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Do you need Financial Independence to Retire Early?


Do you need financial independence to retire early? FIREAhh… early retirement. We all dream about it, but only a few can pull it off. Early retirement is a difficult challenge, financially and mentally. How does someone even retire early? Most workers barely save any money for retirement. They’ll be lucky to retire at 65. Well, the answer is Financial Independence. That’s when your investment income can pay for all of your expenses. At that point, you don’t have to work if you don’t want to. The early retirement dream can come true then. This is the ideal case. However, I don’t think you need to be financially independent to retire early. Let’s look at financial independence (FI) first and then we’ll talk more about retiring early (RE).

*This post was originally written in 2013. I’ve updated and expanded it to be more useful. I hope you enjoy this one.

Reaching for Financial Independence

FI is a simple concept, but it’s very difficult to execute. I’ve been trying to increase our passive income for years and we’re still not there yet. Here is how I measure our progress toward financial independence.

  • FI ratio = passive income / expense

There are only two variables here: passive income and expense. It’s 4th grade math. We need to increase the numerator (passive income) and decrease the denominator (expense) to become financially independent. Unfortunately, both of these things are not easy to do.

Passive Income

Increase Passive Income

Passive income is tough. It takes money to make money. You won’t be able to generate significant passive income until you save and invest diligently for years. It took us over 20 years to build our passive income to over $50,000/year. Now, we have passive income from real estate crowdfunding, dividend stocks, rentals, and other sources.

It isn’t easy to increase your passive income because investments usually generate a tiny fraction of money invested. For example, most S&P 500 index fund pays out less than 2% of the dividend. Investors need to take on more risk to receive higher income.

Decrease Expense

Decreasing your expense is even trickier. Most of us are accustomed to our current lifestyle and nobody wants to cut back. I’m no exception. We usually spend about $50,000 to $55,000 per year and it would be very difficult to cut back. We could buy an RV and instantly achieve financial independent, but we don’t want to live that lifestyle at this point (or ever says Mrs. RB40). I’m sure most of you are in the same boat.

We just have to find the right level of spending and minimize lifestyle inflation as much as possible. Some people are happy with $25,000 per year and some can’t live without spending $100,000+ every year. You’ll have to make some tough choices if you want to reach FI earlier.

FI is not easy

FI is a simple concept, but the execution is a long grueling slog. Many people work all their lives and have very little retirement savings by the time they turn 65. Lots of Americans will have to depend on Social Security when they’re old. That’s not something to look forward to.

FI is even more difficult for people who want to retire early. Retiring by 40 means I have half the time to save and twice as long in retirement. It’s practically impossible to reach FI unless you have a very high saving rate and are extremely lucky.

Our FI ratio was over 100% last year, but I think it’ll be in the 90s this year. We’re not quite financially independent yet. Was I crazy to retire from my engineering career 6 years ago? Well, maybe I was a little crazy at the time. However, we’re making it work. Life has been incredible since I retired. I still believe you don’t have to be FI to retire from your career. You just need to get close and then use other means to bridge the gap. Let’s explore a few options.

Joe’s FIRE tip – Take your annual expense and multiply it by 25. If the result is lower than your net worth, then you are close to Financial Independence.

Work part-time

First of all, I am super happy I am not an engineer anymore. Life was way too stressful as a senior engineer and I had little time to spend with my family. Everyone is much happier now that I’m a stay at home dad/blogger. These days I work for myself 20-30 hours per week from home. This is the ideal work situation for me. I love it.

Fortunately, I don’t need to make much money to fill the gap between passive income and expense, even though this year has been a high expense year for us. I needed to earn about $1,000/month to plug the hole. For most of us, it shouldn’t be too difficult to make $1,000/month. Any part-time job can generate that much. Luckily, Retire by 40 is doing very well this year. I make enough to help pay the bills and save for retirement. It’s a dream come true.

Most early retirees can’t stop working completely anyway. Think about it. If someone works hard enough to retire early, they must be a highly motivated individual. It’s not easy to just stop working completely. Most early retirees I know are still working in some capacity. It’s better to downshift and coast by working less rather than stop working completely.

This is also known as Barista FIRE. You just need to find a fun casual part-time job that will supplement your passive income.

Starting a blog is a great way to build your brand and generate some extra income. You can see my tutorial – How to Start A Blog and Why You Should. Check it out if you’re thinking about blogging. 

Take advantage of the workaholics

Our family is extremely fortunate that Mrs. RB40 is a workaholic. She likes working and she doesn’t know how to stop. Maybe when she is older, she’ll learn how to relax. This is great for our finances though. She can work and enjoy the professional life for 12 more years. Her income and benefits enable me to leave my career without having to worry too much.

Oh my, how things change. The previous paragraph was written in 2013. Mrs. RB40 enjoyed her job and planned to work until 2025. Today, she is less enamored with her work and I hear a lot more complaints than in 2013. Now she plans to retire from her career in 2020. We’ll see how if it still makes sense in a couple of years. Meanwhile, we’ll be grateful for her steady paychecks, employer-sponsored healthcare, and various other benefits.

Create Intellectual Properties

Here is another way to create future passive income streams. You can invest some time into creating intellectual properties like a book, a course, a podcast, or a blog! If you are lucky, you will be able to leverage these IP into passive income. Retire by 40 generated over $350,000 in revenue since I started blogging in 2010. That’s insane, but many other bloggers are doing even better. There are endless ways to make money, you just have to find a niche and create some valuable content.

