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Early Retirement Extreme: A Summary

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The Early Retirement Extreme Method has been fundamental to my being able to semi-retire in my mid 40s, and with a bit of luck I’ll be able to fully-retire before I’m 50.

My introduction to the method was through the most excellent book: 'Early Retirement Extreme' by Jacob Lund-Fisker and it's this book that I summarise below. The author also maintains a blog that's worth a look.

A friend recommended the book to me in 2013 when I was 40 (midlife age crisis point purely a coincidence!) and I used its principles to work out an 8-10 year full-retirement plan retirement back then. I had to adapt after four years because I had to quit my full-time teaching job, so I’m now semi-retired, but possibly still on track for full-time retirement by age 50, maybe!

I thought this book would be of interest to the leofinance community, and so I thought I’d use it to test out posting from the leo front end rather than just cross posting from Peakd.

Some might prefer the phrase ‘financial independence’ to ‘early-retirement’.

Early Retirement Extreme – A Summary and a few reflections

Early Retirement Extreme is a critique of the social norms surrounding work-consumption-retirement and a critical intellectual framework for rethinking retirement, at the heart of which is the idea of spending less and saving more.

The BIG IDEA is this: ‘retirement as usual’ strategies suggest we should save about 10% of our income for 45 years and then rely on compounded interest to enable us to retire for 20 or so more years starting around the age of 65. Instead Lund-Fisker suggests we aim to save 80% of our income, which means that every year we save enough to retire for four years (without factoring in compound interest). After only 10 years of saving 80% of one’s income we would have enough saved up to last us 40 years, which should enable most of us to retire in our early 40s.

Lund-Fisker managed to achieve financial-independence by mid-30s by saving 75% of his income five years, I managed an average savings ratio of 56% to semi-retire by my mid-40s, but I started a lot later in life!

Early Retirement/ Financial Independence is clearly going to take longer the less you earn, but no matter what your income, the principle remains the same: get used to living with less, lower your expenditure and save more.

If you can only save 50% of your income, then every year you work, you save enough to retire, even if you only save 20-30% you are doing much better than the usual 10% of income saved for retirement, which is what ‘locks us in’ to working for 45 years.

Resilience Skills to Decolonise the Mind

Lund-Fisker thinks we have had our minds colonised from early childhood to become little materialists – from toys when we are young to ‘fancy cars and spare bedrooms’ when we are older – we stock up unnecessary stuff, much of which goes unused – and our high consumption expenditure is often made worse by credit deals, adding on interest and further locking us into the system.

All of this locks us into what you might call a sub-optimal cycle of high expenditure and thus very long working lives.

Rather than a life of doing paid-work consumption, Fisker suggests we develop four ‘renaissance skills’ to help lower our expenditure and consumption in order to break this cycle:

  • practical (e.g. learning how to build your own house rather than paying interest on a mortgage)
  • technical (this includes a diverse range of technical skills, often linked to employment, ERE doesn’t completely abandon the idea of being paid a regular income!)
  • physical (e.g. being able to cycle rather than needing to drive)
  • social (e.g. sharing a house rather than living alone).

Each individual will have a different balance of skills depending on their own specific circumstances, and each will seek out their own path the retirement.

Early Retirement Extreme: It Can work!

Fisker managed to retire in his mid-30s by saving 75% of his income, I managed to semi-retire in my mid-40s by saving 55% of mine, so it is possible!

If you haven't already done so, I thoroughly recommend checking out the early retirement extreme blog which has details of many people on a mission to retire early, and in the future I'll be posting more about how this framework has set me well on the path to financial independence in my 40s!

NB - while Lund-Fisker is clear about the fact that he has various investments, this is not the main focus of the book, he doesn't offer any advice on how to invest, other than to do so sensibly, the main focus should be on bringing your expenditure down and rethinking consumption habits!

Posted Using LeoFinance