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Writer's pictureTyler

4 Reasons People Think They Can’t Retire Early

Updated: Mar 23, 2022



Challenges Ahead | Acceptance


Early retirement sounds like a pipe-dream for most people working a typical 9 to 5 job, and for good reason. There are challenges and uncertainties that come with giving up a steady income. However, identifying these concerns and addressing them head-on is an important step in realizing that they are surmountable. It does not have to be as risky or difficult as most believe.


Approach early retirement like any other big hairy goal: with an eye for opportunity and a problem solving attitude. If you haven’t read it yet, check out our Early Retirement Plan for some ideas.


I’ve had enough conversations with friends and co-workers to know why the average person doesn’t pursue early retirement. The questions, concerns, and rebuttals I hear about retiring early are so common and universal that I have basically memorized them. With this contextual backdrop, let’s dive right into the 4 biggest concerns that I hear from people who are curious about early retirement.


Sacrifice

But don’t you have to give up so much? Why earn money if I can’t spend it?
How could you possibly save half your income!? I can barely save 10%!

Fear / Risk

What if the stock market tanks?
Isn’t real estate risky?

Effort

Sheesh! How many hours do you work every week?
Being a landlord sounds hard.
It seems like I have too much to learn. I’m overwhelmed. Where would I begin?

“Must be nice”: Believing that only the lucky or privileged can build enough wealth to retire early.

I just don’t make enough money to pull that off. What is your salary, you must be rich!?

(often coming from people who earn the same or more than me but spend more on immediate gratification and don’t place the same emphasis on financial freedom)

Easy for you to say, that was back when houses were affordable!

Most of these are similar to concerns I had when starting out. Unfortunately, that’s as far as most delve into this line of thought. They see the challenges that lie ahead and yield without trying to solve them. That’s why I want to share this message with more people. The majority aren’t ready to take the actions necessary to retire early, but for those who are, I hope you find the information here valuable. Let's break down some of those concerns.


Sacrifice


You will have to be more measured in your spending to retire early, but it doesn’t have to be painful. In fact, the practice of re-evaluating where and how you dedicate limited resources can be extremely rewarding. It might even enable you to spend more on the things you truly value by identifying and removing those you don’t.


Another interesting thing I’ve noticed about this scarce mindset is that it impacts people at all income levels. There are people earning $250k+ who feel just as trapped and incapable of saving as people earning $30k. How can that be? Simple, it’s called lifestyle inflation. People’s lifestyles and spending habits tend to scale in lock-step with their income. This means the more they earn, the more they spend. You can probably already see the fallacy. Nobody can out-earn the habit of spending more than they earn. It is a well-documented phenomenon that has been studied. Mindlessly scaling spending with income is proven not to bring any measurable lasting happiness. There are ways to optimize your spending for lasting happiness. Unsurprisingly, they don’t revolve around buying more physical possessions.


If committing to a savings goal sounds scary, you may need to actively shift your mindset about spending to accumulate meaningful wealth. We’ll share a future post with more detail about savings strategies that have worked for us.


For some encouragement, I started this journey earning a modest $50k, living in the relatively expensive city of Austin, Texas, spending almost half of my monthly income on rent. I got off to a slow start, made several big financial mistakes along the way, and even took a year off to go back to school. These were all significant obstacles to retiring early, but we are still on track. You don’t have to be perfect to succeed. We'll also be sharing some of our biggest financial mistakes, so you can avoid them.


If the idea of letting your money do the work so that it multiplies and ultimately enables you to buy freedom is important, you will find ways to scale back your spending in areas that are not delivering value. The takeaway here is that some habits and expectations may need to be adjusted, but the actual sacrifice can be very minimal. You might even discover that you’re spending on things that are actively counter to your goals. Trimming these purchases will actually improve your quality of life. By spending more intentionally on the things that matter, you will enjoy less waste and more reward per dollar spent.


Fear / Risk


Risk is a topic that gets a lot of attention, but there are many ways to mitigate it, or “de-risk” your investment strategy. Investing always involves some risk. Anybody who says otherwise is selling something. Depending on your stage in life, goals, timeline, and ability to absorb temporary losses, you can absolutely build a plan that suits these tolerances. The sooner the better. Again, an investor’s most valuable asset is time.


Jess and I are very risk averse. We knowingly sacrificed meaningful short-term growth during the past few years of explosive economic expansion in order to achieve a more acceptable risk balance. Had we been willing to take on more risk, we could have achieved our goals in less time, at the expense of our peace of mind and a more costly downside if anything went wrong.


We could have taken on more debt to purchase additional rental units, but if we had failed to fill the units or had a big repair at an inopportune time, we would have had a difficult time paying our bills. Therefore, we chose only to acquire properties that we could afford to maintain if things went wrong, requiring the bills to total less than half of our earned income. That meant fewer properties, less growth, and less risk. This was a tradeoff that we had to acknowledge and accept up front. We sacrificed some growth, and added a few years to our corporate careers, but we gained peace of mind and built a system that matched our risk tolerance.


Everyone is taking some kind of risk whether they acknowledge it or not. We have to measure them, and decide which ones are worth it.


A Few Examples:


Work nine to five and rely on an employer paid salary?


Low Risk: Your employer could let you go at any moment.