Ernie Zelinski, my personal hero, retired from his corporate career at 31 with a negative $30,000 net worth. He wrote How to Retire Happy, Wild, and Free and other great books. Today, he’s raking in over six figures every year from his books and speaking engagements. That’s incredible.


Now, let’s work on the denominator (the expense.) Geoarbitrage has gained popularity in recent years. Once you’re retired, you don’t have to live in a high cost of living area anymore. There are many nice areas in the US where it’s cheaper to live. From what I read, North Carolina and Tennessee are very nice affordable states. Why not check them out if you live in crazy expensive areas like NY and SF?

Many young people even move out of the US to take advantage of geoarbitrage. Jason, my blogging buddy, moved to Chiang Mai, Thailand and he’s having the time of his life. He is enjoying a very comfortable lifestyle on the cheap. It sounds too good to be true. I’ll have to check up on him next year to make sure he’s not pulling my leg.

We’re planning to take advantage of geoarbitrage at some point too. Once RB40Jr goes off to college, we’ll be free to try living in SE Asia and South America. I’m really looking forward to it, but that’s a long way off. Our son is only in 2nd grade.

Cut expense drastically

Of course, there are other ways to cut your expense drastically. You can move into a small RV and enjoy the wide open road like Steve at Think Save Retire. Or you can turn your back on the American consumerism culture completely and stop buying stuff. There are many ways to cut expense down to the bare bones. This is easier if you’re single, though. Cutting back drastically usually doesn’t work when there are 2 or more people involved. You’ll have to make some compromise to prioritize a happy family life.

Quit before reaching FI?

Here is the bottom line – it is entirely doable to retire from your corporate career before reaching financial independence. You just need to get close and figure out how to bridge the expense gap. Working ppart-timeis the easiest way, but it is not the only solution. If your stressful job/career is too much to handle, then it might not be worth it to stick around 3-4 more years to achieve FI. Sometimes, you just have to call it good and figure it out later.

What about you? Do you need financial independent before you retire? What are some other ways to bridge the gap and retire earlier?

*Sign up for a free account at Personal Capital to help manage your investments. I log in almost every day to check on my accounts and cash flow. It’s a great site for DIY investors.

Disclosure: We may receive a referral fee if you sign up with a service through the links on this page.

Photo by James Connolly

Most people think they need financial independence before quitting their job/career. Personally, I don't think it has to be that way. See why.
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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 105 comments… add one }
  • Frihetsfonden October 11, 2013, 12:32 am

    My goal is without a doubt to leave my current job before I have passive income to cover all expenses. However, I hope to cover the gap with revenues from other projects.

    • retirebyforty October 11, 2013, 9:06 am

      Good luck!

  • FrugalSage October 11, 2013, 1:10 am

    To answer the question. Yes. I doubt I would retire unless I was financially independent. I would determine the date when I’m ABLE to, and then probably work an extra year or two as a buffer.

    I started late compared to most of my peers, and only started work 5 years ago. If it was just for myself, I think I’d be able to retire fairly comfortably in 15 years time.

    But with potential wife and kids on the horizon it makes the future more difficult to judge.

    I’ll just keep trudging along doing what I need to do to move in the right direction. I think I’ve already caught up and perhaps surpassed the majority of people my age.

    • retirebyforty October 11, 2013, 9:08 am

      Good luck! Keep at it and you’ll get there someday. A family will complicate things, but maybe you’ll be lucky and land an understanding workaholic. 😉

    • Jerome November 27, 2013, 7:08 am

      That is exactly what we did. We reached FI when I was 38 but I kept on working for another 2 years. Just as I wanted to quit, the company I worked for was taken over. I expected that this could give us a nice unexpected windfall which it did after another year. So I was FI with a buffer and free at 41. The buffer came in very handy when the credit crisis struck in 2008. We never worried much and have since added about 50% to our net worth.
      I am married and have 5 kids. We have found that 5 kids basically double the expenses. But like the OP, I married a workaholic wife who got bored doing nothing and started a company which gives us a nice second income. This we have mainly used for building a study fund for our children.

      • retirebyforty November 27, 2013, 11:21 pm

        Oh wow, 5 kids. Seems like it would more than double expenses. Congratulation! It sounds like you are enjoying the good life right now.

  • Mike October 11, 2013, 2:36 am

    My main goal is to simply get what I have going over $500 a month average. I have managed to hit it once or twice in the past year, but I still have a long ways to go before I can enjoy that! From there, I plan to increase it more so if I need to have a sudden career change, I can weather it (or a period of unemployment without needing to really work much).

    • retirebyforty October 11, 2013, 9:09 am

      $500 buffer was my goal when I left my job too. That seems like a nice safe number.

  • C. the Romanian October 11, 2013, 2:50 am

    Financial independence is something that I’d love to achieve, but I know that it’s different to achieve, especially when living in Romania. However, right now my aim is to be able to become a digital nomad. I have a location independent job for 5 years now (blogger) and I have managed to create enough revenue to cover for the expenses of my family and save a little too. My main goal is to keep working and increase that income, hopefully being able to create some passive income streams as well and then start visiting the world, three months per country, while also taking care of my online business. It’s not an ongoing vacation, it’s not financial independence, but it’s still something that sounds incredibly nice for me.

    • retirebyforty October 11, 2013, 9:10 am

      That’s an attractive lifestyle. I’m curious to see how it turns out. It’s so new. I’d love to travel around too. When Mrs. RB40 retire, we’ll do that.

