How I approach finances to retire early

Line graph showing savings over time.

This post, originally written in 2021, is periodically updated with new thoughts and context.

I’m 45, and if things go according to forecast I’ll retire in the next few years. This departure from the norm of retiring in your 60s, a financial planning concept referred to a ‘Financially Independent, Retire Early (a.k.a FIRE), will have been made possible through more than a decade of planning, steady income, and just as steady saving. More than a decade, yes. But not decades.

For many people FIRE is simply not financially feasible, period. Earning at or near minimum wage or having big non-negotiable expenses mean you simply can’t sock away enough for the math to work out. I am quite conscious of privileged position I and my wife are in.

But FIRE is feasible for many people who don’t think it is. My wife and I are not high income earners and we haven’t spent the last decade living like monks. Most of the time most of us just don’t stop to reëvaluate how we’re spending and what we’re saving. We stick with a mental model of what feels reasonable spend on stuff and what feels possible to save. That mental model tends to stay unexamined, nearly invisible, like the water for fish in David Foster Wallace’s memorable commencement speech.

So if FIRE is legit, you say, why isn’t everyone doing it?

Here’s part of the problem: for most of us financial independence might be something we can plan for but isn’t something we can count on. Sure, early retirement might be possible, but is it likely or unlikely? Why scrimp and save when there are big variables outside our control: return on investment, unexpected debt, the long-term viability of social security. The natural reaction when there is no way of knowing is to decide there is no point in trying. But as David Spigelhalter would contend, “if we want a firmer grasp on uncertainty, we need to start using numbers, and a first step is to try to define what we mean by words such as likely.” So brace for some math.

A related but distinct problem is psychological. The FIRE methodology involves saving hard early then living off those savings. Even when the maths show you’ll have equivalent financial equilibrium through your lifespan as if you’d gone the traditional work-till-sixties route, we are uncomfortable with living off savings (though of course FIRE is more nuanced than that; those hefty savings are generating income, for one). It feels riskier than earning (and spending!) a steady income year after year. So brace for some feels.

Contents

The unexamined financial norm

For the average United States citizen there is the assumption of a normative, monolithic financial life journey that looks something like this: you spend your twenties earning little and simply staying afloat, paying the rent, paying off student debt, and if you’re able to save something that nest eggs usually vanishes in a couple years in the form of a down payment on a mortgage and a new car. Then you’re a thirty-something and you’ve moved up the career ladder and you’re earning a bit more and instead of pouring money down the renter drain, you’re paying off a mortgage, which feels good. But you also have new expenses, the largest often being children. So maybe you’re able to save 10% of your income each year. You will need to work roughly 30 more years in order to retire.

Many people assume this is the only way. Because, well, everyone else seems to be retiring in their sixties. And you have only so much ability to influence how much money you make and how much money you can save.

Un-ex-am-ined! An oversimplified-for-the-sake-of-making-the-point math comparison shows that the same individual with the same earnings can either retire in 30 years or 15 years, the only difference being how much they’re saving:

Individual A (conventional): a thirty-something starts saving 10% of their income every year. After 30 years they will have accumulated enough to stop working ($500/month * 12 months * 30 years = $210,000, compounded annually at 10% = $986,000) and can retire.

Individual B (FIRE): a thirty-something starts saving 50% of their income every year. After 15 years they have the same amount saved as Individual A ($2,500 * 12 months * 15 years = $300,000, compounded annually at 10% = $956,000).

But you just said the comparison was simplistic! you say. Sure, those individuals may have the same total savings, but Individual B now has 15 more years of life to finance than Individual B.

Consider this: Individual B, who has been spending the last 15 years on an annual budget that was just a fraction of their take home pay, doesn’t need to significantly adjust their lifestyle, post Working Era. In contrast, Individual A (who was only saving 10%, putting the additional 40% toward discretionary spending) presumably will now need to downsize their lifestyle significantly to maintain retirement viability.

But what about social security? you say. If you work only 15 years, you’re going to have a lot less social security to draw on.

The FIRE math doesn’t rely on social security as an assumed income stream. Social security should be seen as a fallback/bonus, not a necessity.

But what about inflation? What about health care costs? What abouut the stock market crashing?

