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How To Retire At 40 On $40,000 A Year

How To Retire At 40 On $40,000 A Year
Norm Tedford Nov 16, 2019
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Half of all people in this country won’t have enough money to live comfortably in their retirement.

Don’t let this happen to you!

This article will tell you how to avoid that less-than-ideal scenario by showing you how to retire when you’re 40—and do it, making $40,000 a year or less.

Retiring at the age of 40 should be the post-millennials’ space shot—an incredibly motivating goal to achieve financial independence at a young age.

To you, retiring at 40 might seem like some crazy pipe dream.

But I assure you, it’s completely doable.

If you’re reading this blog, you’re probably a frugality practitioner par excellence, so you’re probably up for the challenge.

To retire at 40, you’ll have to save much more than what’s considered average, obliterate problematic debt, and be a consummate frugal warrior in every way imaginable.

This means you’ll be living WAY below your means, so you have plenty of money to invest and find ways to have a deeply satisfying and meaningful life without spending a lot of money.

So, unless you’ve been incredibly lucky by inheriting millions, you’ll have to put in a lot of hard work to attain this dream.

This means you’ll have to hone your frugality to a razor-sharp point.

In exchange for this extreme self-sacrifice, you’ll gain the exquisite freedom to do whatever you want—when you want.

There’s no feeling quite as exhilarating as that!

The Plan in a Nutshell

To live the lifestyle you’re accustomed to, you’re going to have to replace 80% of your pre-retirement income.

This is so you can still have the comfortable lifestyle you’re used to.

When you retire, you won’t need as much money to live on, because you won’t be commuting to and from work.

And, you’ll have fewer expenses in other areas as well.

This is conventional wisdom for people who are retiring in their 60s.

However, if you’ve been practicing a frugal lifestyle, you’ll probably need much less than this, so you’ll be able to retire sooner.

To achieve this goal, you’ll have to save at least 55% of your after-tax income from the age of 22, when you graduate from college.

Then, live off what you saved until you’re 59 ½ when you can dip into your tax-deferred retirement accounts without incurring a penalty.

And when you’re 65, use your Social Security benefits to supplement your other savings.

The combination of these strategies will give you enough to live on—even if you live to a ripe old age.

Living Well On $15,000 A Year

The best way to get to your retirement goal is to spend as little as possible.

In fact, I’m suggesting you live on $15,000 a year.

Think about how much you can save if you do this!

Now before you start expressing your skepticism about being able to pull this off, give it some thought.

If you’re creative about trimming expenses and ruthless about cutting out things you don’t really need, it’s feasible.

By only living on this amount of income, you might even be able to retire in your thirties.

Wouldn’t that be great?

Sometimes, an inspiring goal means you need to take extreme measures.

If you’re willing to dedicate yourself to this pursuit with every fiber of your being, you most assuredly will reach your goal of being a retiree just barely out of your thirties.

 Housing

Part of being able to pull off an ultra-frugal budget is cheaply housing yourself.

Housing shouldn’t be more than one-third of your take-home pay.

And preferably, much less than that.

Here are some cheap ways to live that you might not have considered:

  • RENT OUT ROOMS: If you have an extra bedroom or two, consider renting it out.
  • RENT A ROOM: If you’re single, a cheap solution to your housing problem is to rent a room.
  • BUY A CONDO: Even with paying HOA dues, purchasing a condo cost less than half what houses costs.
  • LIVE ON A SAILBOAT: If you want a novel solution to your housing problem that’s also frugal, it’s not unheard of to find used sailboats for less than $5,000.
  • CONVERT A BUS: You can even live very cheaply in a converted school bus if you do it right.
  • LIVE ON AN RV: If you can buy a secondhand R.V. for a reasonable price and find free places to park, an R.V. can be the economical housing solution you’ve been looking for.
  • TINY HOUSE LIVING: If you use reclaimed materials, it’s possible to build a tiny house for less than $500.

Frugal Fun

Sometimes, people don’t want to commit to an ultra-frugal lifestyle because they think they won’t have any fun.

This stems from the belief that to enjoy yourself, you’re going to need to spend money.

This couldn’t be further from the truth.

There are a dizzying array of things to do that don’t cost a cent.

These are things like going to museums that don’t charge admission, borrowing books and movies from the library, and attending free outdoor concerts.