  • Michelle October 11, 2013, 5:36 am

    Today is the last day at my day job, and I am switching to my online business. It’s not retiring early, but it sure does feel great 🙂

    • retirebyforty October 11, 2013, 9:11 am

      Congratulation! Enjoy your last day at the grind. 🙂

  • [email protected] October 11, 2013, 5:54 am

    Thanks for this post!

    We have two rental properties that will be paid off in approximately 12 years. We are hoping to buy at least one more in order to create at least $3,000 of rental income each year. At that point, we should be able to quit and do side hustles and keep ourselves afloat without quitting “work” altogether. That is the plan, anyway. We’ll see how it goes!

    • Insourcelife October 11, 2013, 6:54 am

      “to create at least $3,000 of rental income each year”. I think you mean each month… Otherwise I’d love to hear about your extreme frugal living.

  • sendaiben October 11, 2013, 6:09 am

    I am hoping to end up with a three-legged stool: my day job, my investments, and my passive and consulting income.

    Ideally each of these would produce enough to cover our monthly costs: together they give us a reliable margin of safety.

    I’m lucky in that I love my day job, but don’t want to be dependent on it.

  • Insourcelife October 11, 2013, 6:49 am

    I agree that you can quit your present career before you reach FI, but you won’t be “retired early” so the title is a bit misleading 🙂 And I am not trying to define retirement in the narrow sense of not working at all, but at least for me – in order to be any sort of “retired”, one needs to not be financially dependent on others. Hence there is no retirement without FI.

    Most of the time what keeps people working the same jobs is the difference between what they make now and what they can make if they quit. I can absolutely quit now and do something else, but I guarantee that this “something else” is not going to bring in as much as I currently make unless the amount of work is drastically increased or I get lucky. Personally, I would much rather work a few more years saving 60-70% every month and become FI first and THEN I can quit and try other business ventures. If I were singe, things might have been different but with a family I have to be a bit more realistic.

    • retirebyforty October 11, 2013, 9:12 am

      It is a bit misleading. It’s just one option for people who can’t stand their job anymore. 🙂

  • Pretired Nick October 11, 2013, 7:22 am

    This is why I call myself “semi-pretired.” I do consulting four hours a week (more this week) to cover my bills. I need to build up my Pretirement Fund a bit more to call myself fully pretired, but since we decided we’d rather have one of stay home with the baby, it makes sense right now.
    I think this is a really important post and will really help clarify things for folks.

    • retirebyforty October 11, 2013, 9:13 am

      Yeah, semi pretired is better. I’ll stick with retire for better SEO though. 😉

  • EL @ Moneywatch101 October 11, 2013, 7:28 am

    I have a goal to be FI between 45-50, hopefully I can do a mix of reducing expenses and increasing income to help me get there sooner rather than later. I just want the freedom to do what I please and not for the benefit of corporate CEO’s. (Bonuses of over a million dollars is ridiculous in my book)

    • retirebyforty October 11, 2013, 9:14 am

      Yeah, I can’t stand those CEOs. It’s ridiculous how much more money they make than the regular employees.

  • Corey October 11, 2013, 7:38 am

    I love this post – everyone else always talks about FI being the point where you can call it quits. Of course, as Sam has pointed out, it only works if you’re married – but that’s okay in my book.

    It definitely seems risky when I think about it, but I still have 15 years or so before I will consider it. I’m definitely on the right track considering that Mrs. 20s loves to work as well, and is on a nice career path (with potential to earn more than me). I personally would like to have my primary residence paid for so that our expenses are drastically lower – that way I wouldn’t have to worry about income as much.

    I like what you’ve been able to accomplish. If retireby40 continues to do well, maybe Mrs. RB40 will reconsider her stance on early retirement.

    • retirebyforty October 11, 2013, 9:15 am

      Mrs. RB40 is so restless. There is no way she can quit working anytime soon.
      It’s great that Mrs. 20s has a nice career ahead of her. Keep at it and you’ll get to FI sooner or later.

  • [email protected]&More October 11, 2013, 7:58 am

    I plan on being financially independent before we both retire retire, but I could see us changing things up a bit before we hit FI.

  • Savvy Financial Latina October 11, 2013, 8:28 am

    Both my husband and I have decided financial independence is our goal in life. Honestly, I would love to be a digital nomad. I like working, but I enjoy working on my own terms even more! Not having to deal with politics at work would be so great.

    • retirebyforty October 11, 2013, 9:16 am

      The digital nomad lifestyle certainly is attractive. Good luck!

  • davidmichael October 11, 2013, 8:53 am

    Financial Independence is a wonderful goal, particularly these days when job security is so tenous. I have been retired for 20 years now. Every five years, my wife and I go back to work for one to three months a year over a five year period, to bring in extra income to refill our cash bucket which we keep around $60,000. Right now we are working at Amazon.com at one of their Fulfillment Centers. It’s hard, physical labor in a factory/warehouse setting, nothing like my professional career in college teaching. And, I am grateful that Amazon hires workampers (mostly seniors) at three different locations in the USA who live the RV lifestyle.

    I mention this because there are all kinds of ways to supplement your income, as Joe says in this blog. The nice thing about seasonal work is we work hard for a few months and then it’s all over. Freedom! Yahoo!

    • retirebyforty October 11, 2013, 9:17 am

      I really need to get a guest post from you one of these days. I want to see how the readers react to your lifestyle. I like the idea of working once in a while.

