At first, I couldn’t have dreamt of early retirement. However, I also didn’t dream of many other things. For example, having your own website is exciting. I had no idea how it works. Then I sat down, go to work, and shortly afterwards the Frugalist FIRE Movement website was born.
People can learn completely new things. Especially today, when the entire knowledge of mankind can be called up at the touch of a button on your screen.
The Internet is, in my opinion, the best invention since the wheel. I have learned a lot of valuable things during the first two decades of my life from other people on the world wide web.
Retirement through passive income
Just as one can learn how to build one’s own website, one can also learn to generate a passive income for oneself, which regularly shovels money to you for your retirement. If the cash flow becomes big enough at some point, this cash that flows to you is not only an additional income, but it can become so big that you can become financially independent on your own. That is possible for every citizen from the well-off middle class in the US or in Europe from mid to late 40, as I have described it hereafter.
Anyone with a reasonably average income should therefore not have to worry about their retirement pension and at least significantly increase it with an additional passive income. With a sufficiently high savings rate and period, the statutory retirement pension from the state is no more than an additional gift to which no one should depend on from the middle class.
Make your retirement pension yourself!
Relying alone on the state is blue-eyed and risky in the long term. Historically, almost all state-owned companies go bankrupt at some point and so are in the worst case scenario also your pension payments at risk. You are a grown man and you should generate enough addition to your statutory pension and in any case an additional effortless income is for this the best option. This second income gives you clearly more personal freedom and financial independence. A purely state pension is like alms, on which a randomly elected politician decides! After working for many decades, you deserve better! You owe that to yourself. You need your own permanent and lifetime guaranteed cash flow! And that regardless of the decision of others.
“How to become a guaranteed cash flow generator? If only that would be so easy. The banks have stopped paying interests since the ECB cut them to zero. Everything is risky. Jammer! Grump! Pink glasses … “Stop! Stop immediately!
The problem is not the ECB or politics. The problem is that as a citizen, you have probably not learned enough about how to really invest your money in the long term. But we can help you solve that problem. You ended up here at the Frugalist FIRE Movement. So, here we go!
How to invest
You now spend a handful of hours of your precious lifetime, and watch how you get close to 7% net yield on your own plus inflation compensation through unlimited passive permanent investing in the stock market using a long-term strategy. Price fluctuations do not interest you. Rather, fallen courses are a chance to get in and to reach your financial goal faster in the beginning savings phase.
Alone through this step you now have a head start against more than 95% of your fellow citizens who have not understood this yet or simply shut their ears out of fear of price fluctuations. This makes more sense than accumulating tens of thousands of hours of overtime or racking up for the next salary increase.
The safe long-term withdrawal rate for retirement
If the topic is through and you are diligent in saving and investing, you take a little extra time and internalize what is the safe long-term withdrawal rate at such an investment deposit, to make sure that you never run out of money. Then you do not need to be interested in price fluctuations later on during the withdrawal phase. On the Internet, there are some great online tools, especially in anglo-saxon countries using the wonderful tool “cfiresim”, with which you can run simulations and tests over the last 150 years.
Many financial advisers and a large part of the Internet community usually expect an initial annual depreciation of 4%, which means that over 90 years of over 90% reliability of the depot has been achieved. Since the US stock market is currently relatively high-valued and I am a financially conservative person who makes additional security factors happy, I personally expect a 3% annual withdrawal rate plan for myself and can easily live off the dividends of my global equity ETF portfolio and to make sure that I have never have to sell any more of my investments. And you should do that too, especially if you are planning a withdrawal over many decades.
This can only fail if the whole world goes down and then you will not need any more money anyway. So this is safer than all government transfers including your pension. I plan to achieve my financial independence through a high savings rate and by investing most of my money in the stock market in less than a decade. You can do it too! It does not have to be the entire necessary income that you want to replace. Even if you get a part of it, that’s already a wonderful thing.
You can say that with an additional “pension” or with an higher saving achievement you will “never have to work” again. I just call it what I want to do. Even with full financial independence, before the official retirement age, you can continue to work as before. But unlike before, then you can work on your very own terms.
Why retire now?
Those who no longer need labor income can emotionally separate money from work. You can choose what you want to do and what you do not want. Man naturally likes to create and it makes him happy. All you need to do is watch a child play. When children play for hours, they create things with Lego, cardboard boxes or pens. Do I hear you grouse? Do I hear you say that you wish that it is “finally Friday”? No of course not. It gives you great pleasure as you do not tire and are happy in the evening.
The problem arises when work becomes coercive. If you can choose the things and the time that best suits you, the childish joy of your own work returns. Therefore, the happiness of life also has the static form of a U. People with a lot of self-determined lifetime, these are children, adolescents, students and then only retirees, that have a high life satisfaction. I think it’s time you, yes you manipulate the statistics! As a frugalist I do no longer want to see unfortunate 50-year-olds who “need” to work instead of wanting and I no longer want to hear grumbling pensioners state that the state pension is too low or too late.
The savings rate
So now that the topics of long-term net yield and safe withdrawal rate are ticked off, you now need a sense of how high your savings rate must be in order to achieve this necessary permanent cash flow after a certain amount of time. Again, there were already diligent people who have this tool on their beautiful Frugalist website sometimes even kindly translated for the German-, Spanish- or French speaking fellow human beings for an easy use. So check them out.
With a savings and, of course, investment rate of 50% of your net income comes out for about 15 to 20 years, depending on the percentage of withdrawal rate selected and the average stock market movements. For most motivated people, this means wealth accumulation from the early twenties to the middle or late forties. These are nice years. Show what you are capable of! Do it for twenty years and then you are financially independent for many decades to come!
Even if you earn less, save less or you have discovered this blog until the age of 40, I do not want to hear such nonsense as the one from the page about the “dangerous dream of the pension at 60” coming from your mouth! The article refers to the sole pension from the state. What interests you the pension from the state! I know, I repeat myself but you are an adult, independent person – not an alms-receiver. The state pension is a nice extra. You make your pension, or at least a significant part of it yourself nobody else!
I myself come from a small village in Europe, in a structurally weak area. My parents know nothing about savings rates, residual income or the stock market. So I learned the lessons myself and if I can do it, anyone can do it. So and now go. Make the next years a decisive period of your life! During the period in which you have learned to pay yourself first, invest the earned money regularly into passive investment products such as ETFs, and open the door to your personal financial freedom for early retirement.
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