Here are some other ones:

  • Join an adult sports league
  • Play board games
  • Take a free online course
  • Make a time capsule
  • Pack a picnic lunch
  • Learn a new skill by watching a YouTube tutorial
  • Watch a sunset or sunrise
  • Go for a bike ride
  • Have a roaring bonfire
  • Prepare a romantic dinner
  • Be a tourist in your own town
  • Pick free blueberries on a mountainside
  • Invite your neighbors over
  • Go to the beach
  • Host a classic movie marathon
  • Have a meteor-watching party
  • Go on a nature walk
  • Start a rock collection
  • Learn a magic trick

Shop at Thrift Stores

When you do your shopping at a thrift store, you’re not only making it more feasible to stick to your ultra-frugal budget.

You’re striking a blow against the rampant consumerism that’s devouring our society.

So, not only are you saving yourself money, you’re committing a subversive act that benefits everybody.

If you really want to spend as little as possible, try not to buy new stuff, and shop at thrift shops instead.

While thrift store prices are already excellent, you can get even better deals if you know a few tricks of the trade.

One of these tricks is knowing what discounts your local thrift shop offers.

For example, if you’re a student, you might be able to get a certain percentage off your purchases.

There might also be discount days when you get more off your purchases than on other days.

In addition to these discount days, they might have everyday sales, like a certain percentage off a different department every day, or colored tags indicating discounts.

A good time to shop is in January because thrift stores get inundated with merchandise in December as people rush to donate items so they can take the charitable deduction on their taxes.

Grocery Shopping

The first thing you want to do to be an ultra-frugal grocery shopper is to plan out your meals meticulously.

Find recipes that both save you money and that you’ll love preparing and eating.

Once your meals are all written out and you have a grocery list in hand, it’s time to go shopping.

Going grocery shopping with cash only is a terrific way to make an ultra-frugal budget work.

When you’re out of money, your shopping fun is done.

Avoid pre-packaged items because you pay a premium for them.

These include salad kits, pre-sliced produce, and meals in a bag.

Those 100-calorie snack packs sure are convenient, but they’ll blow a mile-wide hole in your ultra-frugal budget.

Instead of buying them, at the beginning of the week, divide up your snacks or cut up your fruits and veggies and put them in bags yourself.

Another thing to remember is that shipping costs jack up the price of your fruits and veggies.

So, eat what’s in season, because the veggies don’t have to be shipped in from thousands of miles away.

Plus, they’re more jam-packed with vitamins and minerals because there’s less time from field to table.

Learn Money-Making Skills

To save wads of cash, learn how to do things you usually pay others to do.

These are things like oil changes, making your own jam or jelly, and cutting your kids’ hair.

But you have to be careful because taking on a project you’re not capable of doing can be super expensive in the long run.

If you bungle the job, a simple fix can turn into a pricey repair.

Setting aside some time to acquire a few DIY skills can save you lots of money over a year.

Saving money by cultivating new skills gives you an extraordinary feeling of empowerment and self-sufficiency.

It will be hard in the beginning to acquire new skills.

And for some skills, there’s a steep learning curve.

But it’s worth it, not only because it saves you money, but it also supercharges your self-confidence.

Car Maintenance

The average American spends $817 per year on car maintenance.

Some repairs require the skills of an experienced mechanic.

Others are relatively easy, and you can do them yourself.

Changing your own oil is a great first step.

Check out a YouTube tutorial, or get a copy of Auto Repair for Dummies.

It used to be you had to change your oil every 3,000 miles.

However, most cars these days only require an oil change once every 5,000 miles.

Some automobiles don’t need one until 10,000 miles have elapsed on the odometer.

To see what the manufacturer recommends, check your owner’s manual.

Pet Grooming

Many pets get stressed out, going to the groomers.

Grooming at home is a much more pleasant experience for them.

By cutting your pets’ hair at home, you’ll make your pet happy and save hundreds of dollars a year.

The most significant investment you’ll make is for a quality pair of clippers, which will cost $100 or more.

Don’t buy a pair meant for human hair, because they don’t have the speed or power to cut through animal hair, which can cause injury to your pet.

Sewing

Maybe you never had a desire to learn how to sew.

But think about how much money you could save if you repaired that pair of jeans of yours that have a rip in them.