  • Done by Forty October 11, 2013, 9:13 am

    It’s a simple idea but I hadn’t seen someone put it into words before, Joe. I generally think of early retirement & FI to be linked, and kind of binary concepts. They can be, but it’s probably rarer than I think it is. Probably a lot more common to find people retiring early without being fully FI, but bridging the gap like you say. I think we’ll be on a very similar path as you and your family are, since my wife wants to work for a while after getting her PhD.

  • wallet engineer #1 October 11, 2013, 10:00 am

    I recently started a side hustle to quicken FI as well as provide side income when I get there. I’d love to live in Belize( or Thailand)!

  • krantcents October 11, 2013, 12:39 pm

    I think it is all about your goal in life. I wanted a certain lifestyle and have the wherewithal to support it.

  • Lisa E. @ Lisa Vs. The Loans October 11, 2013, 1:21 pm

    When multiplying my expenses by 25, should it be lower than my net worth including or excluding house value/mortgage?

    • KM October 12, 2013, 2:49 pm

      This is slightly more complex than inclusion/exclusion. Owning the property you live in actively reduces your expenses (you don’t have rent to pay but the total cost vs rent may still be higher if you’re early in your mortgage) and therefore the 25 times expenses total is reduced but you still must increase your expenses to include any mortgage payment unless you see them stopping anytime soon. The money you hold in equity I would not include in your net worth as you cannot put it to work to earn income….it is already working to reduce expenses (double counting otherwise), unless you’re going to sell it and reduce your housing requirement. For simple maths exclude the equity from net worth and include all housing (interest, taxes, maintenance) associated expenses before multiplying by 25.

    • retirebyforty October 12, 2013, 9:28 pm

      To be safe, let’s exclude the primary residence.

  • Justin @ RootofGood October 11, 2013, 7:47 pm

    I retired at 33, but I had planned to keep working till 35. My last job ended suddenly and unexpectedly, and after a day or so of soul searching (and reviewing my financial model and retirement plan) I decided I was “close enough”. We had more than 25x expenses saved and invested, and like you, my wife is still working too. From a cashflow perspective, my wife’s take home salary pays our expenses, and we still manage to save a good bit of her income each month.

    If we end up a little short on income down the road, I don’t foresee any problems in finding some part time or temporary work that pays okay. Okay equals $15/hr to me. 10 hours per week at that rate would produce $600 per month of income, and cover about a quarter of our expenses. Or provide some serious funny money to go on more vacations or buy some toys.

    When I’m talking to people still working, I’ll often see what kind of part time opportunities they have at their employer or that they have heard of. That magic $15/hr number comes up often. For a college educated reasonably responsible person, that must be the value you can get for an hour of work even when it is part time and temporary.

    It is always smart to have a Plan B (as you have discussed here before!) and Plan B might be pick up some part time work to make a buck if your investments don’t quite produce what you need to live comfortably (and your wife isn’t willing to downsize! 😉 ).

    • retirebyforty October 12, 2013, 9:30 pm

      Just a day? That was quick. 🙂

  • Dividend Mantra October 11, 2013, 7:59 pm


    Great post!

    This is something I think about. Personally, I dislike my job to a fair degree. I often think about “coasting” once the finish line is within sight. I wouldn’t mind moving to part-time work once my dividends/passive income cover, say, 75% or so of my expenses. At that point, making $500 or so per month, as you point out, wouldn’t be terribly difficult. Of course, more time means more energy to spend on passions and projects that will probably bring in some type of income anyway. The more I think about it, the more I like that idea!

    Best wishes.

    • retirebyforty October 12, 2013, 9:32 pm

      That’s right. If you work on something you like and make $500/month, that’s a great situation. This is especially true if you are self employed or own a business. You might start out with $500/month, but it will grow as you keep at it.

  • [email protected] October 11, 2013, 10:52 pm

    Besides my 401K my key drivers are my real estate holdings. Once paid off that is the key to my future financial independence.

  • Felix Lee October 12, 2013, 6:44 am

    I started saving for retirement right after I got my first decent job. It may not be that much, but at least I am already starting. My plan right now is to finish any financial obligations I may have early before I retire.

  • Bryce @ Save and Conquer October 12, 2013, 10:56 am

    You have to be careful using your Protip at 40. Comparing your portfolio value to your annual expenses multiplied by 25 comes from using a 4% safe withdrawal rate (SWR) from your portfolio. A 4% SWR was something that came out of the Trinity study. The Trinity study only looked at making your money last for 30 years. A 4% SWR is probably too high for someone in their 40s who will need their portfolio to last for possibly 50-60 years.

    • retirebyforty October 12, 2013, 9:34 pm

      That’s why it’s just close to FI. 😉
      3-3.5% is probably better for early retirees.

  • Micro October 12, 2013, 2:32 pm

    I’m not sure if I’ll have the courage to quit work before I can safely hit the 4% mark. I know I’ll be doing some type of hobby work after I leave my full time job but I have no idea if I’ll be successful. If I have enough cash in the reserves, I don’t have to worry about if my hobby work fails miserably. 🙂

  • Dear Debt October 12, 2013, 7:24 pm

    Great article, Joe! I hope to get there at some point after I’m debt free. If I can re-allocate my 1k-$1.5k per month towards debt to savings and investments, I’ll be good!

    • retirebyforty October 12, 2013, 9:36 pm

      Keep at it. 3 years is a long time, but you’ll get there someday. It sucks that so many people have so much student loans.

  • moneystepper October 13, 2013, 6:31 am

    I currently plan to be FI before I quit work. At the moment, I think that this is about 10 years away, but at only 28 this doesn’t feel like a bad position to be in.

