People always tell me, “Hey man that sounds great that you retired at 25, but there’s no way that could be me.” Actually, those folks are wrong. You could afford retirement after two years of working. There are plenty of places around the world and even in the United States where you could retire after two years of work. You can choose your own lifestyle based on location, with luxurious retirement available in low cost international destinations and extreme frugal retirement available in US destinations. All you need is a solid professional income and a 50%+ savings rate. Think I’m full of it? Check out the cities below.
What Needs to Happen in These Two Years For You to Be Able to Afford Retirement?
The first step is you need a good job. For this plan to work, you need to start out with no student loans. If you already have some, the ‘two years of work’ clock would start when you have paid off all forms of debt. Say you go to community college for two years then public university for another two years. If you are smart about your spending habits, you could easily leave school with little to no college debt. Say you are very focused in your studies and leave with an engineering degree. Your starting salary is $65,000 in a medium tax state. The following year you get a raise to $70,000.
You can use your 401k to shelter all of your income from the 25% tax bracket. That probably means about $15,000 a year going to your pre-tax 401k. Let’s say you work for an enlightened employer who gives you a 6% 401k match that you get to keep after working for one year. So in addition to the $15,000 in your 401k that you save, you get another $3,900 from your employer.
You now have a low average tax rate of around 20% on the rest of your $50,000 (Social Security and Medicare taxes really hit you hard but at least income tax is low). Let’s assume you are living on a very limited budget of $15,000 a year. Your rent and utilities combined can be no more than $500 a month. You will not be able to afford much in the way of fine dining, vacations, or trips to the bar. It doesn’t matter though, because you are rejecting traditional retirement norms and sticking it to the man in record time. Say you lose about $11,000 in taxes living in a no income tax state like Florida. After your retirement contributions, you are left with $24,000 more you can save and invest. In year 1, you save a total of $18,500 in a taxable brokerage account, around $15,000 in your pre-tax 401k, $5,500 in a Roth IRA, and $3,900 from your employer’s matching program that also goes in your 401k. The total comes out to $42,900, which is an effective savings percentage of 66%.
The following year, you get a salary of $70,000. You can up your 401k contribution to cover most of the 25% tax bracket, so you save the max allowed by law, $18,000. Your average tax rate is a little higher, so let’s assume you pay $11,800 in taxes after your 401k contribution. Your employer still contributes 6% to your 401k, at $4,200. After the $15,000 you need to live, taxes, and 401k contribution, you have $25,200 to invest. You take $5,500 and put it in a Roth IRA and the rest goes to your traditional brokerage account. In year two, you save a total of $47,400. Your grand total after years 1 and 2 is $90,300.
What if you have no idea how to invest that money? It’s easy actually. Just sign up for the automated investing services of Betterment, Wealthfront, or even Vanguard and get tax-efficient low cost portfolios for another 0.15%-0.3% a year in fees. Notice I didn’t assume any return from the stock market in those two years. When I was saving for early retirement, the US stock market had double digit returns in two of the years I worked. However, you could also experience the opposite result, so to control for that I’m assuming a 0% return while you’re building your nest egg. After two years, you quit with $90,300 in investments, a lot of which is in a hard to access pre-tax 401k. No worries though! You roll over the 401k balances to traditional IRAs. You get to fill up your income with $10,300 a year without paying any taxes. So over the course of four to five years, you will convert all of your pre-tax money in tax-free money without incurring any penalties or taxes.
I will assume a slightly more aggressive than normal 5% withdrawal rate from your portfolio, which I believe will have a greater than 50% chance of lasting your lifetime. The landmark Trinity Study found a 5% withdrawal rate worked 68% of the time over a 30 year period, and if you extend that to your entire lifetime that success probability will drop but probably not drastically. That means you can take out $4,515 every year to live on in retirement from your portfolio, or close to $12.50 a day.
Where Can I Retire for $12.50 a Day?
