extreme early retirement

It is exciting to me that extreme early retirement is not some exclusive club that is unattainable for those of us with moderate incomes.

For example, Jacob, who coined the phrase early retirement extreme, was able to save 75% of his income on a $40,000 annual salary and retire at the age of 33.

My husband and I do not have a target date for when we would like to retire. Rather our lives parallel those who seek to retire early—though to a much less extreme degree — for the sake of financial independence and the ability to make the right choices for our future without money being the prime driver (such as me being able to quit my day job and write/blog full-time). The principles work whether you want the end result of retiring early or not.

If you are serious about extreme early retirement/financial independence, then you will need to drastically change your life.  Let’s take a look at the steps you will need to take in order to pull off an extreme early retirement.

Full Disclaimer: In my blogging career I have been called stingy by some people and extravagant by others. Just so you are aware, in the realm of extreme early retirees, our lifestyle is more on the extravagant side of the spectrum.

  1. Step One: You Have to Get Out of Debt
  2. Step Two: Take a Machete to Your Expenses
  3. Step Three: Automate 30-50%+ of Your Annual Income to Savings
  4. Step Four: Plan for a Frugal and Alternative Retirement
  5. Step Five: Live the Plan
  6. You Need to Redefine the American Dream
  7. You Need to Redefine “Retirement”
  8. Living the Principles of ERE will Redefine Your World

Step One: You Have to Get Out of Debt

Your first step should be getting out of all of the debt that you carry. This is because you need to free up as much cash flow as possible. You also would not want to enter retirement with a mortgage, lease, or other large payment eating away at your modest savings.

When Paul proposed to me in 2009, we sat down and discussed our financial goals together. Our number one goal was to get out of our combined $25,000 of consumer/student loan debt, and to never go into debt again (aside from a mortgage). Roughly 14 months later, we had reached our goal. Paying down that debt increased our cash flow as well as forced us to siphon off a larger amount of money into a pot that was not being spent. Once out of debt, this chunk of money naturally translated to paying ourselves extra each month in the form of savings and investments.

Step Two: Take a Machete to Your Expenses

Aside from increases in your income as your career progresses, the only other source of additional cash flow is sourced from decreasing your expenses. This is what I specialize in. However, I don’t specialize in giving up all of your wants, because then life would be no fun. What I do specialize in is living the frugal decadent lifestyle.

  • Frugal Decadent Sacrifices: These are things that we have done to decrease our expenses with very little compromise. For example, we make our own laundry detergent (an $8 batch lasts us for eight months), we periodically shop around for things like homeowner’s insurance, we play the drugstore game (same great brand name products, but at a fraction of the normal cost), we play the grocery game, I do community hot yoga for $5 instead of paying for an expensive yoga membership, etc.
  • Frugal Acts that take A Bit More Sacrifice: Then there are deeper sacrifices that you will need to make to achieve this lifestyle. The best example I have here is of our first Christmas tree in our new home, the Charlie Brown Tree. We saved $30 or so by doing this, but my husband was not thrilled at all. I happen to have a fascination with beater cars, so fortunately for me, they are not much of a sacrifice. But it is nice that I have finally progressed to a car with automatic locks and automatic windows! Other sacrifices we have made include keeping the heat and A/C off for as long as possible in the winter and summer seasons. In Houston the temperatures really fluctuate, so last winter we kept the heat off until December. One morning I woke up and it was an uncomfortable 51 degrees Fahrenheit in our house; the standoff was over! We have had a mild spring this year, and so far have only turned the A/C on a handful of times during the night so that we can sleep better.

When you think that you need something or want something, write it down on a piece of paper with two columns. In one column list whatever it is that you want. In the other column list the long-term gains from living the principles of early retirement extreme (I will give you a hint: financial independence, ability to make decisions that are right for you and your family, security, time away from a 9-5 job, etc.). Then compare the two so that you can see the huge tradeoffs you will be making for that purchase. Can an extra 1,000 square feet in your home add half as much happiness as financial security? Does purchasing one more comic book get you closer to freedom from the cubicle?

Step Three: Automate 30-50%+ of Your Annual Income to Savings

The reason why you need to pay down your debts and pare down expenses is so that you can allocate as high of a percentage of your annual income as possible towards savings and low-fee investments. While the annual national savings rate is under 5%, you will need to allocate 30-50%+ towards savings each year. It may take you a few years to work up to this, especially if you are in the debt payoff mode. As an example, in 2012 Paul and I were able to put 40% of our take-home pay into long-term savings. In 2011, we saved 38%, and in 2010, we saved 29%.

