I retired at 37 as a self-made millionaire -- here's how I figured out exactly how much I needed to save

Chris Reining headshotCourtesy of Chris ReiningI’m spending even less than I thought.

A year ago I watched Fight Club, so now I’m watching Fight Club again as a reminder how much I’ve grown.

You see, last year I put down my 14-year-old cat because he was suffering from congestive heart failure, and then I quit a career that took 15 years to build and retired at 37 (while everyone was telling me I was nuts), and then a four-year relationship ended.

All those things happened in three months, and when huge changes are all happening in three months it can feel pretty overwhelming. That’s when you lay on the couch and watch Fight Club, and Brad Pitt’s character Tyler Durden says something that resonates with you:

“It’s only after we’ve lost everything that we’re free to do anything.”

I think it would have been easy for me to sit around my stuffy condo, sitting there, drinking orange juice, feeling sorry for myself. But I saw it as a once-in-a-lifetime opportunity for growth.

I wasn’t getting the things I wanted to get out of life, and if you’re not getting the things you want to get out of life, then you need to change to become the person who can.

Why? If you stay the same you’re going to get what you’ve always gotten.

Lately, doing interviews or podcasts I get asked, “What does your day look like?” and I never know how to respond to that question, but here’s the answer: I’ve been spending the last year transforming myself into the person who can get the things they want.

That’s another article for another time, but suffice it to say that I’ve grown more than I’ve ever grown before. I’m lucky because I had the space for it, and I had the space for it because I became financially independent.

So, if you’ve been wanting to know how much you need to be financially independent, it comes down to the “4% rule”.

The 4% rule means you can safely withdraw 4% from your investment accounts each year, adjust your withdrawal for inflation, and never run out of money.

Here’s an example.

You have $US500,000 in an investment account. You can withdraw $US20,000 the first year ($US500,000 x 0.04). Then you forget about the 4% rule and increase your withdrawal each year by the prior years inflation rate. Let’s say inflation is 3% so in the second year you withdraw $US20,600 ($US20,000 x 1.03). And so on.

Make sense?

There’s been a lot of research to back this up. Bill Bengen’s 1994 and 1996 papers, and the studies by professors at Trinity University in 1998 and 2011. Originally, the 4% rule applied to traditional 30-year time frames, but now it works for any time horizon.

In this Reddit AMA Bengen said, “If you plan to live forever, 4% should do it,” and the new rule for a 30-year timeframe is 4.5%.

I always told myself I’d be financially independent when I had $US1 million because I spent around $US40,000 a year and that’s 4% of $US1 million.

When I finally convinced myself to quit my job my investment accounts could support a 3% withdrawal.

And now that I’m in year two of retirement I’m withdrawing a measly 2%.

What’s going on?

Two things are happening. First, I didn’t realise how much “work” was costing me: commuting every day, buying new “work clothes”, paying for convenience.

Without the overhead of a job my spending has gone down by 15% or so, and as I’m sitting here watching my spending go down my investments are growing.

I knew I was overthinking retiring early because I overthink everything to an absurd degree, and the 2% withdrawal confirms that.

Anyways, if you reverse the maths on all this you can simply multiply your yearly spending by 25 to find your “number”.

You should do this right now.

Because when you multiply your spending by 25 you start seeing that becoming financially independent isn’t about how much money you have, it’s about how much you spend, because how much you spend determines how much you need.

Here, let me show you:

  • Spend $US20,000 you need $US500,000
  • Spend $US40,000 you need $US1 million
  • Spend $US80,000 you need $US2 million
  • Spend $US120,000 you need $US3 million
  • Spend $US160,000 you need $US4 million

When you hear people say that $US1 million or $US2 million isn’t enough they’re not wrong, but what they’re saying is they have an expensive lifestyle.

And having an expensive lifestyle is fine, but years ago I realised that my number would be lower if I spent less, and if I spent less I’d have more to save, and if I had more to save then I’d get to my number faster.

That’s how you become financially independent — it’s all about the relationship between your numbers.

Which reminds me of a meeting I had with an executive once. We were pretty close, and he shared with me that he hated his job and didn’t want to keep doing what he was doing.

I’ll never forget him looking around his office and saying, “Chris, this is it for me.”

Meaning, he was going to keep doing what he hated for the rest of his life because he wasn’t willing to work on the relationship between his numbers, and if you’re not willing to work on your numbers then you’ll never be free to do anything.

Just like Tyler Durden said.

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