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Early Retirement: Would You Walk Away From $5 Million?

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It’s fun to fantasize about true financial independence and early retirement. Who doesn’t like to daydream about having enough money tucked away to walk away from a traditional 9-5 job before the expected retirement date?

Yet, so few people do it. If you read personal finance blogs, you might get the impression there’s a large population of young retirees with a high net worth. You would be wrong.

Most people don’t retire early. Often because their finances simply don’t allow them to do so.

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A significant portion of the population chooses not to retire early because of the allure of money. Something also referred to as the "One More Year Syndrome." They simply can't walk away from all the money they could make if they continued to work past financial independence.

This section of the population includes high earners with jobs that generate significant income to support their lifestyle.

It's easy to scorn those individuals for their addiction to making money. Unless, of course, you're faced with a similar dilemma.

The Wonders Of Progress

Usually, the longer you work in your career, pursue side hustles, or run your business, the more successful you become. Of course, this notion assumes that you're focused on continuous improvement and have the drive to get ahead.

Generally, success and progress will manifest as increased income over time.

It's not uncommon for someone with a professional degree, such as an engineer, lawyer, doctor, etc., to go from a starting salary of around $60,000 to a healthy six-figure sum.

Here's a hypothetical view of what that might look like over a 40-year career with a 5% increase in salary on average per year.

increase in salary

Graph Source: Ash and Pri.

Keep in mind that the average raise of a typical worker is around 2-3% per year (if they get one at all). A high earner should be able to double the average increase at least.

Not unreasonable to expect from a motivated individual.

We’re not saying this is a typical trajectory. This would be more common for those chasing senior-level roles within organizations or those focused on growing their business.

The Curse Of Progress

Many people fail to properly appreciate the time it takes to build up to such an income level.

It often takes decades of hard work, sacrifice, and perseverance to build up to this level, often at a high cost. Because of the cumulative nature of this build-up, these high earners make the bulk of their money in the latter periods of their careers.

Here's what the cumulative income would look like for this hypothetical high-earner in the first 20 years of their career vs. the last 20 years of their 40-year career.

cumulative income

Graph Source: Ash and Pri.

Such a high earner would only make about 27% of their total income in the first half of their career. The second half accounts for 73% of their lifetime earnings of over $7 Million.

Their last decade alone accounts for over 45% of their total earning potential.

This is the curse of progress. The more time you put in, the bigger the carrot at the end of the stick.

The stress levels associated with such a career path would probably match the proportions shown in the chart above. The second half of your career can be brutal on your health and general happiness.

Meet The FIRE Bug

Let's assume you're this hypothetical high-earner. You start your career at 20 and intend on stopping at the age of 60.

You've also been relatively savvy with your expenses and know to keep lifestyle inflation at bay. You kept your expenses fixed at an average of $50,000 throughout your career. A noble achievement!

One day, during a particularly tough day at work, you stumble upon one of those FIRE (Financial Independence, Retire Early) blogs. You have a sudden financial awakening and decide you will quit the rat race early. Financial independence is your new rallying cry!

Since you want to have as many high-quality freedom years as possible, you decide your target FIRE age is 40.

Over the first 20 years you worked, you accumulated enough money to cover your expenses. You're officially financially independent and ready to join the ranks of the elite FIRE community.

Before you run off to Bali or Bora Bora, let us crunch some numbers for fun.

Walking Away Is Tough

Using the information above, we can see that if your expenses remain constant at $50K per year, you can stash away approximately $1 Million net of expenses in the first 20 years of your career. For the sake of this exercise, we'll ignore taxes and returns from stock trading and other investments like mutual funds, crypto, etc. The number's accuracy isn't the point; it's the relative scale.

The $1 Million in savings will help cover expenses for the next 20 years, as we previously assumed that you can maintain your expenses at $50,000. So yes, it may be enough if you want to chase financial freedom at the age of 40.

However, if you work for another 20 years, the potential money in over the next 20 years is $5 Million. Walking away at the age of 40 nets you a cool $1 Million, but you are leaving $5 Million on the table.

Take a look at the chart below. At the beginning of your career, your $50K in expenses make up almost 80% of your income. As your income grows, expenses become a smaller portion over the years.

Therefore, you can save a lot more as your income grows. Even if your expenses grew by 20% to 30%, the chart illustrates that your savings grow larger as you work longer.

savings vs expenses

Graph Source: Ash and Pri.

While $1 Million may be plenty of money to claim financial independence for the rest of your working career, how do you justify walking away from over $5 Million?

The Psychology Of Walking Away

There are two primary components of accumulating wealth, money in and money out.

It's easy to get control over money out. It takes self-discipline and some sacrifice. Money in, on the other hand, is a bit trickier.

You need more of it to gain financial independence, so a lot of time and effort is spent making it. This includes getting the proper education, promotions, and investment of time and networks. It's an environment that takes years to create.

When you decide to FIRE, you're effectively stepping on the brakes and walking away from your creation. In the example above, you're also walking away from over $5 Million that's seemingly guaranteed (barring health issues or career difficulties).

Who would choose to walk away from a $5 Million lottery ticket, even if it meant waiting 20 years to be able to claim it?

Think of the buffer financially, the comfort of knowing all that extra money will be there to help you survive any money-related disasters.

If you think it's easy, you likely haven't been faced with this dilemma, or you've altered your mindset successfully.

Embracing Enough

From a purely financial perspective, taking the FIRE path is not for the weak-hearted.

Making money is an addiction. It can become the most crucial goal in your life if you let it.

Making time is impossible. It's the most valuable commodity you have. The only way to walk away from the accumulation of unnecessary but readily available money is to prioritize your time.

You also have to come to peace with walking away from a pile of cash sitting in front of you and within easy grasp. That's the biggest threat to someone pursuing FIRE; it's the psychology of money.

This is especially difficult for opportunistic people, myself included. It's mental reprogramming that has to occur to embrace the concept of enough.

Ultimately, you won't know if you have the courage to walk away from all that money until the time comes. You then get to find out if what you have is truly enough.