Or, if you made your child’s Halloween costume instead of buying one.

Learning how to sew is pretty easy.

And cheap too, because JoAnn Fabrics has classes that will teach you this invaluable skill for only $35 a class.

Canning

One reason to can your own fruits and veggies is that home-canned food cost much less than the canned food you buy from the store.

It tastes much better too.

When you do your own canning, you know what goes into your food, so you won’t have any chemicals added to retain color or texture.

Also, by avoiding metal cans, you avoid ingesting BPA because you’re using glass jars instead of metal ones.

Sometimes, BPA is added to can liners to prevent a metallic taste in your food.

Some scientists worry that BPA could be an endocrine disruptor, causing sexual dysfunction in men.

Others say the risk is minimal because we excrete BPA when we urinate.

But it’s probably best if we avoid this chemical altogether.

Another excellent reason to learn how to can is you can build your own emergency food supply and thus be prepared should a natural disaster strike.

Home-canned food is also a unique and frugal holiday gift that reflects thoughtfulness.

But if you’re going to learn how to can start with water bath canning.

This the process used to preserve high-acid foods such as jams and pickles and is relatively easy because it only requires a few tools.

Then you can graduate to canning low-acid foods, which is much more challenging to do.

That’s because low-acid foods such as vegetables and soups require intense heat to kill the bacteria and spores that cause botulism.

To generate this heat, you’ll need a high-quality pressure canner.

You can often get used canning jars in thrift shops.

Just make sure they’re in good condition and free from cracks or chips.

People grow their own vegetables because they get to enjoy organic produce for much cheaper than they can get it in the store.

Gardening

If you want to raise your own veggies, it will require buying seeds, rakes, hoes, and various other supplies.

This can quickly add up.

If you’re not careful, the cost of seeds and supplies can eat up any savings you gain from growing your own veggies.

But if you’re careful to be frugal, your efforts will soon give you an edible return on your investment in the form of delicious, succulent produce.

This is immensely satisfying.

More than a third of all U.S. households grow their own food.

Most of them do it because they know how much money they save by engaging in this practice.

People grow their own vegetables because they get to enjoy organic produce for much cheaper than they can get it in the store.

A well-maintained garden yields 1/2 pound of produce per square foot per year.

So, if you have a 600 square-foot garden, you’ll save about $600.

This is from a probable investment of around $70.

To make it even cheaper, find a seed library or a seed exchange in your area.

To acquire gardening know-how, check out your local library, where you can always find a great selection of books on the subject.

Scour garage sales, thrift shops, and Craigslist for such gardening implements as shovels, rakes, and hoes.

You’ll need all these things to till the soil.

Your garden will produce more if you have fertile, nourishing soil, which can be expensive.

Instead of buying soil, make your own at home.

You can do this by vermicomposting (having a collection of earthworms in your kitchen which turn your table scraps into fertilizer), composting, or seeing if you can free mulch from your local municipality.

If your locality has a U.S. Department of Agriculture extension office, you can use their resources to hone your gardening skills.

Through the USDA, you can find master gardeners who love helping novices acquire a green thumb.

They also have regularly scheduled plant sales where you can get inexpensive fruits and vegetables for your garden.

If you don’t have much room to grow veggies, you can always find a community garden to grow them in.

You can also give container gardening a try.

If you’re raising vegetables in the city and don’t have much space, you can do container gardening in the form of a “grow bag,” which is a big fabric planter you can hang up outside.

They don’t cost a lot, won’t take up much space, and make harvesting a breeze.

Grow bags are made with breathable fabric, which makes for superior aeration and drainage.

If roots reach the wall of a regular container and there’s no aeration, more roots will grow.

Soon, the plant becomes root-bound and perishes.

This won’t happen in a grow bag, because if it meets the “walls” of the bag, it will just be burned off.

Cooking

Because dining out is exorbitant compared to eating at home, you’ll save boatloads of cash if you do your own cooking.

The food you eat in restaurants is lower in micronutrients and higher in calories and sugar.

So essentially, you’re shelling out a lot for food that’s of inferior quality.

If you prepare meals at home, you can eat delicious and nutritious food for under $4.00.

To increase the likelihood you’ll cook, make your kitchen a warm and inviting place.

