Commit to Save and Retire Early

December 08, 2010

I just got back from a business trip where I sat down with employees to do some one-on-one financial planning.  The main focus for the majority of the participants was retirement planning.  I met with some employees who were just a few months out of college, and others who were a few months from retirement, so I’d like to share some of the perspective I gained during the trip.

Just getting started

I met with a young man in his early 20’s that said something profound that really stuck with me.  He said “if you make a million dollars and spend a million dollars you will still be broke.”  I’m more impressed with the attitude of this young saver than the logic of his statement.  What he was basically saying is whether or not he was going to enjoy a comfortable retirement did not depend on how much he made, but rather how much he spent.  He was determined to save for retirement no matter what, and this was in addition to paying back student loans and other debt he had.

It is very easy to lose sight of the distant future when you are faced with current distractions like student loans and rent, but when you are young, it is an ideal time to save for a long-term goal like retirement.  Every dollar saved has an opportunity to grow over many years, and like this young man, may provide you the opportunity to retire a few years earlier than you may otherwise have suspected.

Mid career

I met with another gentleman who was married and had four children (and no, I’m not talking about myself).  From a very young age, he and his wife had been saving for retirement, but now his wife was a stay-at-home mom, and his goals now included saving for college.  Even with the challenge of living in a one-income household and adding college planning as a financial goal, it did not stop them from saving for retirement—him to his 401(k), and both to a Roth IRA.  They were only able to do this because they resisted living above, or even at, their means.  They chose a lifestyle that allowed them to make these contributions to their future, and both of them are on track to retire comfortably at age 55.

End of career

The last gentleman I wish to tell you about is planning to retire at the end of the year.  He too is going to retire before age 60, and I wish I could tell you that he has millions of dollars in his retirement account, but he doesn’t.  In fact, he doesn’t even have half that much.  So how can someone that young retire on that little?  The answer is the same as the other two: he will simply choose to live on less.

All three of these individuals share a similar perspective on spending.  You can spend money now, or you can spend money later.  If you spend it now, you can’t spend it later.  They adopted a philosophy of keeping their lifestyle at a constant and using future income increases to save for long-term financial goals.  That way, by the time they are ready to retire, they are already comfortably living on much less than what they are making.  As I look at these three individuals, I see the same person at three stages of their career.  All began with a commitment to save, and all will likely be financially prepared to retire early because of a choice to live as though their income never changed.