Jacob, could you please make a spreadsheet and post that backs up the math behind your assumptions. I’ve tried to run the numbers and it just doesn’t add up. Even saving 75% of ones GROSS income 5 years just isn’t enough to replace the 25% of your income (I get 18% replacement of gross income). A 75% savings rate provides for an income replacement rate of about 3% per year so to get to 24% replacement it needs at least 8 years.

Now, none of this accounts for taxes which would take about a 20% bite out of your gross income. That reduction would drop your savings rate to 55% (still assuming 25% for living expenses). This further increases your saving period to 11 years (more than double your projection)!

These calculations are independent of starting salary because it is figured as a calculation of replacement percentage. To give it firm numbers, I assumed $40k starting salary. After 11 years your “retirement income” will amount to $14,328 per year (with a $358,219 nest egg). I used a 4% safe withdraw rate (verified via FIREcalc and numerous research studies).

Furthermore, adjusted for inflation this income is reduced to $10,350 in present dollars. Enough to survive (if everything goes alright), but pretty darn thin if there is a single emergency. I don’t see that income being enough to even cover health insurance premiums a few years down the road, much less rent and utilities for even a modest dwelling.

I’ll give you that 11 years of working is far better than 30 or 40 BUT it requires surviving on $14,328 a year. My route does involve a 40 year career but even adjusted for inflation I’ll have more money to spend in a month than you will have in a year. That money will provide security, comfort, adventure, and leisure.

I feel like your posts are great; they make people think. In this case it would be great if the numbers did add up, but they don’t. Enjoy your dose of reality.

I think people choose the first option because it’s easier and also expected

The 2nd option is harder, so most of us will skip

I look at wealth this way– Save and invest a bundle the first ten years of your working career and avoid debt. Enjoy the other 50 years

or

Have fun and enjoy the first ten yrs ( buying items on credit) and struggle and have payments for the next 50 years.

Most love instant gratification, then worry about the payoff later

Ahh, guys it’s pretty easy – he’s right.
Use this calculator
http://www.dinkytown.com/java/InvestmentDistribution.html
My assumptions
Graduating salary $60k annually $3k net after taxes per month.
Live on $750 (somehow?), and save $2250.
Annual return 8%, contribute 5 years, 3.1% inflation starting immediately.
It alone will last into your 50s, and I don’t know about the rest of you but I’m sure I’d figure out a fun way to make some money along the way.

@thrifty – SOs can be converted. I focused on large recurrent expenses like house, car, and food.

@adfecto – I don’t know of a painless way of posting a table (I’m no Excel wizard). I can give you the math though. The condition you are looking for is

FV(-PMT,i,n,PV) > (1-PMT)/withdrawal rate,

where FV is the future value, -PMT=-0.75 (percent of salary saved), i is the interest rate (pick whatever, it almost doesn’t matter, since n is small), n being the number of years – that’s the quantity you’re solving for, the withdrawal rate is 0.04 and 1-PMT=0.25. you’ll recognize the rhs as a perpetuity. If you pick n=5, you do get the 18% you’re talking about and the 8 years required to reach 25%.

Verily, if you’re not getting any raises, 8 years is the right answer. However, consider getting a raise (probably not that rare during the first five years of your career) without lifestyle inflation, that is, raise PMT on the lhs but keep it constant on the rhs.

Generally when I talk about savings rates I mean relative to NET income.

$10k will go quite far in the midwest. Over there I spent $6600 a year. Single emergencies are no problem – after all you have six-figure liquid assets that can be replaced by working a bit. The problem is recurring expenses like for instance chronic health problems or a cable subscription.

Adventure, yes, I imagine that I’ll be the captain on the yacht you’re chartering. The sunset will look the same to both of us, only you’ll be the one paying me 😉

@moneymonk – I think expectations has a lot to do with it. Most people simply don’t see ERE as an attainable option (Did you win the lottery or what?!)

@mjukr – I’d almost say when you reach a level of wealth where market fluctuations have a bigger impact on your wealth than your savings rate, you owe to yourself (or at least your fortune) to learn how to manage it – at least if you’re still working for money at that point. The crossover point is the point where how you manage your money becomes much more important that whatever your savings rate is. Incidentally investing for income is much more “natural” than speculating in capital gains which is what practically all index investors do.

@claire – investment ROI during such a short period will make little difference unless it’s spectacular.

@patrick – Indeed. I find it harder and harder not to make money. I think people still think of retirement as a period where one has absolutely zero work-related income and spends a lot of money to get entertained. Don’t know about you guys but many of the things I like to do actually pays me as a nice side effect. Maybe to give an example: I was wandering the SF marina (at Pier 39 in case anyone wants detail) the other day with DW and an old friend. So I was pointing out the kind of [sail]boats I’d like to buy someday (24-31′ cruisers), whereas F remarked that she would want a powerboat so she could just run it out, anchor it and sunbathe. So F will pay a hefty price for the boat and have major running expenses in terms of diesel. I would be spending my time learning to sail to the point where I could crew on other boats, fix my own boat and perhaps even be hired as an instructor at some point.

patrick – how on earth are you supposed to live on 750 per month as a new graduate, wouldnt someone who is earning a salary of 60k as a graduate have student loans etc, and where will they live – a cave?

come on guys get real – i am all for extreme early retirement but lets keep it realistic otherwise credibility falls away.

