How to retire in your 30s: save most of your money and rethink your core values

Seven in 10 Americans are disengaged from their jobs, according to Gallup. That's more than two-thirds of us who are unfulfilled by our work, just dragging our sorry selves to and from the office every day.

One community has an attractive answer: just quit.

A burgeoning online community advocates early retirement. And they're not talking about people quitting in their 50s or early 60s. They mean retiring before age 40 — perhaps even in their 20s.

Over the past few months, I've interviewed seven people who have managed to leave the working world before age 40. That seems like a crazy idea to most people, but these extreme retirees insist it's something everyone should consider. What they all understand — and what they wish other people understood — is that achieving financial freedom isn't just about budgeting or clipping coupons; it's about reconsidering your core values.

The basic framework of early retirement is pretty simple: cut way down on your spending, then invest your savings. High savings rates can lead to surprisingly fast retirements. For example, if you save half your income, you'll be ready to retire in around 17 years.

And the best place to start on cutting costs isn't with coupons or thrift stores; it's with the big purchases. The lion's share of savings in early retirement come from what Jeremy Jacobson calls "the big three": housing, transportation, and food.

"While many of my coworkers were maybe leasing a new BMW SUV, I sold my car and started riding my bike. And when one of my coworkers was spending $50,000 remodeling his kitchen, we moved into a small apartment that was in a very walkable neighborhood," says Jacobson, who along with his wife, Winnie Tseng, blogs about the early retirement life at Go Curry Cracker. Likewise, he says, Tseng learned how to cook well enough that they started eating out far less.

The approach of cutting back on these three areas makes sense when you look at how American households spend their money. The average home in 2013 spent $51,100, according to the Labor Department, and together, shelter, transportation, and food accounted for nearly two-thirds of that. For most households, these are the places with the biggest opportunities for savings.

Once households have cut back on those huge expenses, the other part is making that saved money earn more money.

How do you know when you're ready to retire? Many of the retirees I spoke to rely on the "4 percent rule," a common rule of thumb that retirees can safely withdraw 4 percent of their savings each year without exhausting their principal. Jacobson and Tseng estimated they'd need $1.2 million saved up. The couple that blogs at Frugalwoods estimated they'd need $1.4 million. This gives each of those couples something like $50,000 to $60,000 to spend annually.

Mr. Money Mustache, the best-known early retirement blogger, has done the math and shown that assuming a 5 percent rate of return, if you save half your take-home income, you can retire in 17 years. If you save even 30 percent, it's 28 years — which might sound like a long time, but if you start at age 22, it means retiring at 50, far earlier than most people do. And this is far less than many extreme early retirees' savings rates. Several of the retirees I spoke with have managed to save 70 percent or more, allowing them to retire in less than 10 years.

Yes, those are all far more than your typical American's savings rate — currently at 5.8 percent of total income — but many Americans (particularly those with above-average incomes) could probably save a lot more than they think, as Vox's Tim Lee wrote earlier this year. The average home is 50 percent larger than it was 30 years ago, so many people could save a lot by downsizing. Transportation costs the average household more than $9,000 a year. Live somewhere near the right bus line or, even better, somewhere walkable, and you can slash that easily.

"If you think about it the person who’s cooking your lunch at a cafe or is serving your coffee ... somehow they’re living or getting by," says Justin McCurry, a 34-year-old former civil engineer who retired a year ago and blogs at Root of Good. "If you figure out how those folks are getting by and emulate that, but you're making middle-income or upper-income salaries, living one step down and saving that surplus left each month — I think that's how you have to do it if you’re in a higher-cost-of-living area."

It of course helps to have some investment savvy — some retirees I spoke with advocated picking a good index fund and avoiding big brokerage fees, for example. But really, aggressive saving is far more important than any investment wizardry, says one early retiree.

"Even if we put 100 percent of our savings into bonds, we still could have achieved it," says Paul Novell, 46, who retired from a career as an electrical engineer at 38 and lives with his wife, Nina Fussing, in an RV (currently they are in Bend, Oregon). Because you don't have a lot of years to work before you retire, he says, aiming for huge returns to create that nest egg is misguided — he considers investing far less important than cutting back on expenses.

It's fairly easy to figure out how much you need to save to retire early. The trickier shift is making the lifestyle changes needed to save that kind of money.

It's a much bigger change than just cutting costs here and there. You need to stack a bunch of the savings choices on top of each other — moving to a cheaper neighborhood, cooking all your meals at home, biking to work, buying clothing only rarely, cutting out expensive coffees, not indulging your kids. And when you're done, you'll have a new lifestyle, one that's unorthodox in a consumerist society.

And as people living unconventional lives have done for decades, early retirees seek out kindred spirits online.

"Some of the closest friends we've made are online through the early retirement space because they're the most like-minded," says Mrs. Frugalwoods (the couple requested not to use their real names). "That's a real source of satisfaction and enjoyment for me, and I love being able to reach people and talk to them about the joys frugality can bring you."

Many extreme savers simply love cutting costs, self-sufficiency, and tinkering with a budget. The Frugalwoods couple fits this bill. They do a lot of services for themselves — a concept they call "radical insourcing."

"Earlier this year Mrs. Frugalwoods for the first time allowed me to cut her hair," says Mr. Frugalwoods. "A few YouTube videos and a bottle of wine, and we got it done." (His wife reports she was pleased with the results.)

Their YouTube-fueled self-sufficiency covers not just haircuts but bike repair and pet grooming. Not only that, but the couple rarely buys clothing, dumpster dives occasionally, and spends $0 on entertainment ("Paying for entertainment is like admitting defeat," they have written on their blog). They estimate that they spent around $13,700 last year on non-housing-related expenses. By contrast, the average US household spent more than double that: $34,000.

