The first response we get when my husband and I tell people (usually family members) we want to retire early is a facial expression, whether it be an eye roll or an incredulous look. You can practically hear their thoughts, “These young people have no idea what they’re talking about. They just don’t know how hard it is just to raise a family and save to retire in your 60’s.” The message they send is unequivocal: it will never happen. When we press on and become insistent, they start saying, “What will you even do when you retire?” That’s when we tell them our vision of retirement differs from theirs.
According to the Oxford English dictionary, retirement is defined as, “the action or fact of leaving one's job and ceasing to work.”
Globally, life expectancy has been steadily increasing for decades. It wasn’t so long ago that the expectation was to work until you died at an age that now is considered middle-aged. The concept of ceasing to work before you died did not exist.
Otto von Bismarck is credited with “inventing” retirement in Germany in the 1880s. The Reichstag approved the creation of a retirement system for people who lived beyond 70, which was well beyond the age of life expectancy, so most people worked until they died anyways. It was generally accepted that only a small portion of the population would be able to stop working before they died.
The US government started providing pensions to military and other government workers prior to that, in the mid-1850s. American Express started offering pensions in 1875, and this idea spread to other industries in the early 20th century. These programs typically held the retirement age at 65. During the Great Depression, young people were often unemployed and could have had factory jobs that were filled by older, less productive employees. In 1935, the Social Security Act was passed at least in partial hope of opening jobs for younger workers, and stuck with 65 as the retirement age, while life expectancy was 58.
A few decades later, life expectancy continued to increase. The IRS wrote section 401(k) and employer-sponsored tax-deferred plans were created. More Americans were able to retire, and everyone began to believe retirement was a right, rather than the exception it had been previously. The retirement age has not increased in step with life expectancy, though, and the number of workers paying into the Social Security system per retired person has also decreased.
Conventional wisdom says that you should work from when you’re around 20 until you’re at least 65, if not 70. As long as your save some portion of your money for retirement, somewhere between 10 and 20%, you can live off of 70-80% per year of what your pre-retirement income was. It’s easy to accept this route as the only available one.
My husband and I see it differently. If you’re able to save 40-50% of your income or even more, you can retire earlier for two reasons: 1) you’re putting a lot of money away you can use in retirement and 2) you’re able to live off 50% of what you make rather than the conventional 70-80%. You can take it a step further and invest in real estate or some other cash flowing asset and replace your wage income with other sources of income.
Thus, we define our retirement date as the year we become “work-optional.” We may very well pursue passion projects that earn some money. Or perhaps we’ll volunteer. Or work for a low wage at a non-profit. Who knows? All we know if that our plan is not to be working 40 hours a week and saving 20% of our income until we’re 65 and then stopping work completely.