You remain unconvinced. But you’re still reading! Let’s take a closer look at the unexamined bits of conventional financial behavior.

Critiques of conventional wisdom

“Buy as much house as you can afford”

Conventional wisdom says you should ‘buy as much home as you can afford’ (1). For the cynics out there, note that the people frequently giving this advice – homebuilding conglomerates, real estate agents, and mortgage lenders – profit more when you spend more. Cynicism aside, given this ‘wisdom’ contradicts the more intuitive “buy the least expensive house that meets your needs” motto, some justification would seem to be in order. The justification as I understand it, frequently only implicit (2), is:

Whoa, whoa. Multiple problems.

  1. A more expensive home means a larger down payment. That means you’ll be taking a large chunk out of your current investment savings when you need it most (due to the way compound interest works).
  2. A more expensive home also means more expensive repairs, utility bills, property taxes, furnishing costs and – the biggest hindrance to early retirement of all – a larger mortgage that will take longer to pay off. All of these expenses means you’ll have less money each month to put into investments.
  3. This advice was apparently most common in the US in the 1970s, when inflation was high and house prices compared to salary levels were relatively favorable. Given how much more houses prices are relative to income fifty years later, the same math doesn’t work.

Others who have come to the same conclusion:

“Save 20% of your monthly income”

If you go seeking financial guidance, you’ll invariably run across the 50/30/20 rule or variations (see the 80/20 rule). Whatever the flavor, the basic idea is to set aside a specific proportion of your income for saving, the rest being yours to do with. In the case of the 50/30/20 rule, that’s 50% for fixed costs, 30% for discretionary spending, and 20% for saving.

Chalk it up to nature’s problem with vacuums or money’s unusually flammable state in wallets: this approach could have been designed by evil-genius behavioral psychologists. By framing disposable income as anything – more precisely, everything that is left over after you pay your bills and save something, this rule disincentivizes future-thinking and wise spending. Savings becomes another fixed cost that reduces your available cash, while the discretionary chunk is treated like free money that you can’t even consider saving: it must be spent whimsically because it’s in the discretionary spending bucket.

Instead of “Save X percent of your monthly income, then spend the rest as you like,” try on “Save all your monthly income, then figure out how to cover your costs.”

Jasmine starts the month by saving all her paycheck, minus a calculated typical amount for fixed monthly costs and just a lagniappe of cash for discretionary spending. Halfway through the month, she finds something she’d really like to buy but doesn’t have enough money in her lagniappe. There’s nothing stopping her from drawing on savings to buy it. In fact, it should be perfectly okay to do so. But because it’s coming from her savings, it’ll probably be a bit unpleasant and Jasmine will think a bit more about whether it will really increase her happiness/comfort. Discretionary spending becomes a cost, not a freebie. Et voila: no more evil-genius behavioral psychology.

People who have large fixed costs or high rent may only be able to save 20% most months. Even so, the “save it all” mental shift will end up saving more: when an unplanned cash inflow comes along, that money goes directly into savings.

This highlights what I think is a misconception about the FIRE approach, namely, that once you put money into your saving engine it can’t come out until retirement. There’s nothing wrong with drawing on savings to cover even discretionary spending. But if your money’s first stop is savings, it’s less likely to ever make a second stop at discretionary spending.

FIRE is only an option for folks with six-figure incomes

“Alright,” you say. “I accept FIRE works. But it’s out of the average person’s reach.”

Financial independence is not available to many people. Saving money every month is just not possible if you’re living paycheck to paycheck. But if you can save, early retirement may be more realistic than you think:

  1. In 2021, the median annual salary in the US was $56,310. (3)
  2. After taxes, that’ll leave you with $42,232.
  3. If you budget 50% for savings, you’re left with $21,000, or $1,750/month, to cover expenses. (That may seem austere; see “Playbook for early retirement,” below.)
  4. The other 50% ($1,750/month) goes to savings.
  5. If you invest $1,750 monthly for 16 years, assuming a realistic 7.5% return from the stock market, you will amass $702,000 (4).
  6. That $702,000 will allow you to spend $40,000 annually, indefinitely, without running out of money. (That’s $20,000 more than you were living on, Work Era.)

