11 Ways to Retire Before 40 Without $1M

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More than half of adults said they don’t expect to retire until they’re 65 or older, according to a 2017 GOBankingRates survey. But there are people who have managed to leave the 9-to-5 at a much younger age — people like Billy and Akaisha Kaderli, who retired at the age of 38 in 1991. Over the last 27 years, they have traveled the world and lived life on their terms.

The Kaderlis didn’t win the lottery or have $1 million saved — in fact, they retired before 40 with about $500,000.

Read to find out how you can grow your savings and retire early.

Find Your Motivation

If you think you want to stop working full-time, one of the important questions to ask yourself before deciding to retire is: “Why?” Billy and Akaisha found their motivation a couple of years before they made the leap to early retirement.

After working as a chef for a restaurant that he and Akaisha owned in Santa Cruz, Calif., Billy made a career change. He landed a job with financial firm Dean Witter Reynolds and became a branch manager and vice president of investments. He worked weekdays, and Akaisha worked nights, weekends and holidays running their restaurant. As a result, the couple hardly saw each other. “It was not working,” Akaisha said. “Our relationship went through a real crunch.”

As they were trying to deal with the stress in their relationship, Billy was hearing stories from clients about how they had taken monthlong European vacations or other exotic trips. “It was a tease for me, but it let me know there were people out there who could do it,” he said.

That’s when the seed was planted. “Billy had this idea,” Akaisha said. “‘Why not see if we can live off the money we have invested and travel the world?’”

Calculate How Much You Need to Save

Once the Kaderlis got the idea to retire early, Billy started crunching the numbers to see how much money they needed to invest to make it happen. “If you want to know how much money you need to maintain your lifestyle today, you need to figure out how much you’re spending and multiply it by 25,” he said.

They figured they could live on $20,000 a year. Multiplied by 25, that meant they would need to have $500,000 saved. Billy figured that amount would allow them to withdraw 4 percent annually — $20,000 — while the rest remained invested, continuing to grow and provide enough income for several decades.

Cut Spending to Boost Savings

The Kaderlis were 36 years old when they set their savings goal of $500,000. That’s when they began eliminating unnecessary expenses to set aside more money in savings. “We started investing every penny we could,” Billy said.

Akaisha said that it wasn’t that difficult for them to cut their spending because neither one of them was a big consumer. Plus, they had a strong motivation not to spend. “We were being pulled forward by the dream of being able to travel for long periods of time,” she said. “We were thinking, ‘I’d rather be doing that than what I’m doing now.’”

Over two years, they managed to build up $500,000 in savings through investing and the sale of their home and restaurant, and in January 1991, at the age of 38, they quit their jobs.

Create a Money Machine

The Kaderlis have taken advantage of the power of compound interest to grow their retirement nest egg. As they built their savings, they invested their money into index funds that tracked the performance of the S&P 500. “Since we retired in January 1991, the S&P 500 has averaged a 10 percent [return] per year,” Billy said at the time of writing.

So their initial $500,000 investment earned interest, and interest has continued to accrue at about a 10 percent annual rate on both the principal and the interest that has accumulated. “When you’re spending 2 or 3 percent, that leaves 7 or 8 percent that continues to grow,” Billy said. As a result, their net worth is actually higher now than when they retired.

“We created a money machine,” Billy said. “That’s why I was confident this was going to work out.”

Travel on the Cheap

Being able to travel was one of the couple’s key motivations to retire early. But they’ve had to find ways to do it cheaply to keep their annual spending within their budget.

The Kaderlis do own a small manufactured home they bought for $2,000 in an active-living adult community in Mesa, Ariz., in the early 1990s. But they rent it out for most of the year and travel full-time.

Since 1991, they’ve visited more than 30 countries in Europe, Asia and Latin America and have kept costs low by housesitting, staying with family and friends, and renting apartments for several months at a time. Sometimes, they even stay in hotels, but get a deep discount by asking for a monthly rate rather than a nightly or weekly rate, Billy said.

