It is vital to the early retirement plan to be able to access savings in your retirement. For those younger than 55, saving in plans, which presume that people should retirement no sooner than age 59-67 (depending on your country), is thus of little use.

That is to say, it is still useful to some extent but not before actually hitting those ages. If you are older than 55 you are therefore in luck but for the rest of us, we also need a savings plan that takes care of retirement from age 30 to age 60ish. This has to be done is a taxable account.

Having implemented all changes of the makeover so far, it should be possible to save at least $500/month… more if you’re making more than minimum wage ($12000/year). Those ambitious enough to retire extremely early should be able to save more as well as earn more.

Initially, it is important to stay motivated. I wrote a post last year — one of my first — on how to compare your savings to big ticket items on a regular basis to stay motivated. To wit, being able to buy something worth $10,000 makes one happy on a daily basis, or at least as often as one thinks about it, whereas buying it will only create happiness for a few weeks.

It matters very little whether your saving is done in a savings account, a checking account, a money market, or even under the mattress. As long as your cash position is less than $10,000, the difference in interest rates is minute. Besides, keeping a non-working cash position is useless for early retirement. The so-called emergency fund is only useful for workers who live above or close to their means, but for extreme early retirement you live at less than half your means. In a short while we’ll start building a position in a brokerage account. This will be accessible to be liquidated in case of any “emergency”.


Jacob comments further:

Pre-retirement for an ERE strategy, an emergency fund is less relevant. You will be saving 50-75% and depositing checks to your broker account (these are generally insured to very high amounts) every 2-4 weeks. Even if they market declines, all you need to do is to sell your most recently acquired position which will not have declined as much. Say you just bought 1500 worth of stock last month, and you get laid off while the market at the same time goes down 20% (that’s quit a bit for a month). Then you have $1200. If you sell this, you have over 2 month’s worth of living expenses. You can sell the previous month’s investments for another two months.

Most people can’t do that because they keep all their savings in retirement accounts with the rest of their networth sitting in equally untouchable home equity. This leaves very little flexibility. The difference in planning for ERE is a difference in kind, not a difference in degree. The normal rules don’t apply.

Post-retirement, an ERE strategy will focus on dividends and corporate bonds. Dividends from select companies are MUCH more stable than earnings or market follies. My dividend yield is down about 10% thanks to “these times”. It is nothing to worry about. Furthermore dividends tend to rise faster than inflation in many cases.