Not only that, but you need to keep these percentages or increase them as your income naturally increases. When you get a raise or cost of living increase, celebrate using a small amount of it and then capture the rest of it to add to the pot. This way you will not allow lifestyle inflation to take away from your ultimate goal.

Step Four: Plan for a Frugal and Alternative Retirement

Saving and investing a sizable chunk of money is only part of the equation. Another part of the equation is to continue living a frugal lifestyle once you are retired. And then there is the third part to the equation. We discussed how most of us will need to redefine the word “retirement” if we want to retire extremely early. This could mean taking a part-time/hobby/passion career to buffer your savings, living extremely frugally (like for under $7,000 per year), moving to a cheap country with free healthcare, taking in roommates, living on cruise ships, etc.

However you choose to bolster the amount of savings and investments you can accrue by your retirement age is not important. What is important is to make it part of your overall plan. Start conducting research on early retirement ideas and ways to live more cheaply.

Step Five: Live the Plan

As you progress down this path you will periodically need to tweak your plan. The idea is to keep your passion and hunger alive, and to keep your ultimate goal at the top of your mind. If something is not working, figure out what is broken in the system, do some research, and implement new ideas and learning.

Now, let's talk about a few other things you'll need to do that don't necessarily have to do with the numbers. 

You Need to Redefine the American Dream

Many of you know that I grew up on a family dairy farm in Pennsylvania. If you have seen the increasingly popular and ridiculous show Amish Mafia, then you have seen the backdrop to my childhood.

Life was a lot of work, even with five pairs of calloused hands keeping our farm afloat. Under the weight of two milkings per day, fences and equipment repair, the planting of crops, the harvesting of them later in the summer heat, and tracking down newborn calves in the back meadow, we all groaned, griped, and whined. Having a grandfather who loved to bark orders at us did not help the situation, and made us rather resentful.

As I grew older and dug myself out of the manure trenches, I started to understand why my grandfather loved to bark orders from on top of machinery or from his apartment upstairs to us working-folk; it was because he had already put in a lifetime of hard labor. Through his 50s onwards he had a limp. And that limp was from doing 40+ years of precisely the type of daily, back-breaking work my family was subjected to.

I didn’t want that for myself.

Working day in and day out from before the sun rises until after it descends and seeing such little money stay in my parents’ pockets made me reassess the seemingly linear relationship between work and money. When you work yourself to the bone and you see little monetary return five, ten, and fifteen years out, you really change your perspective. You start to respect money. Money to me was never about being a vehicle for getting what I wanted; it was about keeping as much of it as possible to have something to show for all of the work I was doing. I didn’t want to hand crank the survival cycle of hard work and low pay for the next 30+ years. Don’t get me wrong, I was never averse to work and some weeks could be the poster child for a workaholic. But I wanted something more.

Money to me was never about being a vehicle for getting what I wanted. Click To Tweet

For all of my childhood and most of my 20s I was curious about people who did not seem to have to work themselves to the bone for pay. Not envious, just extremely eager to observe, learn, and implement whatever they were doing. While I dreamed that one day I would be able to sustain myself without having to work to the bone for everything — a pipe dream if my grandfather ever heard of one — deep down I just didn’t know if it was possible. And then something wonderful happened. I figured out that life didn’t have to be so hard, and that earning decent money did not mean I had to physically exhaust myself. This coincided around the time when Paul and I paid off our non-mortgage consumer and student loan debts and our cash flow opened up. Our bottom line grew, and with it our financial independence and security. Suddenly everything seemed possible, including early retirement.

If we want to be able to dream about and potentially live in early retirement, then we need to redefine the American Dream. Whose American dream is it to be mortgaged or financed? In whose dream is someone thinking about a scenario where they can rent-to-own? I would venture to say that no one would associate these financial terms with their American Dreams. And yet, many of us fund our “American Dreams” with loans that ensure we stay deeply entrained in the survival cycle. Under the current mainstream system of “buy now, pay later”, we are literally trading years of our lives in sometimes back-breaking work for trinkets and “luxuries” today. Trust me, these trinkets and luxuries on loan today will not shine so brilliantly when you are stuck working extra years in a cubicle and/or high-stress job.

So what does the new American Dream look like? It is paid for as you go, it is simple, and at the core are the true gems: financial independence, security and freedom.

You Need to Redefine “Retirement”

Most people within the extreme early retirement world are targeting not only an early age for retirement, but also a different kind of retirement than the traditional one. Retirement, in the traditional sense of the word, is when you resign from your last 9-5 job and take up, well, living. If you have saved enough money and can withdraw a decent income (from a mixture of savings, social security income, pensions, 401(K)/IRAs, etc.), you can do practically anything that you want to. That is, once you turn the typical age of 62 years or older.