The majority of people who responded to my request for interviews (I sought out early retirees on Twitter and Reddit) are either current or retired engineers. There is, of course, some logic to this — engineers tend to have higher-than-average salaries — and there could be some self-selection at work in my sample, as well (maybe engineers simply hang out on Reddit a lot). But the retirees themselves believe something else is at work: the need to tweak and fiddle, taking pleasure in the improvements that come from making minor adjustments to their finances.

"I was born as the stereotypical engineer kid, which means I was always interested in optimizing everything. Money was just one of those things," Pete, a.k.a. Mr. Money Mustache, told me earlier this year.

Mr. Frugalwoods, who works as a software engineer, uses his job as an example.

"A lot of what we're doing is all about having a long-term goal and spending our money around the pursuit of that goal and optimizing the crap out of everything else," says Mr. Frugalwoods. "At work I spend a lot of time trying to cut 100 milliseconds off of a webpage load, and that same kind of analytical optimizing mindset plays into this."

Perhaps the most important thing you need for early retirement is an ability to break out of conventional societal programming — the persistent notion that a person has to work for four or five decades and retire at 65 or later to live a productive, fulfilling, "normal" life.

Every single early retiree I spoke with stressed that more people could live like them, but many of us simply never consider the possibility of busting out of our normal ways of life.

"There are probably seven billion different right ways to live. Some people love what they do. Some people would be terrified of an unstructured environment. So there's not a right answer for everybody," says McCurry. "[But] you talk to people sometimes and you know they're not happy with what they're doing with their lives, but at the same time they're not open to the idea of something else."

Jacobson is a prime example of how a person's point of view can shift — in his first few years out of college, he worked hard at paying down student debt but also bought a new car and a house that came with a 40-minute commute. Deciding to try for financial independence meant breaking the keeping-up-with-the-joneses cycle of bigger houses and new cars he fell into by default in his early 20s.

What all of this this means is that early retirement isn't for everyone. While working less and enjoying life more might sound great to most people, it means giving up some things that might genuinely bring you joy — if fancy dinners out on the town and a large house truly bring you more joy than the idea of retiring early, then it makes a lot less sense to retire at 40.

Sometimes the shifts can go beyond even lifestyle changes. Starting a new financial lifestyle can open up an entirely new outlook on your own identity, as Mrs. Frugalwoods knows well.

She's one of the most visible women in the early retirement community — she does the majority of the blogging at Frugalwoods. The process of becoming mindful about her spending, she says, changed how she views her own femininity.

"It's really been a personal journey for me to not worry as much about what people think about me and really gaining confidence and really setting that societal concern and fear about appearance," she says.

She has stopped buying clothing — she says she hasn't bought a new article in 16 months — and no longer wears makeup. What resulted, she says, is a "fantastic transformation," as she has shrugged off the double standards society places on women: now she has a new perspective on what it means to be successful (and, more to the point, how little it has to do with appearance). In the process of being less focused on money, she became less focused on how she looks ... and more aware of who she is.

"Honestly it wasn't so much about being frugal as about being true to myself," she says. "I found ways to just be more confident and happy with what I have and have less of a focus on my appearance, and it has made me into a much more confident person. I'm a better writer [and] employee, and it's made me happier."

Maybe a lot more of us could retire well before 65. But there are certain factors that give certain people a big head start over the rest of us.

One is working in a high-paying industry — and early, says Novell.

"The good-paying job when you're young is critical. If not, the math just never works out," says Novell.

Likewise, having no student debt helps — Novell and Fussing, as well as the Frugalwoods couple, acknowledge that this eased their path to financial independence.

There's another, less obvious factor in many early retirees' success: a lifetime of privilege. The Frugalwoods couple is outspoken on this topic. In one February post, Mrs. Frugalwoods wrote about how having well-educated, middle-class parents set up her and her husband to get educated themselves, take good-paying jobs, and start on the path to early retirement in the first place.

Personal responsibility is a major theme in many financial independence blogs and forums — if people simply take control of their money and their lives, the thinking goes, they can much more easily have an early retirement than they realize. That may be true, she wrote, but she added that "the game is rigged" in their favor and against many others.

The most common term for what these people have done — leaving the working world and pursuing their own interests decades before the rest of us do — is "early retirement," but this phrase is itself the source of heated debate in the community. Plenty of others prefer the term "financial independence," as retirement implies a lifetime of relaxation and nonproductivity. In fact, many early "retirees" end up working again — just not taking traditional jobs they need to do for an income.

"Being freed from having to work to pay the bills, many [early retirees] plan to retire from professional life in the sense of no longer working in that career," as Jacob Lund Fisker writes at Early Retirement Extreme, one of the most popular early retirement blogs.

The goal of early retirement (or financial independence, if that's your phrase of choice) is to be able to have enough money to never have to work again. But that doesn't mean early retirees won't work if they feel like it. The Frugalwoods couple's plan to retire to a farm in Vermont and be as self-sufficient as possible. McCurry, meanwhile, says he might consult on friends' startups, in exchange for equity.

So while it's easy to ask if early retirement wouldn't be just a little boring, Fisker simply lists all the other things you could be doing than sitting in an office.

"[Early retirement] usually means taking up some other activity that is more meaningful to them [than work] but which would be hard to make a living from such as raising children, saving the world, rock climbing, making art, open source programming, writing, etc.," he writes. "It doesn't mean doing nothing."

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