The dream of retiring early – it’s a dream shared by many millennials. Millennials are a generation that don’t really like working for “the man” and want to setup their lives on their own terms. As such, the structured nine to five world is a bit demoralizing and creates a culture of wanting escape.
But in today’s world, where the average salary after graduation is just $45,327 according to the National Association of Colleges and Employers, do millennials even stand a chance of early retirement? And what does early retirement even look like today?
What Does Early Retirement Look Like For Millennials
Magazines portray early retirement as a time to play golf and socialize with friends. But most magazines address early retirement from the perspective of retiring at 50 or 55, not 40 or 45 (or younger). Plus, most information on early retirement addresses those already looking at retirement, not those individuals just starting out.
So, what does early retirement really look like for millennials? Freedom, actually. Remember the story of Brenton Hayden, who we interviewed as part of our young millionaire series? He retired at 27. But he didn’t just stop working to play golf. Yes, he travels the world. Yes, he plays golf. But he is still working – investing in businesses, mentoring entrepreneurs, and more. It’s just that he’s doing it on his own terms.
In better terms, early retirement looks like having a bunch of “go to hell” money that you can use if you ever really do want to tell your boss to go to hell. It doesn’t mean actually retiring and not working. It means choice. It means being able to work a nine to five job or not. It means being able to spend quality time with your family one day, and working 12 hours the next day.
Most millennials don’t want to quit working, most millennials just want freedom to work as they please.
Why Do Millennials Want To Retire Early?
But why do millennials want to retire early, even if it is just a way to have more freedom?
It really boils down to a few things:
1. They haven’t really found the job or career they want. If you go to work each day and hate it, you start just hating work in general. Suddenly, early retirement and not working sounds much more appealing than finding another job or changing careers. In some cases, millennials may feel trapped in their careers as well, maybe because of student loan debt. For example, lawyers or doctors may have no other choice but to keep working because they need the high salary to cover their student loans. However, it leads to wanting to retire as quickly as possible.
2. Millennials don’t like to wait. Study after study have shown that millennials are a bit impatient. They want raises, they want mid-level jobs after graduation. They don’t want to wait. This translates naturally into retirement because after 5 years of working, they may not want to wait any longer to experience the next chapter – retirement.
3. They want to live more now. Traditional career and financial planning says to save while your working so you can enjoy retirement. Then, once you retire, you can take vacations to Europe, spend months living in another location, and more. However, millennials are worried that they will be too old to experience these things. Even though the average life expectancy is in the 80s, by 50 or 60 your body may not be able to enjoy the same trips and vacations as you could when you were 30. This weighs heavily on millennials, who want the freedom to escape and do the things they dream of.
The Challenges Of Early Retirement
The problem is, retiring early has a lot of challenges – a LOT of challenges.
1. Millennials will live longer than past generations. Each generation continually outlives the last. And while there may not be a huge difference between 85 and 95, when you’re thinking about retiring at 35 there is. At 35, 40, or even 45, there is just no way to know how much money you’ll need. Yes, you could just bank on having millions (who wouldn’t want this), but you could have unforeseen medical issues, family emergencies, or simply retire one year before a massive financial downturn. The important thing to remember is that money will be a challenge if you retire early. You need to plan to have much, much more than a normal retiree, and you still need to be careful.
2. You may get bored. Beyond the money, you may simply get bored of retirement. Yes, you may be freelancing or running a business, but millennials and other young adults like career changes. So going from working to retirement may be one career change, going back to work is simply another career change. However, the challenge of going back to work after retirement is that gaps in your employment history may appear undesirable to potential employers. Or, showcasing that you ran a business may make you appear overqualified for roles that you are looking for. Either way, going back to work after “early retirement” can be tough.
3. There is a structure with working. As much as you might hate working, there is something nice about the structure of a nine to five job. You have to get out of bed and go to a place. You see other people and can talk to them. If you’re retired, you don’t have this structure. Plus, chances are that most of your millennial friends will still be working nine to five jobs, so you won’t have very many people to socialize with during the day. This can be really tough.
