I’ll Never Be Able To Retire

“I’ll never be able to retire!  I don’t even want to talk about it.” I’ve heard some form of this from a few people in my life recently and I sympathize.  Many have had setbacks such as debt acquired when young, health issues, divorce, etc.  Some of us have also just made mistakes that we are forced to confront each time that we look at our poor finances.  If you are in your 20s or 30s with no debt, good for you!  Articles such as How to Get Rich in One Blogpost, and this series on Personal Finance should serve you well.  You have time to learn and get there and this article may just be a jump start. However, what if your time horizon is shorter?  

As I am rapidly exiting my 30’s and looking toward some new chapter called middle age, the opportunity for “early retirement” may feel out of reach for those around me that haven’t even started yet.  Some even further on in their careers dread that traditional retirement will not even be possible.  Taking on high risk investments or going on a Vegas bender and putting it all on black certainly doesn’t seem like a responsible approach.  What I want to show below is that you still have options and there is a responsible path for you even if it may be a challenging one.  

How Can I Go From Broke To Retired in Ten Years?

The Answer to this is simple but not easy.  It involves, maximizing earnings, minimizing spend, side hustling / passive income, and investing.

Trying to go from zero to retired in 10 years is not something that I would necessarily recommend. It adds exponential pressure. By this I mean that compound interest from investing your money makes it loads easier to reach retirement in 15 years as opposed to 10. At a 7% investment return, leaving your retirement money alone for an extra 10 years causes it to roughly double! Hence, think how much less you would have to save if you had 20 years to do it as opposed to 10.

The challenge is that some of us do not have the option of starting earlier. What do you do if you are 60 with no savings? You may feel like you can only go all out for 10 more years before you just can’t do it anymore. What would you do if you wanted a fast jumpstart on wealth building? Personally, if I was forced to try to go from broke to being able to retire in 10 years the biggest levers that I would pull would be the following:

• #1 Salary: If one’s living expenses were $40K per year and you make $45K after taxes that is a savings of $5k per year.  Even a 10% raise in pay almost doubles your savings rate!  If I was looking to go from broke to retired in 10 years, I would maximize that salary.  My lady, has worked with former teachers who attended a one year software coding bootcamp and came out making $100K per year.  If one could drastically up her salary and sock away $50K per year, that is a half million dollars after 10 years.  With even 4% return on that annual savings, that $500K becomes over $600K at the end of those 10 years of saving.

• #2 Real Estate:  My personal experience has been that it has been possible for me to get a 10-12% cap rate on single family home rentals.  This is barring major events like evictions or flooding.  If one buys in a good area, appreciation can add 30% or more return on that investment at sale.  For someone trying to go from zero to able to retire in 10 years, real estate can be done on the side in addition to a regular job.  It could also be held after “retirement” for additional income that is semi-passive.  I looked at real estate in this prior article comparing direct investment to REITs.  From tax benefits, to value add rehab. potential, there are many reasons I would consider real estate if trying to rapidly grow wealth.

• #3 Business:  Businesses are hard to start, however the momentum keeps paying far beyond the income earned each year by the owner because business value is growing.  I knew an IT guy who struck out on his own and became a part time IT consultant for a couple of small businesses that could not afford a full time IT person.  Fast forward 10 years and he has far surpassed the salary he used to make working for someone else.  Better yet, he now has a team of IT people working for him.  He could probably turn around and sell this business for over a half million bucks!  

You may notice that I didn’t explicitly include investing as one of my levers.  To me all savings of course never just sits in a no interest bank account or under a mattress.  It is always invested conservatively in a model that is consistent with one’s age and time horizon to need to access that money.  In addition, I personally couldn’t think of a risk responsible way to invest one’s way from zero to retirement in only 10 years hence I did not make it one of my top 3 levers above.

However, this is just my opinion let’s hear some others:

If you were older and had to go from zero to financially free in 10 years what would you personally focus on?

Just 10 years from nothing? That’s really hard. In this case, focus on increasing income while keeping spend the same. Invest and hope you get lucky. Maybe try real estate investing if you are in the right market

Joe @ Retire By 40

Buy 4 plex live in one rent other 3

Get company match or 5% in index funds

increase income

If you need to have a car it should be worth $4-6K max

Brian Smith

Max out all tax deferred retirement accounts my husband and I are eligible for, keep saving same amount or more in taxable account once deferred account limits are reached, find ways to reduce housing and transportation costs, make extra money with side hustles. This is what I am doing. Once I stop working, do a Roth conversion ladder over years

Baby Boomer Super Saver

Hmm, I’d probably try to focus on 3 things: 1) Reduce expenses as much as possible 2) Cultivate an income generating skill (perhaps real estate) 3) Grow a skill to be personally passionate about.

Adam @ Minafi

Cut spending drastically now (while it’s voluntary) or else cut back drastically when you have no other choice in old age. I’d rather have choices later because I was careful earlier

Josh Overmyer

I would focus hard on frugality (especially with housing, transportation, and food). I believe the odds are against earning significantly more after 50, though exceptions abound.

