Today’s post is from Alex, who writes for Mutilate The Mortgage. He is offering a few free gifts for Reach Financial Independence readers. Check out www.MutilateTheMortgage.com to learn how to pay off your mortgage in less than ten years! If you’re interested in guest posting on RFI, let me know.
Last year, my wife and I took a trip to Fiji and relaxed on a secluded beach. We spent the entire day alone, just basking in the sun, feeling the warm sand between our toes, and listening to the gentle waves. It was both relaxing and captivating.
Relaxing because, just look at that scenery. But also captivating as it felt like watching a nature documentary come to life, except this was real.
I’m sure at some point you’ve dreamt of retiring to a place like this. It seems like it’s only an option for rock stars, tech billionaires, and the super wealthy. For most of us, it feels like we’re stuck in office jobs for 40-50 years before we get a chance at some leisure, if we’re lucky.
But there’s a new way. It involves some planning, but mostly, it’s about living for the future.
The Traditional Path
We all know the typical path: go to school, go to college, get a job, and endure it for 50 years, hoping to retire with enough savings. This idea has been handed down by parents, bosses, and career counselors, who follow the same outdated script. It’s frustrating to hear “we’ve always done it this way.” It makes me want to scream!
Everyone agrees that the world has changed since the 1950s, yet many still think this old career path is the best way to go.
What’s Different Now?
Productivity has skyrocketed. Decades ago, finding a piece of information meant a trip to the library and sifting through books. Now, you can simply ask your phone and get answers in seconds. Today’s technology makes life cheaper and easier. Modern advancements have led to faster cars, better food through genetic modifications, and overall greater efficiency.
Studies even show that an average worker today only needs to work 11 hours a week to produce what a worker in 1950 did in 40 hours. Yet most people still work long hours and spend their extra income on unnecessary luxuries. That’s why we see ridiculous products like the Wearable Towel and the Shake Weight.
The New Path
There’s a different approach: still work five days a week, but only for 8-10 years. With this method, you save 65-80% of your income, invest it wisely, and retire once you’ve reached your savings goal. Living on 20% of your income might sound tough, but it’s doable. Look at examples like Mr. Money Mustache and Early Retirement Extreme.
Thanks to modern financial tools and productivity gains, you no longer need to work 50 years if you make smart choices now.
How to Follow the New Path
Following this plan doesn’t mean slacking off in school or work. The initial steps—getting an education and a good job—still apply. These are crucial for earning a substantial wage. Where you diverge from the traditional path is how you handle your finances after that.
Track your savings rate, which is the money left after expenses divided by your total after-tax income. For example, if you earn $60,000 after tax and spend $25,000 a year, your savings rate is ($60,000 – $25,000) / $60,000 = 58%. With a 58% savings rate, you could retire in around 13 years.
To succeed, you must live off 25% of your wage and properly invest the remaining 75%. This requires deliberate lifestyle choices, like having a modest home, fewer cars, and fewer luxury items. It’s a mental challenge, but it’s possible.
On the investment side, you need to research and understand different asset classes and investment strategies. Whether you prefer a conservative approach with bonds or investing in real estate, the goal is to ensure your savings grow steadily.
Your Results
Patience and discipline are key. As you save and invest, your money will grow, often faster than you expect. For example, by saving $35,000 a year (a 58% savings rate) and getting an 8% return on your investments, you could save over $800,000 in 13 years. With a conservative 3.5% withdrawal rate, you’d have $30,307 a year, easily covering your $25,000 expenses and allowing your investments to keep pace with inflation.
This new path doesn’t depend on luck or inheritance. It works for any income level, and even lower investment returns can still lead to significant savings quickly.
With today’s financial tools and efficiency improvements, you don’t have to endure a 50-year work sentence. Embrace this new approach and retire like a boss!