As more people look to retire early (<60), more people are looking for shortcuts in order to reach early retirement quicker. Some hate their jobs so much they are willing to retire early and live in poverty!
Instead of retiring early to live in poverty or near poverty, wouldn't it be better to find a different job to live a more comfortable life? I think so.
Post-pandemic, I've made the argument early retirement / FIRE is becoming obsolete. No longer do we need to grind so hard and sacrifice to get out ASAP. Instead, there are now a plethora of new ways to earn money. Further, if you are able to work from home, you've got ultimate flexibility!
My goal for this article is to help you think about early retirement in a more healthy and balanced way. FIRE FOMO is real. Instead of feeling an intense rush to try and retire as early as possible, consider the alternatives.
- Find a more enjoyable job with better hours that pays less.
- Start a side hustle or side business that brings in supplemental income.
- Encourage your spouse to work longer or harder so you can take things down a notch.
- Take a sabbatical to recharge and rethink what you want to do with your life.
- Go back to school to change careers and take a break
Be careful sacrificing so much only to retire early and live a restricted life.
My Original Desire To Retire At 25
When I was 25, the September 11, 2001, terrorist attacks happened. This terrible event ignited my quarter-life crisis after only two-and-a-half years of working in finance.
I seriously thought about retiring with a ~$350,000 net worth and moving to Hawaii. There I'd be a fruit farmer on my grandparent's under-maintained farm. Due to a couple of lucky investments during the 2000 dot comb bubble and aggressive saving, I was able to amass a healthy net worth quickly for my age.
In exchange for clearing brush, watering trees, and doing general upkeep on the house, I could live for free in my grandparent's old house. Then I could make some extra income selling mangos, papayas, and pomelos down the street. The farm was only about eight acres in Waianae, a rougher part of town on Oahu.
For fun, I'd go surfing and hiking for free. Hawaii is truly a magical place once you have affordable housing.
A Modest Income And A Simple Life
Back in 2001, my $350,000 could have generated about $17,000 a year in risk-free passive income. If I sold $10,000 worth of mangos a year, I'd have enough. Without dependents or rent to pay, early retirement is easier.
For three months, I daydreamed about living this simple early retirement lifestyle. Then one day I slapped myself silly and told myself to buck up.
Although having a nice tan and washboard abs would be sweet due to surfing every day, I wanted more. I wanted to see what else I could do with my education. In addition, I wanted to one day start a family with my girlfriend.
Throwing away a perfectly good career in finance so young was stupid. So I gutted it out for another 10 years until my investments could generate about $80,000 a year and cover my living expenses in San Francisco.
Given this post is about figuring out how much money is required to retire early and live in poverty, let's look at what the government's definition of poverty is.
The Federal Poverty Level Limits By Household Size
Below is the official 2023 Federal Poverty Level (FPL). The baseline federal poverty level is under the 100% column.
In other words, if you make $13,590 or less as an individual, you are considered the most impoverished. If you make $27,750 as a household of four, you are also considered living in poverty etc.
The more impoverished you are, the more you are eligible for federal government subsidies, such as healthcare subsidies. So long as your household income earns less than 400% of the baseline federal poverty level, you can receive subsidies. After a household income over 400%, you're on your own.
Minimum Amount Of Income To Feel Comfortable
The household income levels between 300% to 400% of FPL seem comfortable as long as the household doesn't live in an expensive coastal city like New York or Los Angeles.
For example, a couple with two kids making between $83,250 and $111,000 should be able to live a decent lifestyle in the heartland of America, where I've been investing in real estate since 2016.
The University of Texas, Austin, announced in 2020 that families earning less than $65,000 would not have to pay tuition. Meanwhile, families making up to $125,000 would also receive some type of tuition subsidy. Not bad!
Related: The Ideal Income Is The Student Loan Forgiveness Income Threshold
However, earning less than $111,000 as a family of four in San Francisco is tight. Rent for a three-bedroom house could easily cost over $4,500 a month in an average neighborhood. If you want to buy such a home, we're talking $1.5 – $1.8 million.
Note, I'm not here to argue which household income levels should receive extra assistance from the government. The government, with all its data and wisdom, is the decider of who is poor enough to receive assistance.
