How to Retire in Your 20s

retire in your 20s
My book explaining it all

Folks have asked a lot how to retire in your 20s. The first step is to get out of college without owing your first born child to Sallie Mae. I got lucky and got a scholarship to a state school and worked part time while I was going to undergrad, so I started investing when I was 18. I didn’t have a big balance or a trust fund, rather I just would take whatever I made and instead of buying kegs (ok I bought a couple) I’d take it and buy stocks.

I did this the duration of the four years in college, so that when I got out of school rather than starting in the hole I started positive by about the same amount that the average person owes. I was pretty lucky as most of this money got invested post 2008 when the stock market was ridiculously cheap.

When I got my first real job, I kept my lifestyle like it was in college, with only slight upgrades around the edges. I saved about 55% of my total compensation that first year (I’m counting employer retirement contributions), and kept close to that savings rate from 2012 to 2015. During those three years the broad US stock market returned (these numbers are approximate) 16, 33, and 14%. Since my savings was all in the stock market I participated in these gains but not those exact numbers since my portfolio was not 100% Broad US Stock Market. My personal rate of return (IRR) during that period was 15%, as I held half my assets in international stocks, but overweighted small cap and value stocks which helped make up for the allocation to international (stinking Greece!)

I’m going to give close to real numbers here because I want to be credible lest no one believe my story that you can retire in your 20s.  In addition to saving around 55% each of the three years while working, I started out with $40,000 post college (I worked part time, tutored, and got a scholarship that included room, board, and tuition, a very atypical experience). This is approximately how my contributions looked and how they grew.

Year Portfolio Savings Compensation
Post-College $40,000.00 —— ——
July 2012 $64,975.00 $16,500.00 $30,000.00
2013 $115,833.75 $35,750.00 $65,000.00
2014 $180,646.31 $41,250.00 $75,000.00
June 2015 $234,308.26 $23,100.00 $42,000.00

Most financial advisors will tell you that 4% is the safe amount you can draw down in perpetuity without a huge chance of running out of money. If you look at how the big endowments are run, they usually assume 4-5% real returns (meaning after inflation). They are also supposed to exist forever. The way they make such a bold assumption is by having a high amount of money in risky assets and by accepting volatility in their portfolios, so I do the same. I have 100% in stocks in my investment portfolio with a few years expenses in cash to try and avoid tapping my portfolio if the stock market were to crash for a time. I would probably seek to hike the Appalachian Trail or some other low spending activity if that were to happen.

Retire in Your 20s With Income Supplements

Notice that 4% of $234,000 is only about $9300. Most of you will look at that figure and say that that’s not nearly enough to retire for life. In fact, you’d be right. A lot of people in their 70s work part time to supplement retirement income that is similar to this figure. I discovered that I could earn $40 or more an hour while tutoring on the side, so a few hours of that a week and I can meet my bare bones spending needs of about $16,000 a year.

The rest of my time I plan on spending on more exciting endeavors. Some of these might make money. Even so, that’s not my primary need or desire in pursuing them. If I write a book and make money, great. I am focusing on delivering something that I hope makes a difference in people’s lives. Not something that sells the best.

If I had $400,000 in my portfolio, based on my spending I’d have been officially Financially Independent. This is true even by the standards of the Internet Retirement Police (MMM trademark?). Some folks become upset when I say that I’m “retired” while I’m working a few hours a week. I intend to do this to supplement my income. After all, most retirees already do that. Look at how many people work at Wal-Mart that appear over 60. The difference is if something big changes I’ll be able to go back to work. I have health and human capital to make up the difference in what I have and what I need. When you are in your golden years it’s much more difficult.

High Recent Stocks Returns Give me pause, but consider that we’re all rich compared to the rest of the world

Stock returns have been high lately thanks to the Federal Reserve. It has stimulated the economy artificially with low interest rates. I fully expect a correction coming at some point. We’ve had positive returns since 2009. When it happens, you got to have enough in cash that you avoid panicking. You do not want to sell your holdings at the exact wrong time. I’ve tried to insulate myself somewhat from this by not holding everything in market cap weighted indexes. Major index funds hold a ton of Apple, Facebook, Amazon, etc. These tech stocks and social media stocks in general have done well lately. Even so, I’m happy avoiding them as 300+ P/E multiples already include a lot of good news.

So to figure out what you need to retire from your own job, figure out what your spending needs are. Anything over $20,000 a year for an individual is incredibly luxurious for a person with normal health. Some would not think you can get by comfortably on that sum. I would recommend traveling abroad and seeing just how the other 90% of the world lives.  It made me content with a lot less in life materially.