Put up some artwork, give the room a fresh coat of paint, get rid of expired food and appliances and kitchenware you don’t use anymore.

Set some achievable goals, like cooking one meal a week for the next month.

To inspire your culinary pursuits, go to your local library to check out some cookbooks.

This will allow you to take them out for a “test drive” to see which ones you want to be your constant kitchen companions.

One way to make frugal cooking easy is don’t throw out any food scraps, no matter how small.

As long as it’s edible, scavenge up a hodgepodge of whatever’s in your fridge, throw it into a boiling pot of water, make a cheap and delicious soup or stew.

Another way to eat for cheap is to buy ingredients for a favorite recipe when they’re on sale, and then make a huge batch of that dish.

You’ll be able to feast on this for three or four days.

Lastly, when you’re butt’s dragging, and you don’t feel like cooking, have a “Plan B” by freezing meals you make ahead of time.

Diversify Your Retirement Accounts

To attain your goal of retiring by the age of 40, you’ll have to make sure that your investments are working hard to get you the returns that will make this possible.

So, make sure they’re diversified.

Diversification doesn’t guarantee a profit or ensure you won’t lose money.

But it does mitigate risk and reduces volatility by spreading your portfolio among several asset classes.

So, make sure diversify your retirement accounts by spreading your money into 401(k)s or 403(b)s, IRAs, and taxable investments.

Diversifying your assets balances risks and rewards in your investment portfolio and reduces the volatility of your portfolio over time.

And, it reduces your exposure to any one type of asset, which could wipe you out financially.

 Invest at The Right Pace

If you invest too conservatively when you’re younger, you run the risk that the growth of your investments won’t keep pace with inflation.

And if you invest too aggressively when you’re older, you could lose money meant for your retirement that you can’t recoup.

So talk to your financial advisor about a pace that will get you to your retirement goals in the optimal amount of time.

 Debt-To-Income Ratio

Your debt-to-income ratio has to be super low to retire young.

To figure out your debt-to-income ratio, divide your monthly debt payments divided by your monthly gross income.

Gross monthly income is what you made before taxes are taken out.

Your debt-to-income ratio shows you how much income you’re spending on debt each month.

It can be helpful to calculate this to see if you’re overborrowing relative to how much you make.

Having a low debt-to-income ratio means you don’t have much debt.

This leaves you more money to invest.

Calculating this is relatively simple.

Total up all of your monthly debt, including credit cards and loans.

Divide this number by your monthly income and multiply it by 100 to get a percentage.

If you want to retire at the age of 40, your debt-to-income ratio should be 20% or less.

To lower your debt-to-income ratio, get rid of high-interest consumer debt.

The only exception to this rule is monthly debt obligations for real assets like a primary residence or rental properties.

How Much You’ll Need to Save

To calculate out how much you’ll need to save, multiply your desired yearly retirement income by 25.

This assumes you can safely withdraw 4% of your savings without depleting them.

This 4% is more of a guideline than a rule.

Some don’t think this 4% figure is realistic or sustainable.

The less you withdraw, the higher the probability your nest egg will last.

Try to save half your income or more.

Health Coverage

Medicare eligibility doesn’t kick in until 65, so you’ll have to find alternative ways to get health coverage if you’re going to retire young.

If you retire early, you’ll likely lose your group health plan coverage offered by your employer.

Health insurance after retirement used to be all the rage at large companies, but now, fewer than one in five companies offer it.

One in ten employers offer a phased-retirement plan, which allows you to gradually cut back your hours while still enjoying your employee benefits.

If your employer doesn’t offer a program like this, suggest that they start.

You can also switch to your spouse’s insurance plan.

If none of these are options, you can get insurance through the Affordable Care Act (ACA).

Go to healthcare.gov to find your state’s insurance exchange, or the federal exchange if your state doesn’t offer an insurance marketplace.

Most people have to wait until open enrollment in November to get a policy, but early retirement is considered a qualifying life event, which lets you get coverage before then.

Final Thoughts

There are a bunch of strategies in this article to help you achieve your dream of being a retiree at the age of 40.

You don’t have to use all of them.

Pick the ones you think will supercharge your retirement dreams.

Then, commit to using them.

If you dedicate yourself to this goal, you’ll wake up one day, happily jobless, and no longer a corporate slave.

And you did it all while still young!

Norm Tedford

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