@claire – When I excited grad school, I lived on about $500. $400 to rent a room, $75 for food, walked to work, no life insurance (no dependents), health insurance (included in job), clothes bought at thriftstores (~$0). When I moved together with DW, it changed to $550, $330 for the rent (each), about $75 in utilities, own water well, food increased at bit, car maintenance was added, no cable, furniture was thrift/used/free. DW paid off $10k in credit card debt over two years while she was on a grad student salary(!)

It is fully doable. The only question is whether one wants to do it. In my experience most people would want to spend a little more.

@mjukr – it depends on how you want to do it … index? ETF? mutual funds? or DIY? The former three seem no different than picking another investment goal. For the later, I’d start very basic. I still recommend joining aaii.com or at least reading their website (they have a starters guide). Also go to hussmanfunds.com and read his weekly commentary. For books, Graham and Dodd, and Pabrai.

What do you think of NoLoad FundX?

@mjukr – However, FundX has a very good track record. This suggests that the “market for mutual funds” is NOT efficient – and THAT is very interesting. It also seems somewhat reasonable that mutual fund investors are not analyzing their holdings to the same degree that analysts of individual stocks do. In that sense FundX will work until someone removes this inefficiency afterwhich yields will return to normal (minus the fee).

You really have a full-time job? Or were you joking?

That certainly will work, if ER Extreme is the goal. My goal was F*** You money, that is Finacial independence. I got there at around 38.

1. Find a career you like and are good at. If it is one where you generate revenue for your employer you’ll be able to work when you want.
2. Save 50% of your money.
3. Invest in low cost index funds. Everybody believes they can “beat the market.” I certainly did and spent decades and lost mucho trying. I’d have been better off putting it into cookie jars. But a 50% savings rate makes up for a multitude of sins.
4. Spend the remaining 50% however you like, but don’t worry about keeping up with the Joneses or anybody else.

Doing this I:

1. Quit my job at 38, except for a little consulting, until I decided to accept another job when I was 45.
2. Quit that job 5 years later to take a summer off.
3. Got laid off from the next one when I was 51. Enjoyed life for four years until a guy that used to work for me persuaded me to come work for him.
4. Still doing that and enjoying it at 59. Debating on when to hang it up again. Permanently, perhaps or maybe not.

Be clear on your goal. Seems to me the whole point of FI is not retirement but the freedom to choose what you want to do when you want to do it. Sometimes, at least for me, that requires accepting pay. ?

750 a month is fairly trivial to do here in Wisconsin. Right now I am renting a 1000sq foot apartment for $325, pay $120 per month for food, $80 per month for gas, $25 per month for car insurance, $35 per month for energy, $80 per month for beer, and $100 per month for full health insurance plus $40-$60 misc spending on stuff like disc golf, dining, etc.

Thats $825 per month without living with a roommate, having a car, and keeping a fridge full of beer. The least I’ve ever lived on was $300 in feb 2009. That was $212 for the apartment, $55 for food, $5 for Internet, $30 for heat and electricity, and I didn’t spend any other money. Me and my roommate kept it a cool 34 degrees all winter long because that place was horribly insulated.

False dichotomy. Why not C) Work a fun job (they exist) or D): Gov’t assistance, or E) part-time

As someone who took the first path when I got out of college almost 35 years ago, I can tell you that whatever value you anticipate getting from the big house and new cars etc., will be much less than you imagine. How much less varies from person to person. But I got very little personal fulfillment from any of my four corporate careers; the cars that I just HAD to have are all long gone and I never even think about them. Same for the big houses I had, I never even think about them, much less miss having them.

Think long and hard about those big purchases, it’s unlikely that they will change your life in a positive way.

It really should not be about “having a job”, more about having a fulfilling life. For most of us that means having a job, or starting a business, or helping in a NGO, or something.

And eventually we have to answer the question: what do we live on when we can no longer work?

I get that work is often seen as unfulfilling drudgery. It is if we make it so. Don’t make it so.

One of the best calculators I’ve found for ERE is Networthify:

http://networthify.com/calculator/earlyretirement

Plugging the numbers in beginning with a 0 portfolio, 75% savings rate, 8% investment return (a bit on the long-term optimistic side), and a 3.4% withdrawal rate, I get 7 years. …Which isn’t too far off Jacob’s mark. Close enough for my liking anyway. I guess it (and Jacob’s math) also assumes you’re going to live off 25% for the rest of your life. So, no having a gaggle of kids graduate!