So what could an extreme early retirement look like? The extreme part about it is that you will be much younger when it happens. This is partially achieved through a large sum of savings that you have set aside, and partially achieved by redefining the traditional definition of retirement. Retirement could perhaps be a second act of employment where instead of working a 9-5 job you only marginally enjoy to pay the bills, you are working an enjoyable part-time job, hobby job, or passion job to help buffer your retirement savings. Instead of living in a relatively expensive area and or country, you research and move to a cheaper area or a cheaper country that offers free healthcare. Perhaps you change your entire spending habits around like Jacob who saved more than 75% of his income for 5 years and has lived on just $7,000 a year for over a decade now.

Living the Principles of ERE will Redefine Your World

Not working in a 9-5 job for 40+ years of your life is truly a revolutionary and sometimes counter-culture idea. If you choose to go down this path, prepare to have your life change dramatically (they don’t call it “extreme” for nothing). Even if you don’t want to follow the path through to its eventual end, living by some of these principles will give you more financial security, more financial freedom, and less money headaches. It will also teach you that paychecks aren’t a life-sustaining force, growing and declining just enough so that we can feed ourselves.

On the “extreme early retirement” scale, my husband and I are probably considered moderate to extravagant. We still have vehicles, we have a home, we did more than go to the county courthouse when we got married, and we don’t even have a target age of when we would like to “retire”. That’s right; to us it’s more about living the principles of ERE and benefiting from it long term rather than actually retiring at a very young age. But compared to many people’s lives, we are considered extreme.

Remember that what you are attempting to do is extra-ordinary. Most of us would never deign to retire at 35, 40, or even 55 either because we do not believe it is possible, or because we do not wish to pursue this type of lifestyle. You will need to think outside of the box, keep your eye on the prize, as well as maintain an overall frugal existence. Remember, the rewards can be great.

19 replies
  1. Financial Samurai
    Financial Samurai says:

    I like the path you are taking Amanda, and nice job with the TV interview!

    If you feel things are a little too extreme on the savings front, you can always dial it back a bit and spend more.

    • Amanda L Grossman
      Amanda L Grossman says:

      Thanks Sam!

      I think you are right; I like to err on the side of caution/conservative with money. But we can always dial it back if we want to (versus having to make more sacrifices to survive).

  2. krantcents
    krantcents says:

    I think your underlying theme is more financial independence than early retirement. For some, it may mean making small changes others it may mean changing careers. There is no one way to achieve success.

  3. T at MADD FInances
    T at MADD FInances says:

    It doesn’t take a lot of money to retire if you aren’t planning to spend like crazy. Some people feel they can retire off 25-30k per year while others want 100K + its just up to you. Automation is key for me but I am still working my way up to the 50-60% savings. Really like the take the machete to the expenses. More people should/can live on a lot less then they are spending.

  4. jim
    jim says:

    Ok, seriously, you guys, I’m still NOT getting it. I read this blogs ’cause they fascinate me – but really, seriously – do you guys have kids? have you raised them? have you put them thru college debt-free? have you put yourselves thru undergrad and/or grad school? have you been working (one way or another) since you were 12 years old? Somebody, please explain this to me. I’m loving what you’re doing, but I’m just not getting it. I am absolutely fascinated by this. Thx.

    • FruGal
      FruGal says:

      Hi Jim,

      Both my husband and I did have jobs since about 12 onwards…but that money was not part of our money now (it went towards paying for college and things like that).

      Here is the answer I gave to your kid question on the other post (in case you missed it):

      Hello Jim!

      We have not decided if we would like kids or not. If we do, we would raise them to have (hopefully) the same frugal values as us. Of course, I wouldn’t want to overwhelm them with it, as that may make them run from it as adults and spend lots. We would pay to raise and educate them just as we pay for everything else, by saving money.

      My parents only paid for a small portion of my college education, and I think the lessons that I learned from getting out of debt were priceless.

      There are people on the extreme early retirement pathway with children, so it certainly can be done. You just need to prioritize, focus, and realize that it is not entirely in your control (such as illnesses and disabilities that you gave as an example). Who knows what the future has in store for us; that’s why we like to save as much as possible now to plan and prepare for it.

      Other than that, there is not a ton of magic. We play the drugstore game so pay hardly anything for our toiletries (you can learn more by clicking on the tab in the header). We paid off our debts so that our cash flow was increased (though we still have a mortgage). I drive a beater car we paid cash for (more info in the ‘beater car’ button in the header). And we just prioritize saving our money. Frugality can truly pay off!

      • FruGal
        FruGal says:

        I should add, our debt payoff journey is under the tab “debt reduction” in the header. Also, Paul is thinking about finishing his college education, but since he served in the Navy for six years, it will be paid for by the GI Bill.


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