Now for the destinations where you can afford retirement. Admittedly, some of these places you will be living in comfort and others you would be living in a state of poverty as defined by the federal government. However, you would not be tied to a desk job and would be free to pursue a life of adventure like you’ve never dreamed of before. Some of these cities I’ve gotten to live in myself, and can confirm that the only thing standing between you and a glorious lifestyle change is the willingness to take a risk.
- Kiev, Ukraine – Enjoy 20 cent public transportation on the subway anywhere in the city. In addition to the cheap access to intra-city travel, you can book low cost airfare to the rest of Europe for as little as $30. A quick review of hostels available online shows you can rent a bed for as little as $3.50 a day. When I was there I opted for a sweet apartment right next to the center of the city for about $7. I’m sure you can rent a really nice apartment for about $4-$5 a day. Access to world class museums such as the Great Patriotic War Museum can be had for around $1.
They have tanks, Soviet missiles, decommissioned aircraft, and other bizarre but incredibly interesting artifacts from the many Ukrainian conflicts over their history. I have rarely seen such a cool museum. There are plenty of other great museums as well, including one on Chernobyl, art museums, and more. Kiev has some great public parks, and during the summer it even has a beach on the Dnieper River. The average wage here is about $5 a day, so you are middle class with your $12.50 a day budget. Another great perk of living in Kiev is the food. You can enjoy incredible restaurant quality dining for $2-$3. I regularly went out and pigged out at different eateries around Kiev.
If you don’t have a daily 5000 calorie intake, you could easily make do with $3-$5 a day for food. Any healthcare emergencies would fit into your budget as everything is just so stinking cheap here. For those of you wondering if it’s safe to live in Kiev with the ongoing war with Russia, it’s literally safer here than most big cities in America. You are very unlikely to have problems as long as you don’t go looking for trouble. I felt incredibly safe during my entire time in Ukraine. Russia is willing to battle over a small portion of the eastern part of the country, but if you are not Ukrainian you don’t have to fear being drafted and you don’t need to worry about the Russians bombing the capital. It would cause too much international condemnation. If you are renting, none of this is your concern anyway. If tensions heat up, you can up and leave.
- Panama City, Panama – Another very safe location with good transportation options back to the US. A big draw here is the high quality healthcare system compared to the rest of Latin America. For some reason, Panama has a lot of partnerships with US based healthcare systems, and despite this you can visit a primary care doctor without insurance for between $5 and $12. If you are willing to be flexible in your living arrangements, I think you will be able to find an apartment room for around $200 a month.
The remainder of your budget can go to the cheap street food and transportation around the city. If you wanted to live a little outside the city center, you could knock down that rental cost by half and enjoy unlimited fresh tropical produce right from the source for rock bottom prices. I am visiting Panama this coming February and can’t wait.
- Memphis, TN – This one might surprise you. You do not have to be located in the third world in order to enjoy early retirement. There are a ton of houses in Memphis that can be yours for around $30,000 a year. Unlike Detroit, these houses come with hot water heaters and copper wiring intact. The main drawback I see of living here would be the high rate of crime in the poorer parts of town.
Getting affordable healthcare could also be challenging. If you wanted to protect yourself from unexpected health costs, you could always live across the river in West Memphis, Arkansas and enjoy that state’s Medicaid expansion.Your out of pocket costs for health expenses would be minimal. If you could keep your rental or mortgage costs to $150 a month, you could use the remaining $250 to splurge and enjoy the free cultural amenities available in one of the musical capitals of the US. I almost thought about moving here when I found a $70,000 two bed two bath house next to a medical center in a decent part of town. You could rent out one room for about $350 a month and basically not have to pay a mortgage.
- Ulcinj, Montenegro – The tiny Adriatic Sea nation of Montenegro just got added to the list of NATO members, so you’re fully protected under the US security umbrella as well as aligned with Western standards of living. Montenegro is pretty close to Italy and Western Europe.