I'm here to highlight how big of a retirement portfolio you need to retire early in order to live in or near poverty, which the government and I define as 200% of FPL or less. Any household income under 200% of FPL seems tight, no matter where you live in America.
How Much Money You Need To Retire To Live In Poverty
Below is a chart I put together that shows how big of an taxable retirement portfolio you need by household size and percentage return if your household income is 100%, 150%, and 200% of the Federal Poverty Level limits.
Again, if your household income is over 200% of FPL, I no longer consider your household living in poverty.
As an individual, in order to retire early and live on a household income equal to 200% of FPL and a 4% rate of return or withdrawal rate, you would need to amass $679,500. In other words, $679,000 in taxable investments at a 4% rate of return is required to generate $27,180 a year in gross income (200% of FPL).
If you are a household of six and want to earn retirement income equal to 100% of FPL, then you would need to amass a $929,750 portfolio at a 4% rate of return or withdrawal rate. 100% FPL for a household of six is $37,190.
If a couple wants to have two children and earn up to 150% of FPL in early retirement, they need to amass between $832,500 and $2,081,250 in their after-tax portfolio based on a 5% to 2% withdrawal rate or return rate. A household of four earning 150% of FPL is $41,625.
Personally, I like to match my withdrawal rate to the risk-free rate of return so I never run out of money. Once you achieve financial independence, you never want to go back to the salt mines.
The Inconsistency Of Accumulating A Lot Of Money To Then Live So Frugally
The chart above shows the objective numbers required to retire early and live in or near poverty, as defined by the federal government. However, it is highly unlikely a household would be willing to accumulate so much capital just so they can stop working to live so poorly.
There are certainly exceptions. For example, one Financial Samurai reader who experienced money trauma did something similar. As an individual, she retired early with about $600,000 right before the bear market and relocated to Taipei from Seattle, where the cost of living is lower.
In general, something really has to be wrong with your job, your life, your physical health, or your mental health to make such an abrupt change in lifestyle. But that's life. Eventually, we all face hardships where we must make difficult choices.
Quitting the money can be very hard to do. And the more you make, the harder it is to quit!
Is It Worth Living In Poverty To Retire Early?
For the first 13 years of my life, I grew up in emerging countries like Zambia and Malaysia where I was surrounded by poverty. Some of my best friends in Kuala Lumpur would share one room and a bathroom with three other family members.
Seeing so much poverty for so many years made me focus on school because I was afraid of becoming poor. Fear, in my opinion, is one of the most important ingredients necessary for achieving financial independence.
When I came to America in 1991, I decided not to take my good fortune for granted. I hit the books, studied hard, got really lucky, and saved and invested as much of my luck as possible.
Unwilling To Live Near Poverty Just To Retire Earlier
Even though money doesn't buy happiness, we must earn enough to cover all our basic living expenses before we can really believe in such an ideology. I personally would not be willing to retire early if I had to live in or near poverty. Instead, I would just find a more relaxing job.
Although my work was extremely stressful for 13 years out of college, it enabled my wife and me to own a comfortable home in San Francisco, take 5-6 weeks of vacation a year, drive a safe vehicle, and raise a family.
For the now four of us to live on only $55,500 a year (200% of FPL) would require sacrifices. First, we may have to leave San Francisco. Second, we may have to start living with my parents in Hawaii to save on rent.
Although plenty of readers have stated they have no problem living at home with their parents as adults, we do. Our parents value their privacy. And after decades of living apart, we're all set in our ways.
Third, we'd have to pull our son from a Mandarin language immersion school. I actually wouldn't mind because there are some great Mandarin immersion public school alternatives.
Then we could also get free money to pay for college. Now that I think of it, make we should go into poverty sophom*ore year of high school for my son!
Ways To Improve Early Retirement Life
One alternative to living a more comfortable early retirement is increasing our withdrawal rate. But this is difficult to do because we've been in the habit of saving and investing for so many years.
The proper safe withdrawal rate in retirement is dynamic. Although it's easier to make more passive income in a rising rate environment, perhaps another recession is on the horizon. Hence, saving more aggressively may be more prudent.
