What Is Early Retirement?
Episode #1 of the course How to retire early by Maureen McGuinness
Welcome to the first lesson of the course, and congratulations on committing to your early retirement journey. Retiring early is a privilege that I only learned was possible in the last five years. I’ve been writing about personal finance for over a decade, and during that time, I focused on becoming a more efficient spender while maximizing income streams. Little did I know that these were two key ingredients for financial independence. This first lesson will feature information about our current retirement crisis, the importance of developing solid personal finance skills, and why you don’t need to hate your job for this course to be applicable.
Where We Are Now
The average American retires at the age of 62 and can expect to spend the next 18 years in retirement before hitting 80—the average life expectancy. If we look back a generation or two, the decision to retire was determined by the age when you could start withdrawing social security (money provided by the government to support you when you can no longer work). Let’s take the Baby Boomer generation as an example. You can easily work out that providing social security for this generation will exhaust funds; estimates suggest that social security will run out in 2034. It’s easy to see how the generation after the Baby Boomers, Gen X (born between 1965 and 1980), may be the last to enjoy the benefits of social security and how Millennials (born between 1981 and 1995) are unlikely to receive any aid from the government during their retirement.
Where We Can Be
I write this course as a 30-year-old Millennial, and I’ve accepted for a while that relying on social security is not an option. If estimates are incorrect, our outlook should be pessimistic, and even if there are still funds available when we retire, we should only count this income as a bonus. For now, it makes sense to focus on figuring out how we’ll support ourselves when we’re no longer able to work or as this course suggests, when we no longer wish to rely on paid work.
Financially Independent, Retired Early (F.I.R.E.)
Using the average age of American retirement, this course aims to show you how it may be possible for you to retire earlier than 62, a status referred to as financially independent, retired early, or F.I.R.E. That could mean retiring in your 30s (like a few F.I.R.E. bloggers have done), retiring at 40 (my current target age), or retiring at 61. Early retirement may not be possible if you’re in a low-income household earning less than $22,000 a year as a single person or less than $48,000 a year if you have a partner and two kids.
This isn’t to exclude a group of people, but rather to be realistic that your income and outgoings play a big role in your ability to retire early. I’m not here to shame those who don’t have the same privileges that I and many other F.I.R.E. bloggers have. That said, low-income earners may find value in these lessons to make the most of their financial situation and ensure that they can retire comfortably by age 62.
Loving Your Job Is Irrelevant
“Retire early? But I love my job and working gives me a sense of purpose!” It can be easy to interpret early retirement as stopping work, but many members of the F.I.R.E. community define it instead as not being reliant on the income from paid work. How is that possible? By living off of the income that our investments generate, whether that’s through rental property or the stock market.
Some early retirees continue to do paid work because they enjoy what they do, but they have the freedom to live without worrying about an emergency expense, and they can leave that job immediately if they start disliking it. I plan to continue my side hustle as a tennis umpire when I retire because I enjoy the social side, the pressure, the opportunities to travel, and being involved in the sport.
So, why don’t I become a fulltime umpire now? Because I’m not sure it will provide the level of security and benefits that I enjoy working in financial services. While I like my role in communications, there’s a good chance that AI may replace the employees to whom I communicate, so having a game plan to retire earlier than most is also a way to ensure that I never need to rely on an employer for money. In a way, it may be better to focus on the financial independence aspect of our journey, which gives us the option to walk away from paid work.
Before tomorrow’s lesson, when I will help you clarify your objectives, consider how you feel about your current situation. What preconceptions do you have about retirement? Find out what your total household income is and whether you’re in a position to pursue financial independence and early retirement.
Recommended book
The Seven Habits of Highly Effective People: Powerful Lessons in Personal Change by Stephen R. Covey
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