Ulcinj also has a major tranportation center so you’re only a $10-$20 bus ride to a lot of the big cities in Central Europe. It’s on the road to Dubrovnic, of Game of Thrones fame. Ulcinj has a beautiful fortress surrounding the center of town, making for some of the most beautiful views I’ve ever seen. The miles and miles of pristine nature trails are incredible.
As far as food goes, you will never need to buy fruit ever again. There are wild pomegranates, figs, kiwis, plums, oranges, grapes, blackberries, oranges, and more. I never thought I would ever see such a bounteous harvest of nature just waiting to be picked. There are not a ton of people in Ulcinj so there is plenty of fresh fruit awaiting you.
Not only is there such a wide variety of fresh fruit, you have lots of different varieties to choose from. Little did I know that there was more than one kind of fig in the world. When I got to Ulcinj, I discovered that there was at least three different kinds, one that gets ripe as a green fig and another that gets ripe as a black fig. The other variety is a purple/brown fruit with a sweet flavor that’s very similar to what I’ve had in the US.
As man cannot survive on fruit alone, you will be pleased to know that dining opportunities in Ulcinj are plentiful. You can have a full plate of cevapi, a local Balkan dish of mixed meat, veggies, and bread, for about $3-$4. If you were careful to mix the free fruit, dining options, and grocery shopping, $5-$6 a day would be possible for daily food expense here.
While I was in Ulcinj, I stayed at Hostel Pirate, which is still the best hostel I’ve ever been to. $10 a day got me unlimited fruit from their garden, free beer at night, and full use of a villa by the sea with great companionship of like minded travelers. You could probably rent a room from a local family for much less, but it should tell you something that one of the highest rated hostels in Europe can be had here for as little as $10.
- Chiang Mai, Thailand – This location was inspired by the folks over at GoCurryCracker. They were renting a luxury apartment big enough for their entire family in Chiang Mai. The apartment even has a rooftop pool.
I checked out some of the food they were eating, and was frankly blown away. $0.50-$1.25 pad thai, coconuts, mango smoothies, and tom yum soup could easily fall into a $12.50 a day budget. If that’s the retail price, imagine how cheap you could eat if you learned how to cook these meals yourself.
Imagine going to ancient temples, touring around the tropical paradise of Thailand, and eating like a king for such a low budget. I have seen an uptick of Facebook photos from Chiang Mai lately as this city gets more popular and widely known, so you might want to get in on the ground floor before it becomes too expensive. Being in Asia for such a low cost could allow you to take vacations to more expensive locations such as China and Korea too.
Yes This is Extreme But It’s Totally Doable To Afford Retirement After Two Years of Working
Is living on Memphis on $4,500 a year really intense and a little bit nuts? Quite possibly. Am I advocating that everyone work for two years and retire to a relatively comfortable standard of living in a third world country? No, clearly this lifestyle would not be for everyone. What I do want to do though is show you what early retirement could look like and how fast you could achieve it if you really wanted to. Imagine how the list of countries you could live in would expand if you worked for five years. This list would include a lot of cities in the US as well if we extended your working career all the way to ten years.
When I was working, I always told myself I could move to the Mississippi Delta and get a house on the river for the rest of my life if things didn’t work out. Whenever I got scared of stock market volatility, doubted my choice of job, or got bummed about the cold Northeastern winters, this baseline standard of living gave me great comfort. Hopefully, this list of five places you could afford retirement after two years of working gives you a similar minimum lifestyle that will comfort you when you’re down and give you hope for the future. Save and invest as much as you can, and you will get the kind of financial freedom in life that most people only dream of. If you somehow can’t stand to work anymore or the Great Depression happens again and wipes out a lot of your portfolio, there are much worse places to be than sitting on a beach at sunset in Montenegro eating wild blackberries.
Do you take issue with my financial projections of how you save enough in two years to retire? Did I leave out a super cheap city where you could afford to retire on $12.50 a day? Comment below!