How to retire 15 years earlier

I wanted to further explain how low expenses lead to early retirement by taking a look at a case study.

Be a Super Saver

Let’s explore the lives of two fraternal twins, tragically torn apart at birth (not in the separating conjoined twins sense, but rather in the figurative sense).  To protect their true identities, I have carefully crafted cover identities.  Each sibling led similar lives.  They went to college, studied engineering and obtained good jobs right out of college at age 21 earning $60,000 per year.

The young man, Saver Sam, is a financially responsible individual.  He tithes each paycheck, piously placing 10% of each pay period’s payment into his 401k’s collection plate.  That amounts to $6,000 per year contributed to his 401k.  Not a bad way to go about saving for retirement.

Saver Sam’s fraternal twin Super Saver Samantha, sharing only 50% of her genetic makeup with Saver Sam, is a slightly more frugal individual.  She is a really good saver.  Some say she’s a super saver (hence her name).  To appease the retirement gods, Super Saver Sam sacrifices 30% of her hard earned paycheck on the alter of savings.  To be more exact, she puts $18,000 per year into her 401k and IRA.

After taking out investment contributions, Saver Sam is left with $54,000 per year which he spends diligently.  Super Saver Samantha only has $42,000 left each year, which she gladly spends in a more frugal manner.

Sam and Samantha both envision retiring early, and both keep saving toward their goals.  Since Sam spends $54,000 per year, he must save around $1,543,000 to be able to withdraw $54,000 per year to cover his lifestyle (at a 3.5% withdrawal rate).  Samantha on the other hand, only needs $1,200,000 to fund her $42,000 per year spending habit.

Let’s take a look at when Sam and Samantha can reach their retirement goals.  Remember Samantha is saving more than Sam each year, so you expect her to save more money and reach her retirement goal sooner.

Sam does alright.  He is on track to meet his savings goal at age 59 with $1,548,339 in his investment portfolio.  Then Sam can retire and live happily ever after to a ripe old age.

Samantha does even better!  At the young age of 44, Super Saver Samantha passes the $1.2 million mark and grows her investment portfolio to almost $1.3 million!  She reached her retirement goal a full 15 years before Saver Sam will reach his goal.

Around age 46 or 47, Sam is cruising the internet, looking for his long lost twin sister.  Eventually he finds her online profile and the travel blog she started when she retired at 44.  What?  She spends a month or two each winter snorkeling and surfing in a low key (but warm) Latin American beachfront community, and lives a generally awesome life.  Without working ever again.  But that’s unpossible for someone her age!

Sam gets a little jealous at this point, but figures Samantha might be able to give him some tips to get to early retirement.  Sam and Samantha start comparing notes of their lifestyles over the last couple decades.  They found out they both lived comfortable middle class lifestyles in different parts of the US.  Sam and Samantha both have decent houses and good cars, but Samantha is just a little more savvy and manages to spend a little less.

Her mortgage and housing costs were around $400 less per month because she bought a slightly smaller house in a slightly less swanky neighborhood.  Compared to Saver Sam, Super Saver Samantha saves on average $300 per month (more some months, less other months) by buying reasonably priced sedans instead of the latest luxury models.  Samantha also keeps her cars for seven to ten years before replacing them with a new or new-ish car.  Sam lives it up and leases beautiful luxury cars and manages to score a new one every three years when the lease expires.

Samantha also managed to save an additional $300 per month in taxes by contributing $18,000 per year to her 401k and IRA instead of the $6,000 that Sam saved.  Add up Samantha’s savings each month: $400 on housing, $300 on cars, and $300 on taxes.  That’s $1,000 per month or $12,000 per year that Samantha managed to save without making burdensome sacrifices.  The payoff was retiring 15 years earlier than Sam.

This is Samantha’s tip to Sam.  To be a Super Saver, all Samantha had to give up was a little bit of house, and drive a slightly less new, less flashy car.  She didn’t have to reuse dryer sheets, rinse and re-use her ziplock bags, or make her own laundry detergent to retire at 44.  Super Saver Samantha simply selected a few areas to be a little frugal where she could have spent a bunch of money and made some smart choices early on to set her on the path to a very early retirement.

I hope you all enjoyed Saver Sam and Super Saver Samantha’s journeys to retirement!  Just remember, spending less means saving more, and needing a smaller investment portfolio to retire or be financially independent.

Are you on the path to beat Super Saver Samantha by retiring at age 44 or earlier?  Can you come close?

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