Why Wait for 65 When You Can Retire at 38?

Whether your idea of retirement includes hours spent relaxing and enjoying time with family and friends, daily rounds of golf or time spent sunning at the beach, if you’re like most Americans, that vision features a version of you at age 65 or older. But some retirees refuse to wait until they’re “senior.”

“In my mind retiring early was at age 55, but my husband came home with the idea that we could do it sooner … at some point the tide turned and we sold everything and quit our jobs, moved to the Caribbean and started traveling the world,” said Akaisha Kaderli, co-author of The Adventurer's Guide to Early Retirement and co-founder of the Web site RetireEarlyLifestyle.com.

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She and her husband Billy were in their late thirties when they decided to quit their jobs and begin a life of travel and volunteer work. They are currently living in Thailand, but since retiring in 1991, they have traveled all over the world. As a former Morgan Dean Witter branch manager who managed $170 million at one point, Billy Kaderli manages the couple’s finances. He says they’re in good shape financially.

“We’re 100% invested in equities,” he said. “We use no-load mutual funds and we sell off shares as we need them.”

The Kaderlis also spend a significant amount of time abroad, where they said the cost of living is much cheaper and they save money on housing, transportation, food and health care. John Howells, author of several retirement books including Retirement on a Budget, said Americans willing to retire in some places outside of the United States can get more out of a smaller nest egg.

“I would say that the average person in Mexico or Costa Rica should have a minimum of $1,500 per month (a little more than the average monthly Social Security check in 2008) in income to live very comfortably,” Howells said. “[And] $3,000 a month would give you a highly satisfactory lifestyle and you could have a full-time maid and a gardener.”

But retiring early is not for everyone—even if you’re willing to go abroad, said Michael Kresh, president of MD Kresh Financial Services and author of You Can Afford to Retire. Kresh said the average person cannot afford to retire before his/her forties.

“The only people who can retire that young are the people who have hit it big really young,” Kresh said. “You’re looking at somebody who’s effectively hit the business jackpot or lottery.”

It’s also difficult to retire young if you have children. Kresh argues that children can set your retirement savings plan back as much as 10 years, partly because of the increase in higher education costs.

Another problem with early retirement is the gap in health care coverage: Young retirees have to pay for their own health care until they qualify for Medicare at 65. Howells said that health care in Costa Rica is available for as little as $50 a month—which is one of the primary reasons the country is attractive to people who retire early or are forced into it. But regardless of where you live, Kresh said early retirees still have to be able to live on 4% of their invested assets.

“If you’re drawing more than 4% annually your investment won’t last the potential 40 years that it needs to last,” Kresh said. “If you are a 40-year-old and you have $1 million in investments, how hard would it be to scale back your lifestyle so that you’re only living on $40,000 a year? That's what it would take.”

The Kaderlis admit that saving a lot of money early in life is crucial to reaching early retirement goals. They also said it’s important to invest wisely and track your spending.

“You’ve got to stop keeping up with the Joneses,” Billy Kaderli said. “There’s nothing wrong with having money in the bank and having a high net worth. You don’t need a new car every two years—there’s definitely a lot of consumer pressure in the United States to keep up with [what everyone else is doing].”

The Kaderlis said that although everyone’s financial situation is different, it’s usually fear that’s the biggest obstacle, not finances.

“It’s not 100% about your finances. Yes, you have to be financially sound to retire early but fear also plays a big part in it,” Billy Kaderli said. “You have to have confidence in your ability to manage your own money and you have to be confident that you can live for the next 30 or 40 years on your own.”