Done By Forty

I did it in 6 years!!!! I went from $10 net worth when I paid my mortgage off 6 years ago to being FI now. Actually, only just realized the timeframe now. Pretty amazing. First frugality. That’s ongoing. Then I paid off the mortgage. While I was doing that, when my 4 kids got older, I worked a second job. Then, geo-arbitrage.

Frog Dancer Jones

One of the things that comes to mind with all these different opinions above is that there are multiple paths to get to the same end goal. 

Multiple Paths to Retirement

A couple seeking to retire on a $40K* per year budget under the 4% rule could get there many ways. Any of the following paths would get them there for example:

• $1,000,000 cash today (invested)
• $72,400 annual savings invested at 7% annual return compounded every year for 10 years
• $40,000 annual savings and a side hustle generating $32,400 both invested at 7% annual return compounded every year for 10 years
• $30,000 annual savings invested for 10 years and a side hustle / passive income generating $20,000 per year for 30 years (continue the passive income even in retirement).  All savings and surplus after expenses invested at 7% annually compounded return. 

If one could live off of $30K* per year under the 4% rule the same examples above may look something like this:

• $750,000 cash today (invested)
• $54,300 annual savings invested at 7% annual return compounded every year for 10 years
• $30,000 annual savings and a side hustle generating $24,300 both invested at 7% annual return compounded every year for 10 years
• $25,000 annual savings invested at 7% annual return every year for 10 years and a side hustle / passive income generating $20,000 per year for 30 years (continue the passive income even in retirement).

Does the 4% Rule Even Apply To Me?

The 4% rule for safe retirement withdrawal is based on a model with low risk of drawing down principal even in challenging market conditions.  This is useful and conservative for early retirees because there is a prospect of having to live off of passive income from that principal for up to 60 years or more.  However, things start to look different with age.  For example, under the 4% rule with annual expenses of $40K* one would need a million dollars to live off of a 75/25 stock and bond portfolio for 60 years with a 19% chance of depleting that principal based on historical data.  However, if one planned to actually spend down the principal late in life, less would be required.

At an annual budget of $40,000* and a 4% guaranteed annual return on investments, the following chart shows savings required at different ages if principal is dwindled to zero by age 100: 

The steep slope from age 60-90 illustrates how retiring later and spending down principal makes a big difference for later retirees versus earlier retirees. Spending down principal does create risk because of the uncertainty of how long of a retirement one needs to fund. This risk should be analyzed and understood based on your individual situation. However, the option to spend down principal can at least be factored into a financial plan.

The 4% rule includes worst case historical returns. If one has only 30 years of retirement to fund and beats a 4% return for the first 10 years for example, this as well could be factored into a financial plan and annual spend budget going forward.

Being Able To Retire

There is an old sales adage that facts tell but stories sell.  We could go through numbers for how to get financial freedom in 10 years but I’d rather tell you some stories.  Let me tell you about how Emily and Caleb changed their lives.  These stories are fictional but the numbers are representative.  My hope is that these examples might provide some inspiration away from despair and toward possibility.

Is Emily Running Out of Time For Retirement?

Emily teaches 4th grade.  Her salary of $37k per year was fine when it was just her and Rob but it hardly covered anything once the girls came along.  She talked about changing careers but seriously have you ever tried raising 2 girls?  The years flew by.  Even after getting every credential and 20 years of teaching experience, she still topped out at $53K. 

Emily’s husband Rob was a roofer for about 15 years and made some good money early but his work was seasonal so winters were tight.  Now with his back problems, he does light landscaping and plows in the winter bringing in about $35K per year.  The girls are pretty much on their own now but at age 50 Emily’s friends are talking about retirement and she gets choked up just thinking about how they had to raid their retirement fund for Rob’s back surgery and all the problems that followed.  

Emily doesn’t see a path to ever being able to retire.  Then she comes across this short PBS video and a wave of optimism sweeps over her.  Sure she may not be a super early retiree, but if those younger could retire in 10 years starting from zero why can’t she?  She has more experience and even more reason to commit to being successful at it.  

Emily audits their expenses together with Rob and they are able to cut their annual budget to a projected $40K per year average.  At their current household income of 53+25=$88K per year that only leaves about $66k after taxes or 66-40=$26K annual savings after expenses.  This is better than zero but according to a compound interest calculator she finds online even if they invest that savings and get 7% return per year that still leaves Emily and Rob with only around $360K to retire on in 10 years. 

Emily can take advantage of some employer benefits to tweak her savings a bit more in tax advantaged accounts and social security will help but it is not enough. Under the 4% rule, Emily figures that they need $1,000,000. However, using the similar 4% model accepting more risk and spending down her principal late in life as shown in the chart above, Emily retiring at age 60 would need around $792K. What if she lives beyond age 100 or something else that was not in the budget comes up? Emily will monitor her portfolio for sequence of return risk early on and is ready to tighten the belt on spending if needed. This gives her a risk profile that she feels comfortable with. She also figures that since she did not include social security payments in her plan, she has a cushion. However, $792K is still a lot of cash.