Medium / High Reward: You’re getting paid, and you didn’t have to take a gamble on an unproven business. For many people, this is an excellent trade.


Ride a bike to work?


Low Risk: You could be hit by a vehicle. (Ask me how I know…)

High Reward: Improving your physical and mental health, which reduces your risk of death by virtually every other cause simultaneously, so it’s a positive trade. You’ll also save an insane amount of money and reduce your impact on the environment. Physical, mental, financial, and environmental upside. Biking is a quadruple threat. But, admittedly, it comes with some risk. That doesn’t mean you shouldn’t do it. Statistically, you are better off biking, and this is how you should measure and weigh all risks.


Smoking cigarettes.


High Risk: Increased risk of a wide variety of health issues, and a statistically shorter lifespan.

Low Reward: Smoking doesn’t have any defensible benefits. This is an objectively bad risk. It’s also an example of a cost that would be actively in opposition to most people’s goals. Health, social responsibility, and finances are all negatively impacted by this habit. Removing it would not only save you money, but create positive change independent of financial considerations.



You get the idea. Do not let fear prevent you from taking calculated risks with positive expected returns in controlled doses. You cannot succeed if you don’t try, and a calculated risk beats certain failure any day.


Effort


To most people, coming up with a plan to retire in 10 years sounds like a lot of work. Forget even attempting to execute it. However, most things worth doing require some effort, and if you don’t love waking up for your job, this is worth doing. It’s still important to be cognizant of what you’re willing to trade though. Make this decision up-front, and stick to it. Do not commit to a wealth building strategy that requires unacceptable trade-offs (such as too much of your time or energy).


I already work 40 hours a week for my day job, and I don’t want to spend all my nights and weekends burning the midnight oil to make an extra buck. For me, this is a non-negotiable, so I fiercely protect my free time. This meant I had to think deeply about how to maximize the return on my time in order to retire early without making other unacceptable tradeoffs. With some research, I found several ways to do very little extra work, yet earn outsized returns on that marginal effort.


House-hacking is the primary strategy we chose, but at the end of the day, we’re offering a service in exchange for money. The same process (build, automate, grow, repeat) can be applied to any business, so long as it generates sufficient ROI, and can be systematically scaled by placing trust into the hands of capable operators.


The type of business or active investment that you choose isn’t that important. If you can bootstrap the business at a small scale, prove its profitability, automate, and continue to grow it, the business can eventually become mostly passive (AKA low-effort). Most active investments or businesses will require some up-front effort, but even this is something that can be tuned. House-hacking is a great example of a business that requires very low input even during the early stages of building the business.


“Must Be Nice!”


This is a category of thinking that we really don’t like to entertain. Assigning others’ success to luck or privilege will alienate the very people who are in a position to share the strategies that helped them get to where they are. The door to wealth is open to everyone.


Let’s examine a real-world scenario to illustrate the point: the amount you earn from your day job is not that important! More obviously helps, but the percentage you can avoid spending is a vastly superior indicator of success compared to raw take-home pay.

Example:


An individual earning $50k (let’s estimate that’s roughly ~$40k take-home after taxes) and saving half will have $20k after one year. With $20k, you can purchase a home valued at $400k (the median U.S. home price today) by putting 5% down. Compare that to someone earning $150k. Right off the bat, this person takes home a much smaller percentage of their gross salary because of taxes. Take-home pay for this individual is closer to $100k. Now imagine this high earner only saves 10% due to their inflated lifestyle. The person earning $50k will save twice as much as the one earning $150k ($20k savings vs $10k).


This real world example plays out every day, and it’s exactly how I surpassed my higher earning peers in net-worth.


Saving $20k may not sound that exciting after a year of scrimping, but stay with me. A good investment property can realistically return 20%-30% yearly; let’s assume you achieve 25%. Then, you purchase a second property two years later worth twice as much with a $40k down payment. At this point, you’ll have $60k invested, but look at what happens to your relatively small input over the next ten years.



With just these two investments, you have accumulated almost half a million dollars in 10 years, and that’s assuming you did nothing else. Your salary probably increased during this time, and if you were able to make additional investments (stock market, more properties, etc), it is entirely possible to have saved $600k+ in 10 years with no remarkable luck or outlandishly high income. For someone who spends modestly ($30k per year or less for an individual) this is enough to retire.


Fear and Uncertainty are Natural | Choose to Act


Uncertainty, some level of effort, and certain lifestyle adjustments are natural precursors to successful early retirement. While it’s important to set some expectations, that doesn’t mean you can’t build a plan to suit your personal situation and goals.

  • If you’re okay with a bit more fluctuation and uncertainty, maybe you can absorb more risk and hit your goals even sooner.

  • Lots of free time? Maybe you don’t mind dedicating more time and effort to building a profitable business.

  • Are you okay with eating ramen and living in mom’s basement for a few years in exchange for a quick sprint to the finish line of financial freedom? (I'm not, but that’s one way to do it!)


The point is, while any of these extreme scenarios might allow you to build wealth, none of them are necessary. The key is finding your balance. It’s possible to live a plentiful life without resorting to extreme measures of frugality, workaholism, or risk-taking and still retire early with more than enough to safely sustain your lifestyle indefinitely. We are living proof. You just need a plan and a wealth building strategy that serves you. Don’t give up! Until next time! :D



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