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Daily Capital

Trend Spotting: What Is Early Retirement?

Retirement doesn’t need to mean working until 65, diligently contributing to a 401k and then playing golf and indulging in all those vacations you put off until your twilight years. In fact, one of the newest money movements sweeping the U.S. is Financial Independence Retiring Early (FI/RE). People are opting out of the traditional workforce after only a decade or two of employment and at 35 or 40, they’re living their ideal lives.

What is the FI/RE movement?

These aren’t your Zuckerburgs of the world who created multi-billion dollar empires before 30 and can just sit back and count their money. Instead, it’s a rapidly growing community of self-described frugal weirdos dedicated to building net worth young and ditching the traditional work environment while most of their peers are only about a decade or two into their careers. These motivated folks strive for financial independence in order to have the flexibility to do what they want in life instead of exchanging time for money.

Do you have enough in your 401k to retire when you want?

Defining retirement

Aside from budgeting, investing and tucking away a significant portion of your income – a key first step to FI/RE is defining retirement.

There’s the societal expectation that retirement happens about 10 to 15 years before you croak. There are the notions of mini-retirements scattered throughout your life (sometimes referred to as sabbatical). There’s also the idea of a semi-retirement, in which you have the money you need to leave the workforce but you elect to do work you find meaningful. Or there’s full on early retirement with absolutely no work on your end and you can exclusively live off your savings and investments.

Now, early retirement is deeply personal and some people pursuing the dream – or already living it – may disagree about semi-retirement versus early retirement. Some may still work on occasion but claim to be completely retired and only choose to do what they enjoy as they happen to make a profit from the work. There isn’t a financial need to do this work.

Regardless of your definition, you need to set a goal in order to start working toward the FI/RE life. You also need to have a vision of how much you’ll plan to spend in retirement, so you can save 25 to 30 times your annual expenses in order to safely withdraw at a 4% rate without running the risk of eating cat food in your final years.

This sounds insane

The idea of opting out of the workforce in your prime earning years and only having a couple of million in the bank may sound insane to you. Part of the FI/RE movement is truly embracing the frugal lifestyle. This means you’re okay living on $40,000 or $65,000 and raising a family. It means your lifestyle has been pared down to accommodate only purchasing what you truly value and freeing up your time to pursue other experiences that bring you pleasure.

For some this might be traveling the world or buying an RV to drive around America. For others it might be buying a homestead in a rural part of America. Some might build a real estate empire that provides them with passive income to live any place in the world. And others ditch the United States entirely and move to another country with a lower cost of living in order to make those millions convert to a more lavish lifestyle.

How do people make early retirement happen without creating an app?

High savings rates with some basic investing chops are the primary factors that lead to early retirement. FI/RE devotees often have savings rates tipping 70% – and yes this is sometimes in major cities with high costs of living. There are certain FI/RE community members who earned hefty six-figure salaries and were able to squirrel away 60 percent without blinking an eye. Others worked at non-profits, stopped shopping and eating out, and figured out how to eat healthy for very little money.

Obviously saving the money is more than just stuffing cash into a bank account. You need to be investing. Plenty of FI/RE participants do utilize traditional retirement accounts like a 401k or IRAs. They’ve figured out ways to hack the system and legally withdraw funds without penalty before hitting 59.5. They’ve also figured out how to minimize taxes, but keep Uncle Sam happy of course.

There are dozens of ways to successfully save enough to retire early – but regardless of your method it requires diligence, motivation and an actual desire to live off a fixed income for the remainder of your days.

Then again, you could always go back to work.

Interested in some inspiration?

Thinking that there might be something to this FI/RE movement? Or just interested in hearing directly from some of these crazies who think they can seriously walk away from careers in their mid-thirties or early forties? Be sure to check out these blogs of those pursuing or already living the FI/RE lifestyle.

Frugalwoods – A young couple, and recent parents, in their early 30s, the Frugalwoods set out to be able to buy a homestead in Vermont and ditch their traditional jobs for a life of hiking, gardening, traveling and pursuing their other interests (like welding and woodworking). The Frugalwoods now live in the woods and are still able to save 70 percent of their incomes.

Mr. Money Mustache – Mr. Money Mustache (or Pete) may be considered the grandfather of early retirement blogging – even though he’s in his forties. MMM is a hugely popular destination for early retirement devotees where his no nonsense approach and zero patience for those indulging in consumerism quickly get called out. His style might not be for everyone, but he’s worth checking out if this area intrigues you.

Jlcollinsnh – Jim Collins is a go-to resource for tips on investing and commentary on how to build wealth. This is a man who didn’t opt out of his career, because he enjoyed what he did, but he reached financial independence early, which enabled him to walk away if and when he chose.

Mad FIentist – Based on the “Science of Financial Independence”, Brandon eagerly helps fledgling FI/RE devotees figure out the mechanics of becoming financially independent and how to save, invest and minimize your tax burden.

Go Curry Cracker – This nomadic family not only ditched the cubicle life, but Jeremy and Winnie started their family while traveling the world as a 30-something retired couple. They too saved 70% of their incomes for 10 years and now travel slowly around the world.

Afford Anything – Paula Pant decided she wanted the freedom to never work again, so she began investing in real estate. Today, she’s developed a business and lives 2,000 miles away from most of her properties. Now she can live the life she wants to and pursue passion projects (some of which do make money) and traveling.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Erin is the founder of, where she uses sarcasm and humor to explain basic financial concepts to her fellow millennials. Erin lives and works in New York City.
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