Starting Age

Hopefully when you read the title of the post, your first thought wasn’t: I hope the conclusion of this isn’t that I’m already too old to start. 

Rest assured, that’s not what I’m going to say.  Of course, age is definitely a factor in determining how much you need to save and invest to reach FIRE at a certain age.  If you’re already close to your target age, you might have to adjust your expectations.  The good news is that with age can come many things: wisdom and prudence for one (but perhaps not for everyone), and assets as well.

Let’s start with the obvious.  The younger you start, the more time you have to take advantage of compounding returns and long-term growth, meaning that you may be able to reach FIRE at a feasible age while contributing less money than someone older.  If your goal is to retire at 45, and you’re 22, that 23 years is a tremendous amount of time.  Assuming 6% returns, if you can swing $2,000 per month, at 45 you’ll have about $1.1 – $1.2 million saved up.  If you’re 32, you need to invest about $5,000 per month to hit that same result by 45.

Of course, not many 22 year olds have an additional $24,000 per year to invest.  (Although, let’s face it, the ones who do are probably working in jobs that inspire them to want to retire early, investment bankers perhaps).  You may, however, be able to swing that much in later years, meaning that, accomplishing FIRE is not entirely about how much you start putting away the day you decide to begin.  Rather, planning to put more away plays a larger role than you may think.

If you’re 22, you just graduated from college, and you’re starting your first day at a new job, there’s perhaps a palpable excitement.  You’re wearing your fanciest dress clothes to date, which are probably not quite the right size and more often than not a little more wrinkled than they should be.  But you’re starting a new chapter in life, moving on to the next phase.  In theory this is what you’ve been working toward with all those years of education, and now here it is.

Give it a few months (or maybe even a few weeks).  The sentiment quickly changes and you no longer see yourself doing this forever, thinking – can I really put myself through this for another 45 years?

While that may sound a little dramatic, it’s not all that uncommon.  So you get this idea to be prudent with your money, save it, and try to retire early to do – well, whatever else.  But after your new apartment, that new business casual wardrobe, some self-assembled furniture, and a cache of cleaning supplies that’ll take you a few years to use, you won’t be able to part with more than a few hundred dollars a month for a while. 

Do you sulk and give up?  You could.  Or, think of it this way.  Starting is the most difficult part – we know that from many aspects in life.  Start by putting away that few hundred dollars and begin to learn how best to invest it.  Once you start to see it building up in your account, it won’t take long to understand how incrementally saving can add up to something that seems more tangible.  (And, on the flip side, as you watch it bounce up and down, you’ll learn that investing is not always a smooth ride).

You may then run the calculations and realize that, even if you continue to save as much as you are, you won’t have enough to be able to reach an early retirement.  That doesn’t need to be the end of it.  Take into account the fact that, as we grow in our careers, our wages tend to increase.  

Now, most people tend to spend that money to enhance their lifestyle – nicer car, nicer house or apartment, etc.  It’s the phenomenon known as lifestyle creep.  As your income grows, your lifestyle creeps “upward” (for lack of a better term).  There’s nothing inherently wrong with this, and in fact, it’s what rational economics dictates we do.  

But, something to remember: it is extremely difficult to reverse lifestyle creep.  Ask anyone in their 40s living in a four bedroom house if they could go back and live in a one-bedroom apartment and take the bus to work.  If they answer you honestly, the answers will trend toward the “NO” end of the spectrum.

Deciding you want to pursue FIRE at a younger age gives you the decided advantage of getting in front of lifestyle creep, to the extent you can avoid it.  Obviously, there are certain things on which, as you grow older, you’ll want – or need – to spend more of your income.  If you have a family, you’ll probably need a bigger place to live, a larger car, will spend more on food, and so on.  Not all of that is lifestyle creep – it’s just growing.  You can still avoid (or reduce) lifestyle creep if you consider what you’re doing and keep your savings goals in mind.

What’s the benefit of avoiding or reducing lifestyle creep?  It allows you to capture more of any increases in income that come to you over the years.  If you plan it right by keeping your expenses in check, what started as a few hundred dollars per month can eventually become that $1,500 or $2,000 per month that you need to invest to retire at your target age.  And if you start with this goal and persist with it, you can avoid some of the psychological hindrances associated with giving something up now in exchange for early retirement later.

The point is that if you’re younger, you have more time to plan and shape your lifestyle toward accruing the savings you’ll eventually need for FIRE.  Don’t be discouraged if you can’t start dumping piles of money into a brokerage account when you first start.  Live prudently, contribute consistently, and you’ll increase the chances of making it.

Now, what if you’re 35 or 40 and you live in that four-bedroom house.  Are you thinking, uh-oh, there’s no way I can do this!  Absolutely not – but it might take a sacrifice that’s more apparent to you.  If you’re at the point where your lifestyle has crept to where it is, then creating a plan is all the more vital.

Start with the basic point that you’ll probably need to control any further creep.  If you had your eye on a more expensive car or new appliances or a pricey remodel on your kitchen, these are the types of further creep where you really need to assess the true value to you.  Are these things worth having if it means you have to work further into the future with a dependency on wages?  

If you’ve made it this far in the post, you’ve probably at least considered what you can do to achieve some sort of early retirement, but now comes the difficult part: implementation.

I’ll start with the obvious but most difficult pill to swallow.  Depending on how much you have saved, if you’re starting toward FIRE in your mid-30s or later, you may have to cut your expenses drastically to save enough to retire in your late 40s.  Cancel all the (extra) streaming subscriptions, stop eating out as much, get a cheaper car, stop replenishing your clothes as often, curtail the vacations, and so on.  But you also need to be prospective, as in, avoiding further lifestyle creep.

By this point, you may have already become used to a certain standard of living.  You may already be prepared to make some trade-offs so that you can invest more of your income with the hopes of building up enough to retire early.  If you continue to let lifestyle creep, you’ll either have to make a greater sacrifice in the future, or you’ll just have to keep working longer.

That’s not to say that there aren’t some things that may be a lifestyle enhancer that could actually be prudent choices.  Real estate, for example, may still be a smart choice as part of a balanced portfolio of “investments” (using that term broadly here) that will strengthen your asset balance as you age.  If you’re 40 and you buy a larger house, that could definitely fall into the category of lifestyle creep, but if its value appreciates, it may not be detrimental to your net worth.  Just remember that with a larger house come higher maintenance costs – which you won’t get back.

Although real estate can be worthwhile, be wary of depreciating assets.  Cars, clothes, furniture, appliances – all things that might look nice, but will only deplete your net worth.  You’ll more than likely need these things, and every so often will need to replace them, but if you want to achieve FIRE, this is where you can reduce your expenses by going with more economical options and invest the rest.

What, then, is the conclusion if you’re starting toward FIRE when you’re a little older?  You may have the advantage of a higher income and a little more stability in life (although not everyone).  You’ve probably also been with whatever you’re doing for longer – and know just how badly you want to make a change in the future.  If you’ve been in your career for a decade or more and just can’t stomach the thought of another 30 years, that should be your motivation.

So you’ve got your options in front of you, but it’s on you to take the necessary steps to adjust your lifestyle to invest what you need to make it to FIRE.  This may involve some noticeable sacrifices that come with scaling back your expenses, and also the conscious choice to watch out for further lifestyle creep.  But with the proper discretion, FIRE is not out of reach.

If you’re younger, take advantage of the time.  If you’re older, take advantage of your income, pre-existing net worth, and hopefully, your aged wisdom and discipline.  Put all these things together now, and in 10 or 20 years, when you’re pursuing whatever your ideal early retirement may consist of, you can look back and thank yourself for what you’ve done.