They buy fresh, local food rather than packaged imported items. Because they do not own a car, they often take public transportation, walk or even hire a private driver in countries where the cost is low, rather than rent a car. And they’ve saved thousands of dollars a year by finding restaurants and hotels that cater to locals rather than pricier options near tourist hot spots, Akaisha said.

Billy said Mexico has been one of the best values for the money if you want to retire abroad. They know retirees living well there on less than $1,000 a month.

Keep the Cost of Healthcare Down

Retiring abroad has allowed the Kaderlis to take advantage of low-cost healthcare, which helps them keep their annual spending low. They had a health insurance policy with a deductible of about $10,000 to $12,000, Billy said. But they dropped their policy because they found it was cheaper to pay cash for medical care in the countries where they have traveled and lived.

Most years, they’ve spent about $3,000 to $4,000 on all of their healthcare — including medications, glasses, dental care and even emergency surgeries. The care they have received has been fabulous, Billy said, noting that many of the hospitals they’ve been to overseas even provide translators.

They did enroll in Medicare when they turned 65 and signed up for Part B coverage, which covers doctor visits, services such as lab tests and surgeries and medical supplies. Even though Medicare typically can’t be used outside of the U.S., the Kaderlis avoided a potential penalty by enrolling now rather than waiting to see if they will need it if they ever return to the states. That’s because the monthly premium for Medicare Part B goes up 10 percent for every year you qualify but don’t sign up.

Track Spending Closely in Retirement

To avoid blowing through their savings too quickly, the Kaderlis track all of their spending in a spreadsheet, Billy said. That doesn’t mean they set strict spending limits for themselves, though. They spend happily and still get ahead.

For example, if they spend a lot one day, they’ll eat only the food they already have and won’t spend money on anything the next day, Akaisha said. They know the average amount of spending they can afford on a daily basis so they can keep their annual withdrawal from the investment accounts to about 4 percent a year. You can see the sort of spreadsheet they use and how they track their spending in their book, “Your Retirement Dream IS Possible.”

Invest Social Security Benefits

Billy and Akaisha decided to claim Social Security early at 62, even though it meant a permanent reduction in their benefits. If you start collecting Social Security at 62 rather than at your full retirement age, you will get 75 percent of the monthly benefit, according to the Social Security Administration.

But Billy calculated that they would be better off financially by collecting Social Security as soon as they were eligible and investing their benefit checks. If their investments grow 8 percent annually, they’ll end up with more money than if they had waited until their full retirement age at 66 to collect a larger benefit.

Have a Stash of Cash

When the Kaderlis retired at 38, the entire $500,000 they had saved was invested in the stock market in index funds. “We had very little cash,” Billy said. After they went through several market crashes, though, they started putting cash aside in a money market account.

The reason they did this was to avoid having to sell investments at a loss in a downturn to have the cash they needed for living expenses. Billy recommends that retirees who are nervous about the market have enough cash in a savings or money market account to cover a year’s worth of expenses.

Don’t Let Boredom Wreck Your Early Retirement

Many people likely think that they can’t afford early retirement. Some, though, simply wouldn’t know what to do with their time if they weren’t working. In fact, the Kaderlis are often asked whether they’re bored or feel like they’re wasting their lives.

The answer to both questions is “no.” Akaisha said that she always recommends that people make a list, before retiring, of places they want to see and things they want to learn how to do. “When you feel like you’re getting bored, you look at your list,” she said. The Kaderlis have worked hard to stay busy, avoiding a common retirement planning mistake.

If you travel outside the U.S., you can keep your mind sharp by learning other languages, or at least some common phrases, Billy said. And there is need around the world, so you can always volunteer.

Plus, by retiring early and traveling the world, you can gain experiences and meet lots of interesting people, from diplomats to rock stars, Akaisha said. “We have a gazillion stories to share,” she said. “It’s hard to put a price tag on that.”

Keep Having Adventures

The Kaderlis have recently spent time visiting the Dominican Republic, El Salvador, Mexico, Panama, Thailand and the U.S.

“We would like to continue our traveling lifestyle as long as we can,” Akaisha said.

Click through to read more about the cheapest places to retire.

By Cameron Huddleston for GOBankingRates.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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