The Unattainable

Is Early Retirement the real goal?

I discuss the topic of Early Retirement quite extensively on this blog. While it is not always at the forefront, it definitely lurks in the background. Spending, saving, investing... the accumulation of financial assets.

Early Retirement often evokes a bad image. To some, it suggests a capable person who is so incredibly lazy they want to be deliberately unproductive. To a neo-Marxist, an early retiree is the capitalist exploiter controlling means of production and living off the stolen labour of others.

Honestly, it is neither of these things and those who criticize Early Retirement from these broad positions either don't understand what Early Retirement actually is, or they deliberately choose to attack the idea because it is easier to attack another than discipline yourself.

Early Retirement is the pursuit of personal independence from the financial perspective. It is esacping from the necessity to work and do the bidding of others who actually have the ability to control. It is exactly what every capitalist, socialist, communist, individualist, collectivist wants: freedom. (However you define that word).

The difference is those who are willing to exercise great control over their personal lives and take calculated risks with the resources they've earned don't have it in their nature to complain about the success of someone else. When you don't worry about others, you can focus on bettering yourself.

Individuals who achieve Early Retirement standards by their own hard work and pursuit of a solid understanding of risk and investment are not going to sit in a hammock for decades and whither away like a discarded zucchini. The creativity and hard work required for personal financial success somehow tends to propagate more success in further ventures.

The great thing about Early Retirement is that it is entirely possible to achieve. That is precisely why I discuss the strategies in detail, track our own path and share that online, and continuously pore over tens of thousands of numbers in massive spreadsheets searching for better ways to invest money.

Canadians are way better off that we like to admit and we have massive potential to save, invest, and retire early without absolute reliance on government benefits. We just need to stop spending like fools.

No new vehicles, smaller houses, less furniture, less utilities, less restaurants, less convenience services, less clothes, less shoes, less household trinkets, less less less. The irony of course is that having less also means less stress which means a drastically better life overall.

The Investment Savings Rules

Lets talk truth when it comes to saving, investing, and Early Retirement.

If you plan to retire around age sixty where you expect some government benefits to come your way in the near future, you need to have invested an amount of money equal to at least 20 times your annual spending. That's $1,000,000 if you are spending $50,000 a year.

If you plan to retire earlier, you need to have invested at least 25 times your annual spending. That's $1.25 million if you are spending $50,000 a year.

If you want to be extra safe, never needing to work again, and are retiring young, you need to have invested 30 times your annual spending. That's $1.5 million if your are spending $50,000 a year.

Summed up, for the typical Canadian couple renting a house, you need to save and have invested between $1 million and $1.5 million. The amount would be around $300,000 less if you own a paid-off house.

Over a million dollars is a lot of money, so how do you get there?

The Importance of Early Discipline

Time and investment returns are a huge factor. The earlier you start saving and investing in productive assets, the better off you'll be and the easier it is. Also, the higher your investment returns are, the faster you will hit your goals.

While not impossible, it is not always easy to invest for higher returns. It requires even greater discipline and I view it as more of a bonus rather than a reliable factor in financial planning.

Assuming more standard 6% net returns after inflation, here are the monthly saving numbers required to make a comfortable retirement at age 55 happen.


The older you start, the more difficult it is. If you start saving after you are thirty years old, you will likely never retire early barring amazing investment returns or some other financial windfall. Realistically there's only so much you can save when the typical household in Canada earns around $80,000 per year.

Some Advice for the Young(er than me)

The math, the power of compounding gains over time, clearly shows that the earlier you start saving and investing that money the better off you will be. This kind of thinking ahead can put you way in front of peers who follow conventional wisdom.

The destructiveness of acting like a teenager with your finances when you are well into your twenties or thirties cannot be made more clear by this chart. The exponential financial damage is huge. It ruins your personal freedom in ways that can't be totally computed.

I'm personally a huge fan of skipping university and picking a trade or apprenticeship educated career instead. If you graduate from high school and go directly into a trade, you can be a ticketed journeyman in your early 20s earning $30 to $50 per hour. You avoid student debt and the lavish lifestyle expectations that often come along with working in a field that is full of people with degrees. Trades careers present business ownership opportunities and specialization opportunities that you often can't find in many degree requiring fields.

But even if you do decide it is worthwhile for you to go to university, or if you are already on that path, it's not too late to make sure you are doing it correctly. Live how a student used to live (ie. poor). Work hard in the summer. Avoid student debt at all costs. Get a job right away, even if the pay isn't what your academic advisor promised it would be. Choose a degree in business, sciences, or engineering. Learn how to code or at least be savvy with tech stuff beyond simple user knowledge.

Comments & Questions

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Handling A Market Downturn

The masses are very skeptical about early retirement. They are insecure, their own choices reflect financial servitude, and they believe a life of forty-hour work weeks for forty years is predetermined for them.

When you run around with these mental blinders on it's easier to condemn financial freedom than make the changes in your life that open up early retirement for you.

Many people are critical of early retirement by pointing out failure with two main questions:

  • What would you do all day? and
  • How will you handle a scary market downturn?

