Early Retirement Extreme

This subject has been researched in great detail. There's lots of great information all over the Internet. I recommend these two blogs if you want to learn more:

http://earlyretirementextreme.com/

http://www.mrmoneymustache.com/

The TL;DR is this: you need to be able to live off about 3.5% of your portfolio for one year. That will allow you to avoid depleting your principal over a very long term, and also give yourself an inflation-adjusted raise every year so you maintain your spending power. Often people quote a “4%” rule, but I think it’s meant for people that retire at a more “normal” time in their lives. The extra 0.5% actually makes a big difference in the probability that your portfolio can fail.

So, if you have a million dollars, you need to live off $35K a year.

If you’re willing to really change your lifestyle, you can retire off $500K, which would give you $17K a year. It doesn’t sound like much in Silicon Valley, but that will put you in the top tier of income in a place like the Philippines.

I don’t want to post my own net worth because it might come across as chest-beating. I’ve been living in a few places that are a lot cheaper than the United States, so my expenses are low. Over the last three years I’ve been averaging living off slightly less than 2% of my net worth annually. So, I’m REALLY safe by the “3.5% rule”. My net worth is higher than when I retired.

I’m enjoying my life. Every day is a clean slate. There is nowhere that I have to…

This leads to an interesting digression...

My hacker's mind sees society the same way it sees ie software layers, kernels, APIs, libraries, etc. And from that POV, current society practices seem very inefficient and disorganized, and could be improved readily with a dollop of hacker values (eg lazy but smart) and cold hard logic.

One example: I am becoming more and more in favor of a minimum guaranteed income provided by society. Here are some good arguments in favor of that: http://www.xamuel.com/ten-reasons-for-guaranteed-minimum-income/

Of course a MGI is heresy in today's society because we are still in a mindset where it's crucial that everyone pull their own weight lest other people suffer - a lingering meme from the days when 90% of the population was occupied with food production.

This of course ignores the notions that 1) society is insanely productive thanks to automation and it requires very little labor to pay for the true necessities of life (see for instance http://www.earlyretirementextreme.com - he lives on $7k a year) 2) many jobs today are marginally useful at best - think paper-shuffling mid-management 3) most of our income goes toward consumerist escapism which fails at making us truly fulfilled 4) much of the economy just exists to satisfy society's need for a status stratification mechanism (eg one is considered middle-class because one has such-and-such job title and education - if this classification went away then there would be general status…

It may be tough for people to give advice, because I think your options are going to vary a lot, depending on where you live.

The first thing I'd recommend, though, is that you keep track of all your expenses, if you aren't doing this already. This gives you the starting point for deciding how much money you really need to make in order to live the way that you want. Please keep in mind that expenses can increase as you age: for example, health insurance premiums can skyrocket depending on where you live, and things like hearing aids, expensive dental work, and so on, may not be covered by insurance. You may not want to worry about this stuff now, or maybe you'll get lucky. Anyway, if you track your expenses now, at least you'll have a handle on what you need for the immediate future, barring unforeseen emergencies.

A few years back, my goal was very similar to yours. I started tracking every single expense to figure out how much money I actually needed to survive per year. As someone else mentioned, you can amass a pile of money and live off the income stream from that, provided you trust the "4% rule" or one of its variants. Take a look at these blogs:

http://www.retireearlyhomepage.com/ - guy who worked till about 40 and retired, living off income from his savings

http://www.mrmoneymustache.com/blog/ - guy who worked and made a chunk of money, continues to work on his own fun projects that make an income stream

http://earlyretirementextreme.com/ - guy who lived a…

First thing I want to say is that it's very easy for technical people to frame this as a technical issue rather than an emotional issue. The evidence is overwhelming that wealth building is an emotional issue. So if you're not paying attention to that side of the equation, all this tax stuff really doesn't matter. I'll get back to this later and explain the four account types now.

Employer:
Traditional 401k (pre tax), Roth 401k (after tax)

Personal:
Traditional IRA (pre tax), Roth IRA (after tax)

These are tax designations, not investment types.

Roth means after tax dollars (more money up front). Traditional is pre tax dollars (you get pay more later). Both grow tax free, but with the traditional withdrawals count as income so they are taxed according to that tax year.

401k has a contribution limit is $18k / year.
IRA has a contribution limit of $5500 / year.

$23.5k / year total right now for somebody under 55.

If you make enough / spend little enough that you can put the maximum dollars under the shelter, my suggestion is to go Roth 401k and Roth IRA or backdoor IRA. Over a 30 year period, the additional dollars under Roth will make up for most tax percentage differences, so it's a decent bet. Roth is the best way to max dollars under the tax shelter, and the tax shelter is hugely profitable. Also, if you go Roth, your retirement balance will be the real balance, not some fake number that is still subject to unknown future taxation.

If you can't max the…

>Living on a low percentage of income seems like a great strategy if you're optimizing for dying with the maximum amount of money in the bank.

MMM/ERE [1][2] are not about maximizing money at all. They are about obtaining only a sufficient level of capital, so that they are no longer obligated to work for income to continue living happily. The numerical value of "sufficient" gets lower as your expenses decrease.

>I'd think people would be better off maximizing their total happiness.

Based on your comments, to you, happiness comes from experiences which require money, which is perfectly fine. Therefore, MMM and ERE are not for you, which again is perfectly fine.

For others who find happiness in experiences requiring little to no funds, MMM/ERE is an exceptional strategy. I would love to spend my days coding, studying chess, reading books, cooking, mentoring youth, and spending time with the small group of people I am close with (I'm rather introverted).

[1] http://www.mrmoneymustache.com/

[2] http://earlyretirementextreme.com/

> But the alternative is sticking with the 9-5 grind. If you're like me, that terrifies the F out of you. I'm 42, have a great family, a good 9-5, but everyday of my life i think only of leaving my 9-5.

There's a quicker and 100% reliable way of getting out of the 9-5 grind: http://earlyretirementextreme.com. TLDR: reduce your expenses as much as possible (ideally to 10-20% of your post-tax earnings), save the rest and, over a couple of years, accumulate enough to just live off the savings (and investment income off the savings) till the end of your life. It's easy, certain and thus non-stressful - basically the opposite of the startup route. The drawback is that, for someone who's been living their life as an ultraspecialized consumer whose only skill is what he does at the well-paid job, while everything else (food production and preparation, home repairs etc.) is outsourced, it could be a shock to switch to a rennaisance man model.