Family of Four Taking Flight to Financial Independence

A Shortcut to $1,000,000

As you may know by now, we plan to early retire (within a year or so) with a potential move to Spain (for at least a school year) and a nice little chunk of money in investments.  

As we have discussed in previous posts, we also plan to make money through part-time work in retirement.  We have a general idea of what we plan to do to make money, but like most things in early retirement those ideas will change and evolve over time.  New opportunities will present themselves as we go through our lives, and we will pick and choose from the ones that interest us the most.

Power of Part-Time Income

That said, I want focus on just how powerful a little part-time work in early retirement (ER) can be.  For the sake of keeping things simple, we will assume a person has $1,000,000 in investments and plans to live on $40,000 per year or 4%.  

For the average middle-class family with kids, saving $1,000,000 is a hefty goal to reach before you turn 60 years (or so).  But the good news is I am going to teach you a shortcut to get to your goal of $1,000,000.  

I learned this shortcut myself from reading the Millennial Revolution blog, and it truly was an AH-HA moment for me.

Let’s dig into this shortcut with a few scenarios ...

Scenario 1: Person A wants to live off of $40,000 per year and uses advice he / she learns in this little blog of ours to cut debt and spending to a level that allows them to invest 50 - 70 % of their income.  In about 8 years they reached their goal of $1,000,000 to FIRE (financial independence retire early) and never have to earn another $1 for the rest of their lives to sustain their desired $40k per year (with inflation adjustments) level of spending.  Congrats!  Go enjoy your early retirement!

Scenario 2: Person B also wants to live off of $40,000 per year in ER but “only” has $500,000 in investments and is ready to retire now.  

They have two options.  They can continue working / investing until they reach $1,000,000 in investments like Person A (listed above), OR they can choose to retire early from full-time work and pick up some part-time work that pays them about $20,000 per year.  What!? Aren’t they still $500,000 short of their goal?  

In ER making something as trivial as $20,000 per year is the equivalent to having an extra $500,000 in investments based on the 4% withdrawal rate (after all $500,000 * .04 = $20,000).  While Person B only has $500,000 in investments, being open to some part-time work making just $20,000 per year gives them the same spending power as Person A who has $1,000,000 in investments.  

Do I have your attention yet?

Scenario 3: Let's say we have a couple (Person C and D) who also plan to live off of $40,000 per year in ER, and they are ready to retire YESTERDAY!  However, they only have $250,000 in investments, and we know that only equates to $10,000 per year.  Like Person B they could continue to work full-time until they are able to save up another $750,000 (maybe 5 - 7 more years), OR they could make up that $750,000 by simply working part-time making $15k per person ($750,000 * .04 = $30,000 and $15,000 * 2 people = $30,000)!  Pretty neat, right?

Once you embrace a little part-time work (ideally doing something you actually enjoy!) it can really speed up the process of meeting your FI (financial independence) goals.  I think it’s a fairly safe bet that most of us can figure out a way to make $10k - $20k fairly easily, and if you are a couple ...?  Maybe even easier.

What do you think about the power of investments and part-time work?  Would you consider part-time work in early retirement?  What type of part-time work would you do?


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