For many Americans, the idea of an early retirement is pure fantasy — many surveys suggest that a good portion of us are convinced we’ll never be able to retire at all. But what if retirement saving isn’t quite as insurmountable an obstacle as you think?
The idea that retirement — even early retirement — is within anyone’s grasp is a big part of the appeal of a popular personal-finance blog called “Mr. Money Mustache,” written by a 39-year-old man named Pete, who lives with his wife and 8-year-old son in Longmont, Colo. (The blog recently had 417,000 monthly unique visitors, and has had a total of 4 million unique visitors since it launched in April 2011.)
Pete, who prefers not to divulge his last name to protect his family’s privacy, retired when he was just 30. His wife retired with him, and for the past nine years they’ve been stay-at-home parents. Their investment income supports their lifestyle, but they also work when they want, on their own terms.
One secret to their success? They live on very little for a family of three: about $25,000 a year. They own a car, but mostly bike. Dining out is an occasional luxury. And shopping for stuff? That’s best avoided. But their philosophy goes beyond mere scrimping, says Mr. Money Mustache. It’s about enjoying life with less.
MarketWatch asked Mr. Money Mustache about his philosophy on spending, how he retired early, and his take on retirement planning. Our Q&A is below. And if you’re wondering about the name? “Mr. Money Mustache is meant to be a bit of a character — a financial superhero,” Pete said. “He’s me, but a slightly bossier and more opinionated version of me. I find that people gladly obey the commandments of Mr. Money Mustache, even while they would scoff if plain old Pete, the former software engineer, stepped up and started giving them advice.”
How old were you when you decided to try to retire early, and how long did it take you to get to the point where you could retire?
It was a gradual process. I brought some frugal instincts along with me from childhood, so I always tended to save a bit of money rather than spending it all. My wife has been a pretty reasonable spender since the time we met, as well. So I graduated from college in 1997, we eventually moved in together, and, after several years of full-time work, some cash was starting to build up in our investment accounts, and we wondered if there was something useful we could do with it.
Sometime around 2002, we decided we wanted to be parents eventually, and that it would be great if we could retire from our relatively demanding careers in the tech industry before any babies came along. This really increased our motivation to spend less and invest more, and we cranked things up. At the end of 2005, our savings were sufficient to generate passive income that we could theoretically live off forever, so we quit the regular jobs and have been winging it ever since. And we now have an amazing 8-year-old-boy.
How did you decide how much money was enough to retire?
Based on a long-lasting hobby of reading books on stock investing, I realized that you can generally count on your nest egg to deliver a 4% return over most of a lifetime, with a good chance of it never running out. In other words, you need about 25 times your annual spending to retire. So we tracked our spending and our net worth, and when we hit the magic number we declared ourselves “retired.”
(For more on Mr. Money Mustache’s take on the 4% rule here, read this blog post.)
Did you have a written retirement plan in place early on, or more of a ballpark figure you were trying to save up?
We did most of the saving before we knew all that much about early retirement. But once the picture became a bit clearer, we had a clearer goal. For the last few years, the mantra was “$600,000 in investments, plus a paid-off house.” This is enough to generate $24,000 of spending money, which goes quite far if you have no rent or mortgage to pay.