I felt trapped because I had worked hard to get my degree and establish my career. I didn’t feel as if I could just quit and start something new. I also didn’t want to trade my high five-figure salary for a lower one, so I continued, albeit unhappily, on the same career trajectory.
Rather than use my salary to buy frivolous material things, however, I used my money to fund sabbaticals for several months at a time that enabled Jill and me to see the world. Jill is from Scotland, so every five years or so we would quit our jobs—she works as an optometrist—and spend several months traveling in Europe, as well as other countries. Because the market is strong for software developers, I never worried about finding another job, and often whichever company I worked with last would ask me to consult for them until I found my next gig.
One particular three-month stretch in China and traveling through Tibet and Nepal made me realize just how rich most Americans already are, myself included.This further drove home the realization that I didn’t need to accumulate the things my peers had, like big houses and fancy cars.
Taking these sabbaticals was what I saw value in—but it wasn’t until around 2011, when I stumbled across a website called Early Retirement Extreme, that I realized I could work hard for five to 10 years to make those periodic trips more of a permanent fixture. I was already a pretty good saver, but what I read on the site encouraged me to ramp it up even more. All I would need to do to retire early was to save and invest until my portfolio reached at least 25 times my annual expenses.
Based on historical data, my thinking was that those investments should return an inflation-adjusted average of 5% every year. I calculated that I would only need to withdraw, at most, 4% every year to cover my estimated essential expenses—more on those in a minute—which means my portfolio should have a high likelihood of never running out of money.
Fast-Tracking Financial Independence
Once I realized that obtaining this level of financial independence was possible, I began researching how to get myself there as quickly as possible.
The best strategy for me, both from a savings and tax perspective, was to max out tax-advantaged retirement accounts, including a 401(a), a 403(b)—both are types of defined-contribution plans offered by my employer—and a Health Savings Account. I max out all of these accounts each year, and get a 5% match on my 401(a). I also max out my Roth IRA, and anything that’s left over, after expenses, goes into my taxable investment account.