Most financial advisers tell you that the optimal time to retire is some time after 65 depending on how much money you have saved for retirement. To me, the optimal time to retire is way before that. So when should you retire?
The short answer is as soon as possible. Of course it depends on a lot of things including your family situation, future obligations, health, and how comfortable you are with the unknown. There are a lot of variables and what works for one person obviously does not work for everyone. That doesn’t mean you can’t take a specific case and tweak it to work for you. I’m going to use the example of my situation because that is the example I know best.
Let’s make some assumptions:
I am a single male with no kids therefore I don’t really care if I have any money left when I die to leave to any relatives.
Assume a life expectancy of 75 years old.
Assume you will not receive any Social Security.
Assume no debilitating health bills.
To compensate for unseen contingencies, we will assume that the money you have when you retire will equal your yearly expenses times the years until you are 75. In other words, if you retire at 45 and your living expenses that year are $25,000, then you need 30 x $25,000 = $750,000 to retire. I am not including the growth in your investments or the increase in your living expenses due to inflation. In reality, if you have $750,000 today and only assume a 4% growth rate in your investments, while assuming a 3% yearly growth rate in your living expenses, you will still have about $350,000 at the end of 30 years.
First let’s see what a typical worker’s lifetime of work, retirement and savings looks like if they follow the path of pretty much spending what they make and probably only saving in a 401K account:
As you can see, they probably have about 5 years of living expenses by the time they retire at 65. They might get a small pension and Social Security and this covers a 10 year retirement. For some people this is fine.
Now let’s see the different retirement scenarios for people who start saving, investing early, and actively live below their means:
This is not a bad outcome if you love your job or career so much that you couldn’t imagine doing anything else with your time. The bad part is that you saved way too much money so you died with a fortune. It’s kind of like how all the money goes back to the bank when you finish playing Monopoly. Thanks for playing.
This person has about 10 years of retirement just like the person in the first graph who didn’t save much, yet also retired at 65. The only difference is that this person dies with way too much money left.
This person retires at 45 and still has a lot of good years left to do the things they want to do without being too old or tired to try if they were much older. They will die broke or almost broke but who cares?
These are obviously very simplified examples, but the point is that you really can retire early if you are serious about it and plan for it. There is nothing noble about ending up with a lot of money when you die, especially if it comes at the cost of working many extra years unnecessarily.
I have been guilty of this myself. I wanted to quit my job years earlier, but my cautious nature always kicked in and said to me “Every year you stay at work, you’re saving about two years of living expenses.”. The truth is that I never made the decision to leave, they made it for me. I think they did me a huge favor.