Retire in 5 Years: Fact or Fiction? - Education | Financial Buzz

Retire in 5 Years: Fact or Fiction?

Spending, Early Retirement, Concept, Five StepJacob Lund Fisker wrote a book, Early Retirement Extreme, in which he claims it may be possible to retire in five years. We will look at how he suggests you go about doing this and then you can decide if this is, indeed, fact or fantasy for your particular situation.

His book is centered on the following three simple concepts:

1. Reduce spending

Jacob states he lives on only $7,000 a year. He never dines out. He never pays to rent movies or buys books or music; instead he goes to the public library for these items. He has a home garden so he can grow some of his own food. He makes some of his own furniture and splits all the expenses evenly with his wife. He lives in an inexpensive home and utilizes organizations to obtain free items. He suggests learning to live without luxuries, such as air conditioning.

2. Save your money

Living cheaply and earning as much as possible can easily enable a person to retire much faster. This is because you will have more money and you will require less money to sustain your lifestyle.

Consider this: an individual who saves 10% of their income will have to work nine years to save enough to cover one year of expenses while someone who saves 90% of their income will need to work only one year to save enough to cover nine years of expenses.

3. Turn savings into passive income

Investing your money, and doing so intelligently, is the whole premise behind this concept. Whether you choose stocks, bonds or real estate, you are seeking a positive annual return, ideally with the highest yield possible.

Fisker has motivated individuals to embrace the concepts in his book. It is doubtful, however, that mainstream America is going to change their lifestyles as drastically as Fisker outlines. Here are some snags opponents of his ideology point out:

1. Is the standard of living afforded you by $7,000 per year something you are willing to take on? Living on this amount of money would call for quite a few adjustments. Living at poverty level is just something many people are not willing to do.

2. Returning to work may become necessary. Fisker, himself, retired in 2009 but at the end of 2011, he returned to work as a professional investor. We often lead by example and Fisker’s actions say quite a lot.

3. Raising children is not addressed sufficiently. Fisker’s advice for having children while attempting the concepts he presents is to forego any allowances, save any money your kids receive as gifts, shop for clothes at thrift stores and push for them to attend a state university instead of an expensive one.

4. Affordable quality health insurance is not attainable. Fisker states that the cheaper health plans he advocates, high-deductible HSA-compatible plans, do not help people in their old age nor does it cover those folks with chronic illnesses.

We do, indeed, trade our time for our money. You most definitely can retire sooner than most people realize. It is up to you when and how much you want to sacrifice in doing so.