    • retirebyforty October 14, 2013, 9:53 am

      38 is not bad at all. Good luck!

  • [email protected] October 13, 2013, 7:23 am

    I definitely will be comfortable retired at age 55/56 as I have a pretty nice pension. It would be great to be financially independent before then, but I don’t know if I can give up the pension benefits. They don’t call it golden handcuffs for nothing. Plus living in NYC is very expensive and I’m not sure if we’d want to move to a lower cost of living area. We don’t know what the future holds so we’ll see. Definitely trying to work on my passive income and cutting expenses though.

    • retirebyforty October 14, 2013, 9:53 am

      Pensions are great! I wish I had one. 🙂
      Maybe we can visit you when we’re in NYC at some point.

  • Mom @ Three is Plenty October 14, 2013, 9:09 am

    We’re waiting until the debts are paid off to make a final “plan”, but the current plan puts us not needing one person’s income after debts are paid off (except mortgage), and not needing both incomes by the time we’re early to mid-40s (about 10 years from now). I’m a workaholic as well, but I can easily transition into part time work as I’m already a consultant, but Dad hates his job, so he’s likely to be the first to leave the work force.

    • retirebyforty October 14, 2013, 9:53 pm

      Good luck! Part time work is great. It’s flexible and you won’t be as stressed out.

  • Pichiri October 23, 2013, 4:53 pm

    Of all the ways mentioned I think cutting expenses alot is really helpful ,living off 50% or less is helping me save alot.

    In my opinion working part time before reaching FI puts you into a semi-retired category,since you are working for “the man” in a diminished amount still.

    My main problem is with passive income.
    I would LOVE to invest in index funds if the possibility were there but I live in Aruba,ya know the one from one of those songs in the middle of nowhere in the caribean.If there is investing of any such reasonable kind I haven’t seen it available.

    What is one to do when this option is not there to make your money grow?Real estate?

    • retirebyforty October 23, 2013, 11:25 pm

      You can always work for yourself too. 🙂
      Aruba sounds great. I have no idea about investment there though. Maybe real estate or a small business?

  • RioCanyon October 28, 2013, 8:34 pm

    I finally have my better half on board with “The Plan”. We have two rentals in addition to our basement that we also rent out. The plan is to move 2-3 more times using owner occupied to get a good rate and to not have to put so much down (will commit to a 5k nest egg for each rental). Although moves are stressful, this will allow us to get a good cash flow from 3-4 properties in the next three years so the partner can just work part-time. Along with our cash flow from the rentals, part time coaching from both our ends will cover expenses, plus give us savings each month for other investments as well as chipping away at the rentals.
    Our little man is only 2 and so by the time he is 5 we would like to be settled in our “dream” home to start establishing roots and be in the school district we want.

    • retirebyforty October 29, 2013, 8:28 am

      Sounds like a good plan. Rental properties are a lot of work, but many people have successfully used them to bridge the gap to retirement. Good luck.

  • AB October 30, 2013, 11:06 pm

    Good article. FI is achievable through combination of both expense reduction and asset building. The former is rarely talked about in financial media. Using your 25X guideline, for every $10K reduction in annual living cost, one needs $250K less assets to achieve FI. We are a family similar in age to you, RB, and have one young child. We relocated to Asia 4 years ago, where we are living a comfortable lifestyle spending just $25K/year (having a maid, good 4 bedroom house on rent, decent car etc.). Our actual spend for the last 12 months was $25,700, and we have about $900K in retirement assets invested (not counting about $250K worth real estate investment in the country we are living in, as an inflation hedge for future). So, from our experience, your goal is easily achievable if you move to Thailand or any other low cost country that you prefer. Social Security is 20+ years away for us, and at age 67, it may kick in another $1000/month. Do you believe we should count on SS? If you are living abroad on relatively low expenses, another $1000/month is a real boost. What is your view on SS?

    • retirebyforty October 31, 2013, 11:00 pm

      Thanks for sharing your real world experience. $25k/year isn’t bad at all. The lifestyle sounds great too.
      I think we should still get Social security benefit. It might be reduced or delayed, but we should get something.

  • TomB January 5, 2014, 10:32 am

    A little late to the party here but I had to comment as my fiancé and I were just discussing the idea of maybe not being fully FI, but going into semi-retirement on a cheaper island (we currently live in grand cayman) and doing enjoyable part time work in the tourism industry like stand-up paddle boarding / kayak tours.

    The reality is I think it would be pretty difficult for either of us to go from 40-70 hour work weeks to having all the time in the world on our hands. Having a little structure in our lives working 2-3 days a week in a less stressful and more enjoyable job could offer us a smoother transition to FI.

    • retirebyforty January 5, 2014, 11:51 pm

      I’d love to live in the Caribbean for a couple of years. I think semi-retirement is a great option for many people. It will be hard to stop working completely.
      Good luck!

  • E Dubya January 9, 2014, 11:46 am

    This is what I long to do, but the numbers aren’t quite strong enough yet. You all should be thankful for you workaholic spouses. 😉 Neither my husband nor I have that gene, but things sure would be a lot easier if one of us was still wanting to work full time.

  • TakingTheLeap January 9, 2014, 4:41 pm

    I do struggle a bit with the idea that you don’t include harvesting some capital gains as an additional source of income. Why is that? If my investments appreciate 7% in a particular year, I should be able to sell up to that 4% mark and be ok, right? And wouldn’t it be tough to be well diversified AND be getting 4% dividends from everything? What do you think I’m missing here?