Emily does not despair. She gets creative.  Her and Rob open a bottle of really cheap wine and throw around ideas based on their skills, assets, and what they can tolerate doing.  By the time they reach the last glass a plan is hatched. 

Emily and Rob have pretty good credit and Emily has summers off from teaching.  She starts learning about real estate investing and identifies their first rental property that summer.  Rob, can’t do much heavy lifting but he can do some light remodel work and painting.  He kind of likes seeing the transformation.  They target foreclosures for round $85K where they live in the midwest.  Rob puts in some time and $15K to rehab and then they get the best renters that they can find.  

The next year, they do one more.  By the third year, Emily gets her real estate license.  It helps them get into homes quicker and she can collect 3% more from the saved commissions.  She is already super knowledgable about the market by the 4th year.  Most of being an agent for home buyers is educating and communicating. As a teacher, Emily is great at that.  As a buyers agent she closes a couple of homes per month in the summer while she’s not teaching.  When she sees a great rental possibility, Rob continues to rehab and rent it at a moderate pace of 1 home per year for the next five years.  

Now after 8 years, they are up to 8 rentals and Rob finds that managing the existing rentals has become quite a bit of work.  He spends 2 years slowing down a bit and just managing the rentals with no rehabbing.  When they check their net worth after 10 years it sits at just over $900,000. 

Emily and Rob buy a very expensive bottle of wine and toast Emily’s retirement from teaching.  They reminisce about how a decade ago they could never have afforded that bottle.  They try to decide whether to sell off the properties, or just put them under management and have the option of living a more lavish retirement than they ever could have imagined 10 years prior. Maybe I’ll keep my realtors license up for a couple years and set something up for the grandkids Emily ponders.

Caleb Gets Back On His Feet

Caleb’s corporate sales job paid well but it was lots of hours on the road.  He spent most of his high salary because he wanted to look the part. You can always make more money he thought.  When he and Janine divorced, the last thing on his mind was finances. Lots of mistakes were made on both sides.  He also had to make a lot of changes to accommodate his partial custody of their son. Hence he took a sporting goods manager role close to his town home.

  At 43, Caleb still drove his BMW from the corporate sales days but his savings was empty. He was living pretty much paycheck to paycheck.  After seeing the Playing With Fire documentary, Caleb felt a fire inside.  He got rid of his BMW and cut his expenses mercilessly.  How mercilessly?  His new used Honda Civic cost him $5235 and allowed him to put $6000 directly into investments. 

Caleb canceled his cable and all the other subscriptions that seemed like nothing but somehow all added up to something.  He moved into a much more modest apartment.  Over 18 months, his expenses fell to $28K per year and he invested everything that he could save.  He was surprised how quickly he adapted to this new spend and found that he had more free time. 

Caleb was making $56K with bonuses managing the sporting goods store. But it was still only 2/3 of what he had been making at his corporate gig.  However, his old company would not hire him back in the same role.  Still he had lunches with everyone who he knew.  He applied for every high paying sales role that he could.  He got turned down or offered lesser roles but he also honed his pitch and just kept going. 

After 5 months of searching, Caleb was hired on as a sales support rep for high end medical equipment. He was making the same as at the sporting goods store but he was toward the bottom of the totem pole as opposed to topped out.  He also was able to use the generous company ESPP and 401K match to effectively make an extra $11K per year.  After 6 months, a local territory opened up and he got it. 

Caleb spent the next 9 years working with a goal in mind.  Some years he made presidents club or got big bonuses from new product launches. Other years he didn’t do great.  However, he kept up his modest spend and only ate at nice restaurants when it was on the company dime. 

By the time he was 54, Caleb was financially free.  He was not rich. However, Caleb had the money that he needed to live a life that he had become accustomed to. Caleb had planned to get there in 10 years and it did not matter that it actually took him 11.  He stayed on for a couple more years because he found that everything seemed easier when he knew that he could leave whenever he wanted to.  He retired about the same time that his son was striking out on his own. Caleb spent his first retirement breakfast talking personal finance over a cup of coffee with his son.

This spreadsheet includes the back of the envelope math used to gut check Emily and Caleb’s stories. Why not put your plan together today? Create your story.

How To Retire in 10 Years

Retiring in 10 years is tough. However, you can do it in a risk responsible way. You can drastically change your retirement picture using many levers. In addition, traditional or late retirees may consider draw down in a broader financial plan. Emily and Caleb moved beyond their daunting retirement obstacles. They each created a new reality. You can too.

Would you like to share your story, ask a question, or question my examples? Feel free to join in the conversation in the comments below.

This article contains many ideas and supporting math. It is not intended to constitute specific financial advice. The author is not a financial professional. Those quoted should not be considered financial professionals without further vetting.

*It is important to note that 4% rule budgets do not factor in taxes on investment income and management fees for the funds you hold. See article on the 4% rule for more detail.