Mindful Money
Mar 5, 20201 min read

How to retire in your 30s.

Carl Hazeley portrait

by Carl Hazeley

We’ve all been there. Stuck at a desk indoors, scrolling through Instagram and wondering how that one friend is always on holiday. Maybe they’ve got rich parents? Or maybe they’re really financially savvy and have already saved up enough to retire. The former’s just luck of the draw, unfortunately – but there are things you can do to help yourself with the latter and retire early.

First off, you need to figure out how big a chunk of change you’ll need to retire. To do so, calculate how much you’ll likely be spending each year: rent (or mortgage), bills, groceries, trips, bars and restaurants… it all adds up. It’s always best to overestimate this number so you don’t end up short.

You then want to multiply this number by 25. Retiring early relies on the idea of a “safe withdrawal rate”. The goal is to have a huge sum of money in a safe investment portfolio of stocks and bonds that you draw from every year. According to the famous Trinity Study, you can safely withdraw 4% a year from an investment portfolio for 30 years without running out of money – that’s accounting for inflation. Your portfolio should always be growing more than the amount you’re withdrawing, putting you in a pretty great position.

That 4% withdrawal rate is, however, up for debate. The study was run in the 90s, when interest rates were way higher than they are now. When re-run using 2013 interest rates, a new study found there was a 57% chance that you would run out of money within 30 years – so you might want to account for a lower withdrawal rate by saving even more.

You’ll certainly need a hefty chunk of change to retire early. But you’ve got a superpower to get there: “compounding”, whereby your returns generate their own returns (more on that here). Over time, compounding lets your money snowball quite quickly.

That’s why saving early is crucial. If you want to retire in your 30s, you’ll probably have to make some sacrifices now. You might have to work a higher-paying job that you don’t love, or cut down on spending. Think about if it’s worth sacrificing the ideal life now for the prospect of a lengthy retirement.

Retiring early can also be more attainable if you’re able to live the rest of your life on less. Moving to a place with a low cost of living is one effective way to achieve this: South-East Asia and South America both have several locations where you can live pretty comfortably on under $20k. But you’d need to think about whether you’d like the lifestyle there – plus you’re exposed to currency fluctuations. If all your savings are in euros but you live in Costa Rica, a drop in the euro could completely destroy your lifestyle.

If you can handle those sacrifices and the risks that come with, retiring in your 30s could be achievable. Worst case, the above tips apply to retirement in general: even if you can’t retire early, you can make sure your retirement will be comfortable when it does come.