How To Think About Retiring Early

What Millennials Can Teach Their Elders About Retiring Early

For many folks, increased longevity means they need to seek higher returns on their savings, save more today or retire later. Yet many millennials have started to retire earlier rather than later.


Since about 2011, the FIRE (Financial Independence, Retire Early) movement has caught, well, fire. Its adherents use basic financial planning principles to argue that, by saving over 50% of their income for about 10-15 years, they can live off the return of their accumulated investments for the rest of their lives. Are they right?

To find out, you will need to know a couple of things:

  1. How much are you planning on spending each year of retirement?
  2. How much in retirement assets will you have when you retire?
  3. What is the likelihood of you running out of money in any given year of retirement?
  4. What will happen to inflation and interest rates before you retire?

Key Take-Aways

  • Even if poorly-timed, investments payoff in the long run
  • A longer retirement doesn’t necessarily mean dramatic belt-tightening
  • You should adjust your withdrawal rate when you’re drawing down based on year-to-year market performance
  • Getting and remaining invested is the most important determinant of retirement readiness

The central insight that early retirement enthusiasts provide is that even in adverse market conditions, over the long-run, the returns on your investments will outpace your spending. As a result, your invested assets can grow even as you’re making withdrawals. 

What Would Retiring Early Do To My Savings?

The chief challenge that early retirement poses is managing to stretch your assets across a longer period of time. In order to stop working in their 30s or 40s, the FIRE movement promotes a materially minimalist lifestyle as a means of accumulating savings more rapidly and stretching investments across a longer time period.

Yet, for people seeking to retire at 55 it’s not necessary to adopt an ascetic lifestyle before or after retirement, even taking into consideration lengthening lifespans. By then, you will have had 10-15 more years for your returns to compound and grow and they will continue to do so into your retirement.


The impact of adding 15 years to one’s retirement horizon on their year-to-year spending capacity is only about 1/3 the impact of shortening one’s retirement horizon by 15 years.

– Dana Grigg

Indeed, in a scenario where the market significantly under-performs its long-run average, one would need to adjust their annual withdrawals by only about 0.267 percentage points in order to add 15 years to their retirement horizon.

It’s necessary to stress that this data is based on past, long-term averages. You will still want to monitor your spending from year-to-year to avoid excessively depleting your portfolio.

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