The other alternative, which is what many early retirees do nowadays is freelance or take on side hustles to make up for any earning shortfall. It's always nice to make supplemental retirement income by doing something enjoyable.
Although we've lived entirely off our investments since 2012, I've been accused of not really being a retiree because of Financial Samurai. That's totally understandable, which is why since 2013, I haven't told anybody in real life that I'm retired. In 2022, I introduced the term, “fake retirement” to embrace the criticism.
But isn't it funny that if Financial Samurai was smaller, I'd get more approval from the Internet Retirement Police?
I can't help the size of this site. I just write whatever and let the search engines and word-of-mouth do its thing. The lesson is to never stick out because a hammer will try to bang you down.
Retiring With Poverty Income For A Family Of Four
If we didn't move in with my parents, here's what I think our budget would look like in early retirement. It is based on a household of four living on $55,500 a year, or 200% of FPL. Any passive income less than 200% of FPL would be too little. I'd rather keep working.
Looking at this 200% of the FPL budget actually makes retiring near poverty more doable. Although a two-bedroom apartment is smaller than our current house, we could make it work if our kids share a room.
We wouldn't have money to pay for sports, music, or art lessons after school. Thankfully, my wife and I would teach these activities to our kids. The pandemic gave us 18 months of homeschool experience. Further, I was a tennis coach and my wife knows how to play piano and the violin.
Staycations or road trips are fine for now since our kids are still young. Once our daughter turns five we plan to get on a plane and see the world.
If we were to try to live on $55,500 a year in early retirement, we would try to pay off our primary residence mortgage first. Once the property is paid off, living on near-poverty income is easier. We could spend more on food, entertainment, and travel.
Retiring Early To Live Near Poverty Is Feasible
After going through this exercise, I've concluded retiring early on an income equal to 200% of FPL is possible! Having a taxable investment portfolio worth nearly $1,400,000 to generate $55,500 a year in passive income provides a nice cushion.
But would you really be willing to live super frugally if you had $1,400,000? Again, it depends on how much you hate your job and your life circ*mstances.
My father-in-law retired in a cabin in the woods and is happy. He lives a simple life with no WiFi and clutter. His monthly expenses are just $500 – $700 on average. He's one with nature and isn't bothered by the hoards of people who live in a city like San Francisco.
Ideally, my family of four would need to earn at least 300% of FPL ($83,250) in early retirement to feel comfortable. At a 3% – 4% safe withdrawal rate, we'd need a portfolio of $2,081,250 – $2,774,000.
But man, having over $2 million is a lot of money! At this level, I would think I'd want to live it up more than what a 3% to 4% withdrawal rate lifestyle would enable. As a result, I'd continue to generate supplemental retirement income online by making money online and writing books.
Be Patient With Early Retirement
Instead of rushing to retire as soon as possible, go through the numbers and see if everything makes sense. To give up a well-paying job to live like a pauper is probably not ideal.
One of my early retirement regrets is retiring too soon. I would have been financially better off if I had accumulated several more years of income. It's only after you've permanently left the workforce for a while that you realize how truly long post-work life is.
For those people willing to live in or near poverty to retire early, I say more power to you! Living a simple life without much desire or possessions is the key to enlightenment according to the Buddha.
Just know there's a chance your expenses will increase as you age, especially the earlier you retire. Worst case, you can always just go back to work.
In fact, after buying a true forever home in 4Q2023, we cut our passive income by $150,000. We are no longer financially independent and I will have to get a consulting job to make up for the shortfall. We could live on less, but we choose not to.
The math really doesn't lie, no matter how our emotions make us feel. If you can survive off poverty wages until Social Security kicks in, you're golden! At the end of the day, it's up to each of you to figure out what works best for you and your family.
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Readers, would you be willing to retire early to live in or near poverty? Why or why not? What is the lowest FPL level you'd be willing to accept to retire early? How much money are you trying to accumulate to retire early? Do you think young folks retiring with the amounts in my chart are making a mistake?
Related posts about retirement:
Living Paycheck To Paycheck Off A $5 Million Retirement Portfolio
Preparing For A 50-Year Retirement With Vanguard's New Return Assumptions
Coast FIRE: Another Term For An Employee Who Saves For Retirement
Recommendations For Retirement
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