spending consciously based on your values (personal growth, reading, research, outdoor sports, adventure, and recreation).

The bulk went to savings with little effort or discipline.

Others might attack the 3% spending rule or the 8% return on investment.

3% spending is easy to support in perpetuity because a portfolio of quality dividend stocks would pay that (and likely more) while growing to adjust for inflation, and without the need to deplete the principal. It’s easily do-able.

Compound return represents very little of the asset accumulation over this short time period. The math is dependent on the percentage savings rate – not the growth rate. It helps, but it isn’t critical.

10 years early retirement goal is not long from retirement planning standpoint, so compounding effect does not make a big difference. It all boils down to the savings rate.

If you’re a naysayer, then just be honest with yourself and realize your negativity is all about a lifestyle choice – not the viability of the strategy.

With that said, the reality is very few people will ever succeed with this approach.


It takes the self-discipline of a celibate monk living in a brothel to survive on 20-30% of what most people earn in our current culture.

retire early

Does that mean you can discount this article and throw the idea away? Absolutely NOT!

The math is the math. Fact remains a fact.

This is one of three paths to retire early.  (the other two are real estate and owning your own business), and the rules are inviolable.

You can’t argue with them. It’s just math.

You can reduce the savings rate and lengthen the time, but you can’t change the math.

A 10% savings rate in our simplified example requires a traditional career duration of 40-45 years to make sense of the numbers. It’s the classic retirement savings formula most people are taught to follow – save 10-15% throughout a normal career duration to replace 80-90% of earned income – but few actually ever do it.

There are 3 key principles you want to comprehend with this strategy…

  1. The primary success determinant is the percentage saved from earnings. Every 10% increase in spending adds a little more than 3+ years to the process, because it not only decreases how much you save, but it increases the threshold of spending your assets must overcome as well. It’s a double whammy.
  2. Investment return and inflation have negligible  effect pre-retirement because the duration is short (high savings rate). However, investment return and inflation have a huge compounded effect when the time period is longer post-retirement, or when you use the traditional 10% savings rate.
  3. Almost nobody is consistently motivated enough by financial independence to persist with a frugality discipline for a decade and then survive on the same level of income for a lifetime. In other words,

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Step #2: Questioning Your Goal to Retire Early

All of this begs the question, “Is your goal financial freedom or financial independence?”

Shockingly, they aren’t the same thing.

Let me explain.

You can be financially independent on $15,000 per year in 10 years or less with the above example, but you’ll have to give up some freedom along the way to achieve it.

Purposely living near poverty scale limits what you can buy and do with your life. These limitations are antithetical to freedom and cause what I call a “poverty mentality.”

Every corner must be cut, every dollar squeezed to maximum.

It  could create an obsession to save associated down to every cents. Living like a miser really doesn’t equate to happiness for most people.

Unless you are naturally and inherently extremely frugal, you’ll constantly be in dilemma to spend money. Rather than work for money, you’ll spend a comparable amount of life energy working to save money through all the frugality strategies required to make ends meet.

This is not a right/wrong question – it’s just reality. It takes effort to figure out how to spend less and survive on less.

Money buys convenience and enjoyment, but these come at a price because you have to give your life energy in the form of work to earn it in the first place. It’s all just trade-offs. There’s no perfect solution.

For example, extreme frugality would limit your ability to take vacation to Santorini for a month, which honors your values for adventure and life experience. You also wouldn’t be able to honor your values on education by paying for quality, private school for your children. All these things would be luxuries in a world dominated by frugality thinking.

These would all be limitations to your freedom and would contradict your values. In my personal experience, that’s antithetical to true wealth and personal freedom. Others would disagree, but that doesn’t make them wrong.

So as you can see, frugality alone is not the answer, which brings us to the next step…

Step #3: Integrate Your ‘Retire Early’ Plan with Your Values

Excessive frugality is not everyone’s cup of tea. It works fantastic for some people, and it’s a recipe for misery for others.

The key is to assimilate your plan for financial freedom with your values. The two must be congruent because the goal isn’t just financial independence – the goal is true wealth and personal freedom.

For example, the spending level that honors my values as a mid 30 year-old, middle class, family of 3, is much higher than when I was a unmarried. It’s probably higher than it will be 10 years from now when my children are grown.

You must design a pre retirement plan to reflect whatever reality is true for you. That’s always the starting point when I begin working with coaching clients.

A wealth plan for financial freedom is the best when it integrates every aspect of their life: values, spending, life habits, skills, resources, interests and abilities.

Some save their way to retire early using the formulas discussed here. Others choose real estate and/or building a business to better leverage their passions and interests (this employs entirely different equations beyond the scope of this article).

Most use some combination of these three paths to wealth (I usually encourage two of the three paths).

One size does not fit all. Your retire early plan must fit you like a favorite pair of jeans in order for you to succeed with it. It must comfortably wrap every curve and unique attribute of your being, or it won’t feel right and you won’t stick with it long enough to succeed.

Getting your plan right is the first step to financial freedom on which all subsequent decisions and actions are built.

One Out of Three Paths to Wealth

In conclusion, the purpose of this was to demonstrate how the rules of frugality and saving your way to wealth can be applied within your ‘retire early’ plan. It’s one of three potential paths to wealth.

Traditional savings strategies are usually the primary choice (coupled with real estate) for employees who lack entrepreneurial dreams. Entrepreneurs will typically build wealth through their business, and park that wealth in paper assets or real estate.

There’s no one-size-fits-all when it comes to retiring early, and that same can be said for wealth planning. It’s a very personal choice.

How fast you want to achieve your wealth goals through savings (7 years? 40 years?) is purely a lifestyle choice and a statement of your personal values and priorities.  The paths you choose to realize your financial dreams should reflect your life situation. You have to be accountable for the choices you make.

The thing to note about paper asset savings plans is they’re governed by specific mathematical rules and limitations. If you want to break out of those mathematical rules and get more creative, then you must include the other two asset categories – real estate and business.

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