Early Retirement: The Secret to Making It Work For You

The very fact that early retirement has become a "thing" speaks volumes: the way that most of us go about making ends meet doesn't satisfy us very much. If it did, we wouldn't be itching to "retire" so soon.

On the other hand, the thought of decade upon decade of doing nothing meaningful at all -- just sitting on the couch or playing golf all day -- sounds equally awful.

How do we find the happy middle ground that makes early retirement even worth it?

To answer that question, we go to the good people at Gallup, who -- every year since 2005 -- have crossed the globe to ask people how happy they are. Last year, they conducted  149,000 interviews in 142 countries.

If you're unfamiliar with such studies, the results may surprise you. The world's richest countries -- the United States, Switzerland, Singapore, and Denmark -- are nowhere to be seen near the top of the list. In fact, in many ways, the riches these countries enjoy can actually be an impediment to happiness.

Instead, Latin America perennially dominates. Eight of the top 10 countries with "positive experiences" were in Central or South America: Paraguay, Costa Rica, Panama, Ecuador, Guatemala, Mexico, Chile, and Colombia. More than 80% of  respondents in these countries said they were well-rested, treated with respect, laughed, felt enjoyment, and learned something interesting over the past 24 hours.

But who "wins" is actually of little importance. Instead, it is why they are so happy that's important, because you can apply those lessons to your own life.

Focus on how you live, not what you see

As far as happiness goes, there are two ways to measure your life: how you see it, and how you live it. The former induces many of us to measure our lives against some societal standard. The latter is much more akin to asking how and what we're feeling right now.

Gallup focuses on living instead of seeing, which I believe is a much better indicator of how people are doing; you could fill a library with evidence of how poorly our memory recalls -- or forecasts -- our emotional states.

To help explain how so many countries that are relatively poor could rank so high on happiness, the researchers produced this gem of a paragraph [italics added for emphasis]:

This backs up something that former Fool columnist Morgan Housel noted more than three years ago: Having control over your time is the only sensible goal. Why did he say that? Because droves of research -- and hopefully your own personal experience -- have shown that our happiness can be boiled down to three simple characteristics:

  1. Autonomy
  2. Meaning/Purpose
  3. Relationships

Everything else is just fluff.

Use money to set you free

Now would be a good time to interject add a better definition of "early retirement." It doesn't mean withdrawing from the world and sitting on the couch, nor playing golf all day. In fact, a better phrase might be "achieving financial independence" -- reaching a point where your passive income can cover your basic needs, and you are financially beholden to no one.

Using this definition, we arrive at a very different vision for "early retirement." It represents the state that someone is in when they can choose what to work on, and when to work on it. Often times, this means concentrating our energies on our social networks and meaningful projects. These projects could look like part-time work, volunteering, or the equivalent of a full-time job -- it all depends on the individual.

Some people are able to accomplish this in their lives already -- they love the work their jobs provide, and they have a good work-life balance.

But the fact of the matter is this: The average American employee between the ages of 25 and 54 spends almost 43 hours per week  at work. Throw in an extra four hours spent commuting,   the fact that our mobility prevents us from keeping the same group of in-person friends for a very long time, and it can be hard to nurture real relationships -- with your partner, your kids, and your community.

And this ignores the other elephant in the room: 52% of Americans say they are not engaged with their work, and another 18% are trying to actively undermine their employers. That means just 30% of us find any real meaning in our jobs.

Early retirement via financial independence is one of the surest ways to remedy that situation. Of course, it isn't a quick fix; but a few practical steps, repeated over years, can lead to a lot more freedom -- and experienced happiness -- for those willing and able to do the hard work. They really boil down to these three things:

  1. Find your level of "Enough." This can drastically reduce your spending.
  2. Invest the difference between what you earn and what you spend in low-cost index funds.
  3. Rinse and repeat.

The time to nurture strong social networks and the freedom that comes with it is the silver bullet of human happiness. By lowering your expenses and raising your savings rate, you could end up gaining just that, sooner than you think possible.

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Brian Stoffel owns shares of Tesla. The Motley Fool owns shares of and recommends PayPal Holdings and Tesla. The Motley Fool has a disclosure policy.