5 Lessons From People Who Retired at 40

Most people believe that retiring by 40 is something achieved only by lottery winners, celebrities, trust-fund babies and tech tycoons.

But there is a growing movement of young retirees who are smashing our conventional beliefs about what it really takes to retire early. They’re not born rich, they’re not lottery winners and they’re not Silicon Valley insiders.

They come from all walks of life. Some had high-paying careers in finance or engineering, while others were schoolteachers or writers. Some were entrepreneurs, while others worked 9-5 jobs.

Still, those in the early-retirement movement do share one common trait: They typically adopt a contrarian mindset that produces a fascinating lifestyle, spending, and retirement planning insights. Here are five lessons from the lives of early retirees that we can all apply.

1. They understand the math of financial independence.

Conventional wisdom suggests that in order to retire, you need a huge nest egg and an income stream that nearly matches your working salary. A 2012 Aon Hewitt study found that in order to retire, the average employee surveyed required a nest egg 11 times his or her career pay. These people also needed to replace a whopping 85 percent of their annual salary.

The problem with these numbers is that they don’t account for the spending side of the retirement equation. Young retirees have discovered that the magic number is not income, it’s actually their savings rate as a percentage of their take-home pay. When we keep that in mind, early retirement suddenly looks a lot more attainable.

As Peter Adeney of the popular early retirement blog Mr Money Mustache has explained: “If you are spending 100 percent of your income, you will never be prepared to retire . . . If you are spending 0 percent of your income [meaning that somehow you’re managing to live], and can maintain this after retirement, you can retire right now.”

This early retirement calculator shows how elegantly simple the math can be. It doesn’t matter whether you earn $500,000 a year or $50,000 a year. If you can save 50 percent of your take-home pay, you can retire in 16.6 years. If you save 75 percent, you can retire in just 7.1 years.

A higher income certainly makes it easier to save a large percentage of your take-home pay, but maximizing the savings percentage is the key to early retirement math.

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