If you’re wondering, “How much do I need to retire?” the answer depends largely on when you plan to retire. Many retirement calculators start with the assumption that you’ll retire at age 65 or 67 and produce a savings goal based on that time frame. But if you plan to retire early, the amount you need to save will be a lot different — as will the strategy you’ll have to use to reach that savings goal.
To retire in your 30s, 40s or 50s, you might have to make some sacrifices to build a large enough nest egg to sustain you for several decades. Many people who have left the workforce at a relatively young age have had to make some big cuts in their budgets to build their savings faster because they wanted to reach financial independence and retire early.
On average, Americans spend more on housing than any other expense, according to the Bureau of Labor Statistics. That’s why it’s the most important expense to cut if you want to retire early, said Sam Dogen, who is the founder of the Financial Samurai blog and retired at the age of 34 after working 13 years in the financial industry. “If you can get your housing expense to be equal to less than 10% of your gross income, you are well on your way to retiring early,” said Dogen.
Savings From Cutting Housing Costs
Dogen, who lives in San Francisco, cut his housing costs 50% by buying a fixer-upper in a less expensive neighborhood. The cheaper house saved him about $4,200 a month — more than $50,000 a year.
Dogen turned the more expensive house he had been living in into a rental property. It generated passive income for him for three years until he sold it in 2017 and invested all of the proceeds in stocks, bonds and real estate crowdfunding to boost his early retirement income.
After housing, transportation is the second-biggest expense, on average, for American households. Leif Dahleen discovered that slashing this big expense can easily help free up more money for retirement savings. Dahleen retired in August 2019 at the age of 43.
Savings From Cutting Transportation Costs
To cut his transportation costs, Dahleen started driving less and biking more. “I bike to work half of the year, saving hundreds of dollars on gasoline and car maintenance while getting a bit of a workout in twice a day,” said the anesthesiologist who is the creator of the blog Physician on FIRE. He could bike throughout more of the year if he didn’t have to contend with the snow and ice where he lives in northern Minnesota.
Cable TV Costs
If you want to save money, you have to cut the cable cord, right? Actually, yes. Dahleen said cable TV is one of the big expenses he has eliminated on his path to early retirement. Cutting this and other nonessential expenses from his budget allows him to save about two-thirds of his income while living on just one-third of his paycheck.
Savings From Cutting Cable TV Costs
Dahleen has saved about $1,000 a year by ditching cable TV. He does subscribe to an inexpensive internet-based TV service but only at certain times of the year, such as football season. When he’s not using the service regularly, he cancels it to avoid wasting money.
Dining Out Costs
Steve Adcock, the founder of the blog Think Save Retire, spent $500 to $600 a month on restaurant meals before meeting his wife. As a couple, Adcock and his wife dialed back spending to about $200 to $300 a month. But when they decided they wanted to leave corporate America, restaurant meals were one of the big expenses Adcock and his wife decided to cut to save 70% of their income annually and retire at ages 35 and 33, respectively.
Savings From Cutting Dining Out Costs
To cut restaurant spending, Adcock and his wife only went out once or twice a month, and those meals were only about $10 to $15 a piece, he said. They resisted the urge to eat out by getting creative with the meals they cooked at home. “In fact, we always try to duplicate some of our favorite meals from restaurants,” he said.
It wasn’t just that they reduced their restaurant spending by a couple of hundred dollars a month. Adcock said they put that money to work for them by investing it. “The thing that a lot of people miss with this discussion isn’t just the savings. It’s the opportunity cost of where you can now put that money,” he said. “If you invest it, through the power of compound interest, that adds up to a whole lot more than you were saving.”
Magazine Subscription Costs
The cost of magazine subscriptions pales in comparison to housing, transportation and even cable TV costs. But Adcock found that eliminating small, nonessential expenses, such as his magazine subscriptions, and investing that money instead helped him retire early.
Savings From Cutting Magazine Subscription Costs
Adcock had several magazine subscriptions that cost him about $150 a year. Although he spent less in a year on those subscriptions than he did in a month on eating out, he realized the expense wasn’t worth it. “I’d read the whole magazine in one or two days,” he said. “I just couldn’t justify the cost while only getting a couple days’ enjoyment.”
Now, he looks for free magazine content online and occasionally gets copies of magazines at used bookstores for just 50 cents.
You don’t have to cut out all of the things you enjoy to save enough to retire early. Instead, look for ways to trim big monthly bills such as insurance premiums. By slashing his family’s insurance costs by $3,000 a year, Justin McCurry was able to increase his savings and retire at the age of 33. “Lower spending meant we could more easily contribute the maximum to IRAs and 401(k)s,” he said.
Savings From Cutting Insurance Costs
McCurry was able to reduce his insurance premiums by opting for higher deductibles. For example, his homeowners insurance has a $2,500 deductible instead of the standard $500. “Going with higher deductibles saves us hundreds of dollars each year,” said McCurry, who blogs about early retirement at Root of Good.
He also saves by self-insuring against some losses. For example, he dropped comprehensive and collision coverage from his auto insurance — which means he would have to pay for a new car if his vehicle is damaged or stolen. And he skips optional insurance such as extended warranties and trip cancellation insurance for vacation rentals. “Over a decade, our low-insurance consumption saved us around $30,000 with very few uninsured costs even after a decade,” he said.
Clothing is a necessity, but that doesn’t mean you necessarily have to spend a lot on your wardrobe — or anything at all. At least that’s what Angela Rozmyn has discovered as part of an effort to simplify her life and reach financial independence to retire early in about 10 years. The 31-year-old hasn’t bought any clothing for herself in the past two years.
Savings From Cutting Clothing Costs
Rozmyn said she wasn’t a big spender, but she spent at least $1,000 a year on clothing before instituting a ban on buying clothing in early 2017. However, she has saved even more than that, “because I’ve also become more conscious of the money I’m spending on new clothes and shoes for my son, and almost everything he wears these days are either hand-me-downs or purchases from the thrift store,” Rozmyn said.
Although she expects to buy new clothing when the items she has start to wear out, she plans to be more careful about how much she spends and what she buys. “I’m certain this ban will have saved me thousands of dollars over the years,” Rozmyn said.
In an effort to save more money to reach financial independence, Rozmyn started tracking everything she spent in November 2017. The goal was to have as many days as possible where she spent absolutely nothing. “We ended up saving so much more money than a typical month that I had to triple check that I’d actually paid our mortgage because it seemed like we had too much money left in our checking account at the end of the month,” she said.
Savings From Having No-Spend Days
Making an effort to have days where she doesn’t spend anything has paid off for Rozmyn. She has kept herself accountable by publishing a spending update each month on her blog, Tread Lightly, Retire Early. And she and her husband have watched as the savings have added up. “Tracking every dollar spent has made all the difference to our savings,” she said. “We doubled our savings rate from 23% in 2017 to 46% in 2018, with hopes to hit 50% this year.”
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About the Author
Cameron Huddleston is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Fortune, MSN, USA Today and many more print and online publications. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.
U.S. News & World Report named her one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named her one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, CNN, MSNBC and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR, WTOP in Washington, D.C., KGO in San Francisco and other personal finance radio shows nationwide. She also has been interviewed and quoted as an expert in The New York Times, Chicago Tribune, Forbes, MarketWatch and more.
She has an MA in economic journalism from American University and BA in journalism and Russian studies from Washington & Lee University.