Our Recipe for Early Retirement

In October, 2007, I was able to retired in my forties and joined my spouse who had stopped working 8 years earlier.

1. Commitment to saving. No matter how large or small the salary, it was what we saved that made early retirement feasible. We saved early, often and a lot. I started putting money into an IRA just after college. Also, we generally saved a significant portion of our salaries, typically about 10-20% on a yearly basis. Typically, a large portion of my raises also went to savings.



2. A margin of safety. Based on Taking the Mystery Out of Saving for Retirement and Personal Financial Ratios: An Elegant Road Map to Financial Health and Retirement, I believed that the minimum savings I needed to retire was equal to 12 times my salary. Since we were retiring in our forties, I raised the target to 20 times my salary. When I retired, we had 23 times my salary saved, not including the equity in our house. The bear market of 2008 has wiped out over 40% of savings, taking us to 13 times my pre-retirement salary.
   
   If we had retired with only 12 times my salary, I'd probably would have been looking to go back to work since late 2008. Living on the edge is great for entertainment but not for early retirement.



3. Interests outside work. Both my spouse and I have always had interests outside of work. In my twenties and thirties, I volunteered for and chaired several charitable organizations and also ran for political office. I've also been a participant in many sports, including running a marathon, softball, volleyball, and tennis. Finally, I've always been a personal finance junkie, with passionate interest in investing. My spouse is an avid gardener and gourmet cook. She also very interested in nature and enjoys traveling. We both love doing activities with our four year old daughter.
   
   
4. Good health insurance. Fortunately, I was qualified for retiree insurance coverage from my company. Although expensive, it provides the exact same coverage that I had as an employee. In addition, it will automatically cover new additions to our family. Also, I know early retirees, from other companies, that chose independent high deductible insurance coverage, and are also happy with their situation.



5. A partner with compatible financial philosophies. My spouse is frugal, a saver, and a good manager of money. In addition, she dislikes debt as much as I do. During the time we've been married, there have been few disagreements about how to handle our money.

Of course, there were no guarantees that this recipe will always work. However, for us, I believe these were some of the key factors that enabled us to consider early retirement when the opportunity presented itself.

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This is not financial or retirement advice. Please consult a professional advisor.

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