FIRE requires penny-pinching minimalistic asceticism

Frederick Backman’s A Man Called Ove tells the story of a grumpy old man with a comically frugal approach to life. Ove makes a scene demanding the two-item discount price for one item. Ove only puts ten minutes at a time in the parking meter because “They’re not getting a load of money for time we might not even use!” When he decides to end it all by sitting in his garage with the car running, Ove struggles with the fact that it’ll “use up a lot of expensive gas for no good reason afterwards.”

Many blogs discussing FIRE promote clever-sounding life hacks that save a few bucks here and there. While I find those life hacks cool, realistically speaking, they are mostly pennywise gimmicks which don’t make a difference in the financial big picture.

In other words, frugal savings doesn’t need to be – shouldn’t be – a one-size-fits-all action plan.

I’ve heard others helpfully distinguish between $3, $30, $300, and $3,000 decisions. The decisions where you’re saving/spending $3 just don’t affect the financial big picture. Isolated $30 decisions (as opposed to, say, recurring payments) also don’t affect the macro scale. So don’t sweat them. But do think extra careful about the $300 decisions. And exercise extreme dubiousness toward the $3,000 ones.

The takeaway from the table below should be that FIRE shouldn’t be about stripping your lifestyle to the bone. It should be about making intentional decisions about most the high-impact expenses. The rest – to paraphrase Rabbi Hillel – is just spare change.

Behavior Rationale Bigger benefit? Estimated savings
Don’t have children Children are the number one fixed cost of a family “Having a child is 7-times worse for the climate in CO2 emissions annually than the next 10 most discussed mitigants that individuals can do” $233,610 per child
As soon as possible, buy the least expensive small home that meets your needs. Rent or a big mortage are sunk costs; big homes require more energy An average tiny house uses 7% of the energy compared to an average traditional house. Hundreds of thousands in investment income
Never buy new cars New cars depreciate in value faster than just about anything Buying used cars reduces the demand on raw materials $130,000
Only own one car at a time Cars are not an investment Buying fewer cars reduces demand/consumption $65,000
Minimize energy use (mostly heating/cooling) Proactive steps to super- insulate your living area reduces heating and cooling costs, which are going up. Reducing energy reduces consumption $63,240
Work long enough to be eligible for employer-provided health insurance in retirement Health care costs significantly increase as you age N/A $12,000 per year [5]
Live healthy You can dramatically lower age-related healthcare costs through good lifestyle choices. The meat industry contributes significantly to greenhouse gases via methane. Variable, but significant

Things that will save you money but not affect when you can retire

It’s well and good to do any of the things below. The numbers under “estimated lifetime savings” might seem like a lot, but from a macro perspective, they won’t significantly affect your retirement age or lifestyle.

Behavior Reasons it may be counterproductive Bigger impact Estimated lifetime savings
Coupons (1) Coupons sometimes make you spend more on a “discount” item over a cheaper equivalent. (2) Even estimating a generous $50 saved per month, you’ll save less than one year’s of expenses in retirement If coupons become a rationalization for consuming more, you may eat more than is healthy, buy more clothes than you need, and so on. $19,200
Rewards credit cards (1) These cards give you a small percent of money back on money you just spent. (2) If you are getting thousands of dollars in cash back, that means you’re spending many times more Like coupons, reward credit cards implicitly encourage greater consumption, not less. $15,000
Finding the cheapest gas in town Driving across town for the cheapest gas costs your most valuable commodity: time. Cheap gas might simply give you permission to drive more. Once again, increased consumption. $10,000

A better retirement calculator

The second best retirement calculator I’ve found is the FIRE Age Calculator. The thing I don’t love about it is that it calculates the age you can retire at based how much you can save, rather than calculating how much you should save based on what age you are going to stop working. It’s just a perspective shift, but I think it’s important to frame the age you want to stop working as the fixed value and the amount to save as the variable.

It may seem subtle, but I think there’s a practical effect, instead of asking the question If I save X, when can I retire? to ask If I stop working at age X, how much do I need to save?

Enter my own retirement calculator: https://fire.markfullmer.com

Footnotes

References

Spiegelhalter, D. J.. The Art of Uncertainty: How to Navigate Chance, Ignorance, Risk and Luck. First American edition. W.W. Norton & Company, 2025.