    • retirebyforty January 10, 2014, 4:31 pm

      I just feel like I’m too young to start harvesting capital gains. I’d rather rebalance and reinvest any gain while I’m still young. Once we’re older, then I would be comfortable with drawing down. Probably at 55 or so. 4% dividend is pretty tough. I think 3% is more realistic.

      • Codefreeze October 9, 2018, 12:01 am

        Hehehe. I’m 56 and I feel too young to harvest capital gains. 😀 I almost feel like I’ve lost the game if I do. I’d actually rather generate a bit of, shock horror, active income – boo, hiss! 😉 Seriously, probably won’t be able to bring myself to tap into “the stash” until I’m near incapacitated.

  • MW June 8, 2014, 5:58 pm

    I can retire 08/2015 @ age 50-yrs and receive a $2,000/month pension for life. My house will be paid for and I have no debt. My pension will cover all my expenses. I should have about $400,000 in savings by then. I do not plan to touch my savings until later in life so that it will continue to grow. I do not enjoy my job and struggle to stay there every day. I’m afraid to retire because of all the “what ifs” that come to mind. I admire you for doing so and would like to know how you manage to overcome the “what if syndrome”?

    • retirebyforty June 9, 2014, 10:49 am

      What about semi-retirement? You can try working on something that you enjoy instead. You don’t need to make much money because your cost of living is already covered. It’s about the quality of life at this point.
      Good luck!

  • BusyMom December 29, 2017, 4:25 pm

    We are retiring in about five years. If the markets do their magic, we will have enough for a withdrawal rate of 4%. Otherwise, the plan is to work enough to just live on what we make and let our net worth grow. That is what you are talking about, right?

  • Nanci Casson March 15, 2018, 10:18 am

    I love your article. I am lean fire but I am completely debt free, no mortgage, no car payments, no credit card debt or student loans.

    So for me, my expenses are only 500-700 a month. When you combined lean fire with being debt free, not just extreme frugality…….it’s the best of both worlds.

    In my case however, the money I have saved up (which could theoretically last over 30 years) doesn’t really need to be touched and in fact I can continually add to it.

    My expenses are so low that a simple online business that brings in 1500 month would more than enough to live on and cover most unexpected expenses.

    However the only unknown is healthcare. I don’t think anyone can properly prepared for that whether you are working or not. Remember even people with medical insurance and still working a full time job still fill bankruptcy because of medical bills.

    • retirebyforty March 15, 2018, 1:54 pm

      Being debt free is huge. Great job.
      Your monthly expenses look great.
      I agree with you about healthcare. It’s a huge issue for everyone.

  • Xrayvsn October 4, 2018, 3:06 am

    Personally I am super conservative when it comes to this and likely won’t pull the trigger till I am into the Fat FIRE stages. Most likely I want to start a glide path of reducing my clinical hours or possibly add a partner soon so that day to day work won’t be as hectic (the price is decreased income since I am in a “eat what you kill” type work environment).

    I already decreased my clinical workload by 1 day and that has made a world of difference in my mood as I was approaching physician burnout quite fast. If I could cut down another day or two this may be something I can carry on indefinitely (a 3 day work week would likely be a great compromise for me in terms of income and ability to practice medicine without burnout or losing skills). It’s much easier as a radiologist since it is a shift work type specialty.

    Geoarbitrage is indeed a powerful tool and has helped me tremendously.

    • retirebyforty October 4, 2018, 10:55 am

      If you can reduce the stress down and continue to be a physician, then you should do it. Having a reduced income, but still do what you’re good at is a great compromise. I think that’s way better than retiring early or not. Unfortunately, not many people have that option. Most engineers can’t transition to part-time. Good luck!

  • The Poor Swiss October 4, 2018, 4:45 am

    For now, I would not be very comfortable leaving my job without reaching FI. But for me, FI does not necessarily mean that passive increase is greater than expenses. If I reach a net worth enough for the SWR rule to apply, I will consider myself FI.

    Of course, having passive income greater than the expenses is even better. But much more difficult to achieve.

    • retirebyforty October 4, 2018, 10:57 am

      FI meant 25x expense to me when I first started. However, I found that I’m not quite comfortable with drawing down at this age. That’s why I’m shooting for passive income > expense. I’d be more comfortable drawing down when we’re 55. Keep at it!

  • Susan @ FI Ideas October 4, 2018, 6:56 am

    I like the way you have highlighted different ways people are approaching early retirement. For us, we overshot it and have both the passive income to live on as well as more than 25X net worth. But it was 8 years ago and I had not found the FI community, so it was harder to understand. It is one of the reasons I feel motivated to help spread this word. I sure wish I could have broken out of the cubicle sooner, even though I loved engineering. The long hours and commute were so draining.

    • retirebyforty October 4, 2018, 11:00 am

      I think having both is the best case scenario. I thought that you’d need to have 25x expense before being able to generate that much passive income, but I guess that’s not true all the time. You probably can achieve the passive income goal without having 25x expense with rental properties. Thanks for commenting!

  • Mrs. 50 October 4, 2018, 7:17 am

    I’m very conservative when it comes to money/FIRE. Personally, I would feel very uncomfortable leaving my job before we achieve FI. But it’s nice to hear that we could retire early when the “FI” number gets close “enough”.

    I think for us, healthcare is a big concern. My husband has health issues that need daily prescriptions. Currently, we are on my employee-sponsored health insurance which has a nice coverage. Definitely, we’ll need to get some cushion for the healthcare expenses when our FI comes.