Move to a cheap location, save like crazy, work in a high paying job, and you too can retire in your 20s

That $20,000 figure requires a $500,000 portfolio to generate enough income based on the 4% rule. Maybe you are really frugal and want to live in a cheap part of the country. Perhaps you want to wander around low cost destinations like Asia. In that case, your spending needs might be less than mine. Frugality is immensely rewarding. For each dollar less you spend, you need to save $25 less in your portfolio. That could could allow you to retire even earlier. Start at 22 and stay away from significant student debt and consumerist traps. Avoid car loans, mortgages, and credit card debt. If you do, you could reach even that figure by your 30th birthday. This is especially true if you have a technical job that starts out with a high income (engineering, finance, or programming/development/IT).

I’m writing a book 25 Is The New 65: How To Retire Outrageously Early and Do Whatever The Heck You Want. I hope you’ll check it out on Amazon when I finish it. Working up to a 55% savings rate is really tough. I’ll show you some of the tricks I used to make it easier for you. In the mean time, thanks so much for being a loyal reader of Millennial Moola as this thing gets going.

Feel free to leave comments on this or any of the other posts so far and I’ll respond. Millennial Moolah Millennial Moola

18 thoughts on “How to Retire in Your 20s”

  1. Please include me in your updates. Would love to share this with my kids as they start college. You are very smart.

  2. can you provide real numbers behind your math? for instance, $20k annual expenses seem very low. where do you live? is your rent subsidized? what do you do for transportation, food, and the like?

    1. While I worked, I usually lived in craiglist sourced apartments and room shares where I could limit my total rent expense including utilities to no more than $500 a month. My food bill is pretty low since I use tricks like making a $8 chiptole burrito bowl into two meals and often eat warmed up frozen veggies for dinner so all in I estimate I spent about $300 a month on food. I drove a beater car I had paid for in college and that cost me about $100 a month in gas, and $100/month in other expenses. My health insurance was a non factor since I was working and my employer had great benefits. I traveled a ton since I was working away from my family and wanted to visit so I spent about $250 a month on airfare. Other incidentals I think I spent maybe $250 a month. My total spending when I was working averaged around $18,000 a year. I use $16,000 above because airfare could be brought down and my transportation expense could be mitigated. To make up for higher health care expense I’ll need to scale back on food and rent expense so I’ll probably go to more national parks and check those out. Way cheaper to backpack and camp and more fun as well.

  3. Explain how this would work if you have student debt and a mortgage at age 25 while making barely $40k a year. And go… Love you!!

    1. It’s impossible to do this with any debt (Never said I had all the answers). Thanks for the love! Basically the house would hopefully be no more than 2.5 x’s your income (aka $100k in this case) and you’d pay down the student debt before you started investing. I’d live off $20k, rent out any space you have in your home that’s extra, and try to keep my savings rate at at least 30-35%. With that level of savings especially if you are a teacher or public servant since that salary is low and might be paired with a pension, you should be more than ready to retire by age 50. You could probably see what kind of pension benefits you get, I believe they start partially vesting after 6 years in a lot of cases, and move that age up to 40, when most Wall Street types are still putting in long hours and haven’t achieved the dream themselves yet.

  4. I love this! Mainly because the numbers are actually somewhere close to my situation. The starting balance is slightly lower and starting salary is slightly higher so hopefully the two will balance each other out.

    Really cool, different kind of post. Thanks for sharing!

  5. Some great thoughts here. Makes me somewhat wish I had done this back when I was 25. BUT – at that point I wanted very much to pursue a career and try my hand at climbing the ladder. Now, 13 years later, I’m happily looking forward to getting out at some point in the near future.

    1. It’s been a little difficult. I definitely wonder sometimes if I should get back into the rat race. I just think that true success can be had better trying your hand at creative endeavors. The well worn corporate path of success was too well worn for me to be excited by all the hard work necessary to obtain the rewards.

  6. I love what you are doing here.
    I’m a year away from financial independence. Would love to help out with your book – free editor, or guest chapter?

    Hit me up at
    Or [email protected]

    About me- almost 24 years old. Ivey graduate – business. Canada.
    Net worth approx 400k.
    Married. Just had a baby.
    FI next year.
    Savings rate 65-80%.
    Got into investing, then moved into real estate investing…Rental properties (just got my 5th). Self-made. Scholarships in school. Good summer jobs. First house at 19 – rented out rooms to uni students to keep costs low…

    Looking to sell two houses given the gains I’ve made and build a more passive portfolio.

    Would love to spend more time blogging and writing a book myself 0-500k by 25 and pretty much anyone can do it with hard work & determination…let’s not forget frugality!


    1. Very impressive, I’ve got an editor lined up for my next one but I appreciate the offer! Incredible financial situation you’re in at 24

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