EARLY RETIREMENT:
A TRAVELER'S GUIDE

The ultimate goal for all those who long for more time to dedicate to their personal projects remains passive income. Good news: generating sufficient income revenues from your savings and investments is easier than you may think. Put your early retirement dreams into high gear by leveraging your mobility.

What Exactly Is Early Retirement?

The traditional North American retirement advice goes along the lines of working most of your life, saving a big chunk of money along the way and then hopefully slowly spending it during the final years of your life.

Some clever people figured out that by aggressively tweaking the parameters it is perfectly possible to retire in less than a decade or two. In other words, if you are willing to take matters in our own hands, there is no need to wait until you reach the ripe age of 65. Or 70. Or whatever the retirement age may be in the future.

early retirement beach
It doesn't have to be procrastinating at the beach

This concept has gained traction in recent years under the acronym FIRE, financially independent retire early. Retirement is indeed invariably associated with the beach and golf clichés. If that’s your cup of tea then great, enjoy! But if your mind is full of projects, ideas and energy many prefer the term financial independence. Early retirement is simply the means to an end, financial freedom.

Early Retirement In A Nutshell

The core principles are exceedingly simple. Live a frugal lifestyle. Get rid of debt. Save aggressively. Once your expenses are around 4% or less of your savings, the so-called withdrawal rate, you can ditch the unrewarding job. Permanently. There are passionate debates about the nitty-gritty details, optimal strategies and what not. But essentially, that’s it.

Who Is Early Retirement For? Do I Need A Big Salary?

This is the beauty of FIRE, and something sadly very few get. It is perfectly scalable. You can reach financial independence on a relatively small income. How much you spend and how much you save are the key factors. 

Thus, someone on low wages but used to a very efficient lifestyle will paradoxically have an easier time reaching financial independence than an investment banker accustomed to penthouses and fast cars. Of course earning a high salary and living like a monk will put you on the fast track. But it’s not necessary.

How Long Does It Take?

It mainly depends on your saving rate. As a rule of thumb, save 60-70% of your income and you need around a decade working full time. This is what Pete Adeney, better known through his popular blog as Mr Money Moustache, did before pulling the plug at age 30. If you can push that number to 90% then it can be done in 5 years or less. Extreme early retirement has been described in great detail and pushed to its logical conclusion by Jacob Fisker in his excellent book and blog.

Another important factor is the withdrawal rate. If you want a bigger financial buffer then a withdrawal rate of 3% might be more appropriate. Alternatively, if you feel confident that you will generate a side income sooner or later, 5% or even 6% can work for you. Indeed, if you are young and healthy it would be really surprising if you don’t start earning a little extra at some point.

Similarly, your specific tax situation and investment strategy will have an impact. But 5 to 10 years remains a reasonable estimate.

Hybrid Solutions For Early Retirement

This is where it gets interesting. A decade slaving behind a desk is understandably too long for many. No problem! It’s worth repeating, financial independence is fully scalable. There is a whole spectrum of intermediate possibilities between rat race and fully retired.

What if half of your annual expenses are covered? You can suddenly work part-time on the road, or travel for 6 months a year. Doesn’t sound too bad, right? Or finally start working on that project you always postponed because of the low income it initially generates. Similarly, there are many interesting and rewarding but poorly paid opportunities in countries with lower wages. New doors open.

early retirement abroad
Beats the office even if it's only 6 months a year

Alternatively, you could save slowly working part-time over decades. You’d still gradually claim your financial freedom. For example, let’s say you have a decent seasonal job for half the year. Or you work freelance 20 hours a week online. And let’s assume that you manage to save 50% of your annual salary. By applying early retirement principles you should be fully financially independent in less than 20 years. That’s still a lot better than 50+ years as a wage slave.

Travel & Early Retirement:
The Power Of Geoarbitrage

And then there is the magic of geoarbitrage. Or in other words, taking advantage of cities and countries where the cost of living is significantly lower. If you can work remotely, location independence can be leveraged to speed up financial independence by years. Similarly, you will need to save a lot less if you avoid places like Zurich, Hong Kong and Singapore once you pull the plug.

And geoarbitrage isn’t limited to parts of Asia, Latin America, Africa or Eastern Europe. Even in more expensive destinations there are differences between regions, cities and countryside. Nomads have a huge advantage here.

Numbeo and Expatistan are good tools to get an idea of the differences in cost of living between countries. Keep in mind that the data is largely coming from expats who live an inflated lifestyle compared to the locals. You can happily consider these numbers as very conservative estimates.

Travel & Early Retirement:
Seeking Higher Wages

Conversely, if you cannot switch to a location-independent income model there is still a lot to be gained from increased mobility. Countries and cities offering higher wages can help you save money fast as long as you remain frugal. Working for a couple of years could give you a headstart and allow for partial early retirement solutions. Plus living and working abroad is also a form of slow travel, with deep insights into another culture.

Yet another popular choice is to work and save money several months in high income locations before spending the rest of the year in cheaper countries. If you do this wisely it shouldn’t be too hard to increase your savings rate to a point were early retirement becomes a reasonable goal.

Where's The Catch?

You guessed it, it’s not all roses and peaches on the way to financial independence. You will have some homework to do before you get there. FIRE implies being financially literate, something which is not taught in schools. 

Frugality can also be overdone, and easily alienate your partner, friends and family. You might have to overcome your attachment to possessions, status and perceived income security. You will have to be patient and determined. And ultimately, you will have to figure out what truly makes you happy. But financial freedom is more accessible than you think!