    • retirebyforty October 4, 2018, 11:03 am

      My wife feels the same. I think women are more conservative in general.
      Healthcare is a big concern for us too. That’s why it’s great that Mrs. RB40 is still employed. We’ll have to figure out the healthcare puzzle someday.

  • Adam October 4, 2018, 7:52 am

    Two gainfully-employed people, on the same page, sure makes it easier. My wife makes more than I do… so if my job and I parted ways, we’d be putting far less away for the future but our quality of life might well INCREASE. I’d have more time for maintenance and chores and cooking, and she’d worry less about those things.

    It’s tempting. But since discovering the FI thing a few years ago, it’s been a big rush to watch our net worth jump four figures every week. For now I’m content to keep that up until the house is paid off (143 payments left!).

    • retirebyforty October 4, 2018, 11:04 am

      Nice job with your net worth and mortgage. Putting off retirement is not a bad thing. If you can tolerate working, you might as well shore up your retirement savings. Good luck!

  • freddy smidlap October 4, 2018, 7:54 am

    mrs. smidlap is similar to mrs. rb40 in a way. she lost her long time job 18 months ago. unemployment was great for the 6 months we collected it. then she got a part-time job and then another and now has 3 along with making fine art for sale. i don’t really understand it as she has severance $ we never touched too. i mention that from time to time. i don’t mind working presently as it’s low impact on my life and that savings could supplement us for a couple of years.

    all that being said, i quit several jobs in the past and took time off or just did fun little jobs between technical gigs. we used to joke around in new orleans that i was “retired” from industry before anybody knew the term mini retirement. but i had only myself to worry about in those days. i think if your life is being ruined by a job then leave that and figure it out, like you mentioned.

    • retirebyforty October 4, 2018, 11:06 am

      Wow, that’s a lot of working. It sounds like she enjoys it so that’s great. Mrs. RB40 likes working, but she just need to find a job where she can make an impact. That’s not easy these days. It’s pretty cool to hear that you’re a pioneer with mini retirement. 🙂 I had 2 sabbaticals, but that’s not quite the same.

  • Lazy Man and Money October 4, 2018, 9:10 am

    My biggest problem with the look at expenses is that they change, sometimes drastically, as life happens.

    A drastically changing denominator takes the 4th grade math and makes it: ¯\_(?)_/¯

    • retirebyforty October 4, 2018, 11:07 am

      You’re right about that. I’ve been thinking we should average the last 3 years and go with that. Even then, you get big variations due to college expense, home repair, and such.

  • Eric @ Flip n Finances October 4, 2018, 11:10 am

    I completely agree that people can Retire early before achieving FI. Assuming that a person has a part-time gig or side income to complement the necessary gap as you said.

    I think it depends on if a person’s dominant money habitude is more Spontaneous or Security.

    Personally, I wouldn’t retire until I was 100% FI for several years. But, I prefer security more.

    • retirebyforty October 6, 2018, 7:43 am

      I’m pretty sure anyone can find a side gig. Once you freed up 50 hours/week, there will be plenty of time to try. My wife is more security minded too.

  • DreamingofFIRE October 4, 2018, 11:49 am

    Love your blog since the day I found it. I can not remember when it was. I am trying to duplicate exactly what you are doing, however, my other half is not buying into..yet. We stuck in the “you only live once” mode. I am trying to cut my expenses down where I can. FI remains a distance for me. There was an article recently from Suze Orman that stated “retire at 70 and a minimum of $5 mil. I think that’s ridiculous. First of all, i think we all should be able to retire at 55 to start enjoy the golden years, and $5 mil is a big chunk. We all can retire at 40 with $5 mil. Keep up the good work.

    • retirebyforty October 6, 2018, 7:42 am

      It can take a long time to convince your partner to buy into FIRE. My wife didn’t really like the idea when I first introduced her to it either. It’s too different. Just keep trying to convince your partner. At least get them onboard with FI. That will give you a lot more option later.
      I think Suze is out of touch. Who has $5 million? That’s out of reach for regular people.

  • philofellow October 4, 2018, 2:30 pm

    I think it does not make sense to do part-time work to fill the gap of the expense, unless the hourly rate is higher, or you hate your current full-time job very badly. Suppose you make $45 per hour in full time job, and $15 hour part-time doing some labor work, then it is better off to work a couple years more and continues investing until the expense gap is filled. Otherwise with the $15 hourly rate, you need to continually working for many years even part time to fill the gap that is hardly to close. In total, the number of working hours is much longer (full time plus part time) if you pull the trigger earlier.

    • retirebyforty October 6, 2018, 7:46 am

      It doesn’t make sense financially, but lots of us do things that don’t make sense financially. Nobody really needs a luxury car, but plenty of people buy them. 🙂
      Of course, it’s better to keep working at a higher salary. However, there are other factors too. For me, it made more sense to retire early. It’s better to work part-time at a lower stress level.

  • Rachel Bier October 5, 2018, 9:55 am

    My husband and I were just talking about this yesterday, we’re on the last stretch of achieving lean FIRE and have 18 months left. I look forward to being able to take a part time job with no stress…I want to work because I enjoy it not because I have to!

    • retirebyforty October 6, 2018, 7:46 am

      Keep at it! Once you achieve FI, you’ll have more choice.

  • JD October 5, 2018, 1:21 pm

    Great post, I am in Tennessee, and you’re right, its a cheaper place to retire to, oh and quite nice. Low property taxes, beautiful scenery, great southern folk, and much much more. Hope you’re wife can get out of the rat race, soon!

