Transcript
So, what I’m seeing now, Brian, is that as we delve into higher incomes, like $250,000, it was nearly impossible. At $100,000, it was possible but very difficult. However, at $200,000 of income, it’s still challenging, but within the realm of possibility based on our assumptions. Now, let’s shift gears and talk about an even higher income. What if someone, Brian, is making $400,000 for the entire 25-year period? They’re committed savers aiming to retire early and live off a certain percentage of that $400,000.
This is kind of a pie-in-the-sky scenario, considering it’s a significant amount of money. However, it’s a fun exercise to explore what could happen. We haven’t factored in cost of living or wage increases because, at $400,000, why would you need them? Nevertheless, it’s interesting to contemplate the retirement implications for someone earning this level of income and saving for 25 years.
In this case, without a doubt, you can confidently say that even with a 30 percent savings rate, you could replace 62 percent of your retirement income. At 35 percent, you’d achieve 73 percent replacement, and at 40 percent, a whopping 83 percent replacement. It’s a no-brainer.
But here’s where caution is necessary. If you’re someone who can make $400,000, you’re unique and already very special. You’re a bit of a unicorn with exceptional earning potential. Before you decide to retire and walk away, consider what it means for the world around you. Don’t divert resources from making the world a better place simply because you want to leave the workforce.
We’ve encountered many talented individuals who earned substantial incomes, sometimes in the multiple hundreds of thousands of dollars. It’s essential to consider whether they had something equally valuable on the other side. Maybe I’m too nerdy, but I always ponder the impact of what we do as content creators. We wake up each morning with a sense of making the world a better place, utilizing our resources more effectively.
For those pursuing financial independence and early retirement, individuals with this level of income can now shift their focus to bigger picture goals. They can contemplate how to contribute to making the world a better place. It could unlock something exciting. I understand that connecting with $400,000 may be challenging for many. However, if you fall within that income bracket, I urge caution.
We work with several individuals who earn that level of income and have aspirations of retiring early. Even with such a healthy wage, you still need to be a committed saver to achieve early retirement. I’ve lost count of how many times we’ve seen individuals, perhaps in sales or entrepreneurship or high-paid executive positions, earning $300,000, $400,000, or $500,000 per year, yet their savings rate is minimal. Maybe they max out their 401(k), and that’s about it.
The problem is, if you want to retire early, if you want to be part of the FIRE (Financial Independence, Retire Early) movement, you still need to be a disciplined saver. You need to save 25, 30, or even 35 percent of your income consistently. If you’re not saving, it means you’re likely spending that money. As a result, the standard of living you need to replace in financial independence becomes higher.
Even with these high incomes, even when things feel like they should be “easy,” you still have to be disciplined. You still have to be a financial mutant to do it well. At this threshold, you’re probably living a nice lifestyle. Just make sure you don’t price yourself out of being able to enjoy your best life. That’s where I find the analogy of private aviation relevant. When someone wants to have a hobby of being a private pilot, they often start with a small Cessna that they can afford the fuel and maintenance for. But as they progress to nicer planes, the fuel burn rate, insurance costs, and maintenance expenses increase. Before they know it, they can’t sustain it financially. The same concept applies to lifestyle choices. So, be careful. If you find yourself in a situation with a high income, it’s a blessing and a good thing. But it also requires discipline throughout the entire process. For more information, check out our free resources here.
