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Retire Early by Living Below Your Means

Updated on November 17, 2012
To retire early, live below your means.
To retire early, live below your means.

Some people think you need to win the lottery to retire early. Others think you need to cash in on stock options at a high-tech company, or found a successful business. Still others think the road to early retirement hinges on getting a professional degree and starting a medical or law practice. In reality, virtually anyone can retire early by following only one simple rule: “Live well below your means”.

Take the case of Mr. Lawyer and Ms. Paralegal. Mr. Lawyer is 45 years old, and works as a partner in a downtown law firm. Including his annual bonus, he earns a robust $240,000 per year. Ms. Paralegal is also 45 years old, and works in the same law firm where she often helps Mr. Lawyer prepare his cases. She earns $60,000 per year. Both Mr. Lawyer and Ms. Paralegal dream about retiring early, at age 55.

Who is more likely to be able to retire early: Mr. Lawyer or Ms. Paralegal?

At first glance, Mr. Lawyer seems more likely to reach his dream of retiring early at age 55. He earns four times more than Ms. Paralegal. Ms. Paralegal would need to get a 300% raise to match Mr. Lawyer’s income, which will not happen. So Mr. Lawyer has a clear advantage.

A casual observer would also think Mr. Lawyer is more likely to be able to retire early. If Mr. Lawyer acts like his peers, he possesses the signs of high-income earners. He went to a prestigious law school. He lives in a five-bedroom house in an executive neighborhood. He drives his BMW sedan to work and parks in the nearby covered garage. He frequents popular eateries. He spends weekends at his lakeshore cottage. He goes skiing in Colorado each winter and hits the beach in Aruba each summer. He seems to be living the American dream.

In contrast, Ms. Paralegal lives a middle-class life. She earned her paralegal degree at the local community college. She lives in a two-bedroom condominium near the local Walmart store. She takes the bus to work and drives her six-year old Honda Civic when she goes shopping. She brings her lunch to work except Fridays, when she joins some co-workers for a soup-and-salad special. She takes bike rides on the weekend, and travels to Ft. Lauderdale each Fall to visit her retired parents. Clearly, the casual observer would consider her lifestyle to be a few notches below that of Mr. Lawyer.

But in determining who is more likely to reach their early-retirement dream, the answer can be surprising. Ms. Paralegal may be in a better position to achieve her dream because she follows one simple rule: she lives below her means while Mr. Lawyer does not live below his.

While Mr. Lawyer makes $20,000 per month, he spends most of it: $6,000 per month (30%) on income taxes; $800 to repay student loans; $3500 on the mortgage on his main house; $2000 on the mortgage for his cottage; $1500 for property taxes; $600 for his car payment; $200 for parking; an average of $1000 per month for his vacations; $250 for his lunches; and $3000 for everything else. He puts the remaining $1150 per month into his retirement account. Thus, Mr. Lawyer saves 5.75% of his income.

In contrast, Ms. Paralegal makes $5,000 per month, but spends only about 50% of it: $500 per month (10%) on income taxes; $700 on the mortgage on her condominium; $250 for property taxes; $60 for bus fare; an average of $30 per month for her annual airline ticket to Ft. Lauderdale; $20 for her lunches; and $1000 for everything else. She puts the remaining $2440 per month into her retirement savings accounts. Thus, Ms. Paralegal saves 48.8% of her income by living a less-opulent lifestyle.

While Mr. Lawyer should be able to retire comfortably at his normal retirement age of 65, he is unlikely to reach his dream of retiring early at age 55 because his 5.75% savings rate will not provide enough of a nest egg to support the lifestyle to which he has become accustomed. He is living approximately at his means, rather than below his means. In contrast, Ms. Paralegal should be able to reach her dream of early retirement because her 48.8% savings rate will easily provide a nest egg large enough to support her modest lifestyle. In other words, by following the simple rule of living well below her means, Ms. Paralegal will be able to live the life she desires rather than the life she’s expected to live by others.

Do you spend at least 10% less than you make?

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    • Written Up profile image

      Written Up 

      6 years ago from Oklahoma City, OK

      Great illustration. I couldn't agree more.

    • bac2basics profile image


      6 years ago from Spain

      Hi 2patricias...don´t know if I have done this correctly, shouldn´t your comments have gone to tipstoretire early ? this is his hub not mine. Hope I haven´t made a mistake oh dear now I´m worried.

    • 2patricias profile image


      6 years ago from Sussex by the Sea

      Good advice - but there are also some arguments in favour of spending all that you earn. For example, you might not live long enough to enjoy what you have saved.

      However, I would rather have the comfort blanket of savings.

    • bac2basics profile image


      6 years ago from Spain

      Hi Tipsto. I hope you don´t mind, but I´m just about to link your hub to one of mine that you commented on. I think your advice is fantastic and falls well in line with my views on spending too.

    • Lohrainne Janell profile image

      Lohrainne Janell 

      6 years ago from Fairfield, IA

      Thanks for the reminder! Thanks for a very helpful hub and very inspiring one to live more frugally than most people do.

    • bac2basics profile image


      6 years ago from Spain

      Hi Tipsto.Great hub and sound advice. We are definitely on the same page when it comes to the subject of living within one´s means.It´s really easy to waste money by living up to what you earn.Voted up and lots of other stuff.

    • Jennifer Stone profile image

      Jennifer Stone 

      6 years ago from the Riverbank, England

      Great advice! Thanks for an interesting and informative hub! Voted up and shared.

    • Cathleena Beams profile image

      Cathleena Beams 

      6 years ago from Lascassas, Tennessee

      Love it when the underdog wins! Excellent hub on living below your means in order to retire early.

    • thougtforce profile image

      Christina Lornemark 

      6 years ago from Sweden

      This is a very good advice and it is doable for most of us. It is a different way of thinking and a great contrast to our world where we are told that consumption and more money is the answer to both happiness and health! Interesting and useful!


    • Rev Troxell profile image

      Rev Troxell 

      6 years ago from Virginia

      At age 31 and with a wife and 4 kids and lots of bills retirement seems like an eternity away and unreachable at that. The reality is that it is just around the corner and we need to start planning. Great article, just living below our means would be a great start for sure!

    • bdegiulio profile image

      Bill De Giulio 

      6 years ago from Massachusetts

      Great advice. We should all be living below our means. Thanks for sharing.

    • jasmith1 profile image

      Adrian Smith 

      6 years ago from UK

      Very true! Thanks for a great hub - I liked the way you created the examples. It is easy to think that more money is the answer, but I have often observed like you that a higher salary equals higher outgoings. It's all about being creative and managing whatever money you have well. Voted up.


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