  • David @iretiredyoung October 6, 2018, 1:30 am

    I like FI because it gives you choices, one of which could be to retire early. But even if not fully FI, you may still have increased your choices. At part FI, perhaps you can reduce to part time, or take a lower paying job which you like a lot more. Maybe it’s not exactly retiring early, but it’s still a good thing. Any progress along the FI line is therefore good news.

  • The Beacon October 7, 2018, 11:57 am

    It is totally doable if one has a strong side hustle. My definition of early retirement is having absolute control of my own time. It is not about doing nothing. Human minds need the right amount of challenge to satisfy their curiosity. A side hustle that you like and generates some income can definitely make it happen before you reach your numbers.

    • retirebyforty October 7, 2018, 2:53 pm

      Exactly. Doing nothing won’t work out well in the long term. You need to keep challenging your brain.

  • FIRECracker October 8, 2018, 1:49 pm

    ” Ernie Zelinski, my personal hero, retired from his corporate career at 42 with a negative $30,000 net worth.”

    Very curious about your hero. How did he retire with a negative net worth? Did he already have book sales before pulling the trigger? Did he have a pension?

    • retirebyforty October 8, 2018, 2:14 pm

      From what I understand, he quit his engineering job while he still had student loans. Actually, I think it was earlier than 42. I will double check.
      I’m pretty sure he didn’t have book sales yet. He went back to school a bit and tried a few things.
      Okay, he semi-retired at 31. I typed the wrong year. I’ll fix it. Thanks!

      • Codefreeze October 9, 2018, 12:17 am

        Ernie was a bit of a legend back in the day before FIRE took off as a branded thing – it was more underground then. I remember when Paul Stiles wrote “Is the American Dream Killing You?” he did a radio road show and was lambasted as un-American and possibly a commie and we don’t want no filthy reds in good ole USA – the guy was practically hounded out of the country and went to live in Lanzarote with his family last time I spoke to him.

        Anyway, good piece Joe and I wouldn’t say I “retired early” but I did change my life radically with a MINUS 150K net worth so I know it can be done. A lot of people think FIRE has to be this binary thing, but actually there are, at least, 50 shades of grey! 😉 I distinctly remember one day back in 2003 in Thailand when I was completely broke, had lost my home and possessions, and seemed to be a complete failure by the Western norm having this insight into the fact that, sitting in this small Thai restaurant, surrounded by great friends, and eating fantastic food, I’d never been happier! It was a revelation that my life didn’t have to be what society said it should be. I spent three years traveling around SE Asia and it was fantastic and I was very happy. In 2006 I started “doing the steps” and did a bit less traveling. I settled into a mix of contracting, with the occasional bit of permie work where I really liked the company, but being able to move on whenever I want is a powerful advantage. Today I have a decent mix of passive and active income sources. So, again, great piece for pointing out that there’s more than way to slice and dice it. I wish more people would write about this. All the best, Code.

        • retirebyforty October 10, 2018, 9:24 am

          I love Ernie. He did a lot for the FIRE movement.
          Everyone has to find their own path. That’s why I don’t really like the “gurus.” There isn’t just one way to do it.

  • GYM October 8, 2018, 3:06 pm

    I like how you don’t include your blog income for passive income- that means that your FI ratio and passive income are really good. You guys are killing it with your passive income, dividends and rental units!

    • retirebyforty October 10, 2018, 9:21 am

      Blogging income isn’t very passive. I call it: somewhat passive income. 🙂

  • Max October 17, 2018, 9:13 am

    Great post! The “retire early” part receives too much attention sometimes. To me, it’s more about whether my family has enough money to rearrange our lifestyles in the way we want. Rather than defer enjoyment and earnings for a far-off job-free utopia, we are building in time for mini-retirements along the way. This is my favorite combination of savoring the present while still progressing toward total financial freedom and full(er)/optional retirement in the future. I recently wrote a complete guide to how to organize personal finances to creating and executing a mini-retirements plan (using many of the FI communities insights for inspiration): https://interestinlife.com/achieve-financial-freedom-mini-retirement-guide. Hope it’s helpful to others who need a break!

  • Jason Fieber October 18, 2018, 11:08 pm


    It’s a great question.

    I think it’s a bit of a yes/no answer.

    For me, I like knowing that I’m fully FI because it gives new meaning (i.e., doing it for the pure enjoyment of it) to all of the work I do. And since I view remaining a productive member of society, via some type of work, as vital toward one’s success in FIRE, it’s great if you can make sure that you are doing whatever it is you’re doing because you genuinely love it and don’t care about the money. If you weren’t fully FI, that can’t totally be the case. That’s because you’ll be relying on at least some of the income your work generates for you.

    However, because of this dynamic, the “early retirement math” is mostly rendered moot, because I have yet to actually meet anyone in all my time of blogging, meeting people, and coaching who is living completely and totally off of their investment/passive income with no outside sources of money (via that aforementioned work) whatsoever. They must be some kind of unicorn, if they exist.

    Just my take on it.

    And I’m definitely not pulling your leg. You’ve gotta come over and check it out. I’ll even take you for a tour around my apartment over here. It’ll take all of five seconds, but you’ll get to see it. 🙂

    Thanks for the mention!

    Best regards.

    • retirebyforty October 19, 2018, 10:06 am

      I’ve come around on work. From my research, work is an integral part of well being. You need to work a bit on something you enjoy. It keeps you busy, gives you purpose, and improves your lifestyle. Too much work is not good, but no work at all is bad too. We have to find the right balance. Thanks!

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