How Millennials Can Retire Early Financially
Now that you know the risks, let’s look how it’s even possible to retire early financially. People like numbers and targets, so let’s make some goals if you want to retire early.
I want to look at 6 different scenarios. How much you’ll need if:
- You retire at 30 and don’t work
- You retire at 35 and don’t work
- You retire at 40 and don’t work
- You retire at 30 and work a side hustle
- You retire at 35 and work a side hustle
- You retire at 40 and work a side hustle
Since most millennials really seek freedom, I think it makes sense that even in retirement millennials will look for side hustles for income. For the sake of this example, the goal is to be able to have $65,000 per year in retirement, with a life expectancy of 95 years old.
For the side hustle, I’m going to assume that you can make $2,000 per month. That’s not a lot, but it is some income in retirement.
Here’s how much you’ll need in each scenario:
- If you retire at 30 and don’t work: $3,969,659
- If you retire at 35 and don’t work: $3,718,664
- If you retire at 40 and don’t work: $3,475,447
If you were to work and earn a little money, you can retire with a little less, but not much.
- If you retire at 30 and work: $3,524,210
- If you retire at 35 and work: $3,310,864
- If you retire at 40 and work: $3,104,130
Each of these numbers incorporates a large buffer to ensure that you will have enough over your entire life. It’s also important to remember that when you retire early, you can’t take advantage of tax deferred accounts like an IRA or 401k because you need to withdraw the money well before the IRS retirement age of 59 1/2. Yes, you can keep a portion in these accounts, but if you’re 30, you need to keep 30 years worth of money in taxable accounts and pay taxes on it each year. That’s an additional burden than millennial retirees face.
What do you think about these numbers? If you’re a millennial, does early retirement excite you? Do you plan on working in retirement?
Joe says
This doesn’t look realistic to me. It’s a huge amount of money to accumulate at the starting salary of 45k/year. I quit my job when I was 38 and I didn’t have anywhere near $3,00,000. It just seems too high.
Robert Farrington says
Well, I’m not so focused on the accumulation side – more on the what you really need side. If you don’t hit that target, I don’t think you should retire with those assumptions.
I’m glad you responded though – because I think your expenses are much lower than the $65,000 I pegged in my example. You’re also still side hustling with you blog for sure!
But don’t you worry what is going to happen if you live to 95 with your money?
JC says
I agree that $65K/yr in retirement seems high. I’m still in my 20s and hope to retire when I’m 40, so I may not be the most knowledgeable in this department…but with my current spending of ~$25K/yr, I assume that even if I double my expenses (ignoring inflation, which would also increase my assets presumably), I’d only need $50K/yr. My plan is $2M + a home when I retire and I’d probably still do income-earning activities as hobbies afterwards. Based on what I see floating around in the internet, I’m more conservative than most.
Robert Farrington says
You’d be surprised how quickly you get to needing to withdraw $65,000 per year. Look at it this way:
$65,000 before taxes (because you are only 40), works out to about $48,750 after taxes. That’s only about $4,000 per month.
Now, that seems really nice, but then you have a home. That’s $1,500 to $2,000 per month. Okay, still $2,000. Well groceries, expenses, and more – another $1,000. Healthcare is going to cost you $500. That leaves you with a buffer of just $500 per month. This is where the conservative part comes in.
Your only buffer is $500 per month for the rest of your life. Car repairs, home repairs, medical expenses, who knows. If you are on Obamacare, you could face a $5,000 to $10,000 deductible if you have to go to the emergency room. There goes your whole buffer for 1-2 years!
If you want to retire early, you have to take a more conservative estimate than you would have to at 65.
Nate says
sooo, what about this http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/
I don’t know about you, but if I hit 1 million net worth before my target date I’m quitting my job that day if I have literally anything else I would rather spend my time doing.
Also, I can easily cut that 4k/month number in half by owning my own home. Congrats, that 65k/year just turned into 33k, and I won’t be having nearly as much taxes after retiring since most of our taxes are income taxes, which takes it even lower to 25-30k/ year.