This article aims to show you how to retire at 30. No, I'm not about to explain to you how to win the lottery, or how to marry a supermodel. All I'm going to show is some simple mathematics showing what it takes to retire aged 30 (assuming you start no later than aged 24 â it's too late for me already I'm afraid).
Most of us dream of retiring young, of being able to enjoy your hobbies and your family while you're still young, rather than spending your best years confined to a cubicle in an office, but few of us have any real idea of what it takes to retire early.
In all but the absolute worst case scenario if you withdraw 4% per year from your investments, then the interest or income you receive from the remaining capital will replenish the money you've withdrawn, meaning that the capital should last you forever. For this reason we're going to use a 4% withdrawal rate for the purposes of our calculations.
If we want to stick with a 4% withdrawal rate then it means the we must have capital equal to 25 times out yearly living expenses (100/4 = 25). Now that we know our withdrawal rate and the number of times our yearly expenses we need to save, all we need to do is work out how long it's going to take us to save this amount. We can do this using the following formula:
Number of years = 25 (%living expenses / %saved)
We can now plug some numbers into this equation to see how long its going to take us to retire. Suppose we save 50% of our net income and live off the other 50%, then we end up with the following:
Number of years = 25 (0.5/0.5)
If you plug this into your calculator you'll find that it's going to take you 25 years of saving before you can retire. That's a scary number! How are we ever going to retire before 30 (or in 10 years)? The only way to do this according to the equation is to save 70% of everything you earn and live off the rest (30%).
10.71 = 25(0.3/0.7)
Once you take into account the interest you'll be earning whilst saving it will be possible to retire within 10 years. It's clearly going to be difficult to save 70% of your salary. How are you going to do this? The obvious ways are to either increase your income (get a better paid job, start blogging etc) or to reduce you spending (cancel the gym membership etc). I'm obviously not saying this is going to be easy but if you want to retire before 30 you now know how to do it. Play around with the above equation to make it fit your circumstances and see when you can retire.