The first question assumes that you will turn into a deviant or a useless blob if you don't have an outside commitment of forty hours a week to keep you in line. We talked about that here.

Dealing With the Markets

We all know that stock markets go up and down. Market movements often dominate media. Financial media is a narrative between market optimists and pessimists. The talking heads and the predictors who strive to provide entertainment value.

Depending on where you go and what you read, the talking heads predict roaring bull markets that will go straight up and make everyone rich. Or they make your fear investing because markets are on the edge of a collapse.

Truth is they don't know. I don't either. In the last 100 years, the U.S. stock market had four occasions where stocks crashed 50% or more (inflation adjusted). It will likely happen again at some point.

A net worth that moves like this freaks people out!

S&P500 1995-2011. Source: Yahoo! Finance

The fear of losing half your money is enough to make most people just avoid the markets all together. They huddle together and put their money in "safe" GICs, bonds, and real estate. They try pay off their mortgage.

Many don't save at all and wait for the government to spoon feed them a promised stipend sometime in the future.

Rational thinkers who pursue independent thought and understand risk know there are strategies to help deal with these massive, and generally temporary, downturns. A little bit of risk acceptance can go a long way towards better, more profitable investing.

Saving Enough

You can't retire early if you don't have enough money. Not having enough money and hoping for outsized returns or perfect market conditions is a recipe for disaster. Accumulation of investable net worth matters.

If you have 30x your annual spending needs invested in productive assets, you will virtually never fail financially in retirement. You can increase your spending with inflation every year, you can maintain various asset allocations, you can "set and forget". The margin of safety at this level is immense.

Even if you have 25x your annual spending invested in productive assets, you are very likely to avoid a financial catastrophe. But you must be broadly invested, follow a sound strategy, and watch your spending. You would theoretically be far more likely to die before running out of money.


The next easiest guard is diversification. Successful investors reduce exposure to any single market.

Way too many people have too much of their portfolio permanently in one broad asset class. It might be U.S. stocks and bonds, it could be Canadian dividend stocks, it could be rental houses. Concentration is dangerous.

Simply put, you don't want to be an infallible Japanese early retiree in 1989 fully invested in the roaring, never-goes-down Japanese stock market.

In the next two decades, you would see your portfolio fall off a cliff and plunge into the depths of the Pacific. This epic market crash might never come back; nearly three decades later, Japanese stocks are still at around half their peak level.

Nikkei225 1989-2009. Source: Yahoo! Finance

If the same Japanese retiree would have invested in a global stock portfolio, their investment account would have chugged along averaging 7% per year since 1989 (in Japanese yen terms).

While others sweat a salary job and jump off buildings because they're bankrupt, the diversified retiree would be tending to their bonsai and calligraphy with nary an ulcer.

You can diversify across countries, currencies, asset classes, and strategies to guard yourself from financial failure.


Proper use of investment strategies is very helpful in preventing a market downturn catastrophe. Some strategies are complementary while others are correlated.

Buy-and-hold 100% in a stock index is probably among the most dangerous in early retirement because you can't dollar cost average into a falling price scenario. You're basically rolling the dice that you don't retire just before a market crash or high inflation period.

If you are withdrawing money from a falling asset, the effects of the fall are exacerbated. This is known as sequence of returns risk. To limit sequence of returns risk, you can hold a cash cushion, invest in complementary assets, or you can follow a disciplined timing strategy.

Cash cushions are effective in their purpose of limiting withdrawals in a drawdown environment, but they also reduce overall returns. Depending on your investment strategy, large bond allocations can actually reduce your financial success rate.

Complementary assets allocations, such as mixing a hedged strategy (like long/short or managed futures) with a stock strategy, can reduce the full effect of a stock market crash. Hedged strategies tend to do well in market downturns while holding their own in bull markets. However, the best of these are often only accessible to larger investors.

I invest in a disciplined timing strategy. I'm always trying to simply, simplify, simplify while maintaining an edge. So far it has worked out well. In the future I believe the lessons learned will mean better discipline, fewer mistakes, and better results.

Confidence in Strategy

The biggest advantage going into early retirement is having complete confidence in your chosen strategy. I don't mean blind confidence because you read a few good books and read an amateur blog or two.

Rather, I mean having experience and controlling your emotions. Ignoring market swings and sticking to a sound process is how you win the long game.

This is why I'm a huge fan of managing your own money instead of hiring a financial advisor—especially if you are young. Nothing is better than making your own mistakes when you are young, learning from each experience, and forging your own confidence going forward.

An honest, fee-only financial advisor can do a great job of steering your investments and helping you avoid big mistakes. But they can't outperform broad markets over the long term and they can't prevent you from overriding their advice. They're basically just there to help you make good money decisions, promote tax efficiency, and manage your investments using basic models.

It's easier to have true confidence in yourself than to rely on confidence in others.

Comments & Questions

All comments are moderated before being posted for public viewing. Please don't send in multiple comments if yours doesn't appear right away. It can take up to 24 hours before comments are posted.

Comments containing promo links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.