So you’re wondering: Who is this Kraken Fireball guy? Where did he come from? Where is he going? Is Kraken his real name? I’m not really surprised with a last name like Fireball, high school must have been fun for him.
All your questions, and more, will be answered below in the gripping tale of how Kraken Fireball came up with the idea to retire at the age of 30.
It’s Saturday afternoon at my parent’s house and we are headed out somewhere, probably the mall or a restaurant. My mother, her boyfriend, my sister and I are piling into my mom’s Hyundai and I blurt out “I think I want to retire when I’m 30!” Silence. More silence.
This is a pretty common function of mine. I usually make wild claims of things I want to do, without much explanation on why or how I am going to pull it off. So the silence wasn’t unexpected, and my teenage sister probably wasn’t even wasting time paying attention to me.
From the silence I drew the only conclusion possible: no one had anything better to talk about. So I continue, “You think I could pull it off?”
“Sure” chimed my supportive mother.
“You would have to have a lot of money saved though” retorted her more realistic boyfriend.
“Yeah but how much?” I said.
Let’s do some quick math, because that sounds fun. I make $70,000/year at my day job and I want to retire and make that much money passively. How much would I have to have in the bank? We will assume you can make 7% annually from the stock market, since that’s a number I’ve heard before.
Principle * ReturnRate = AnnualReturn
Solve for principle and you get:
Principle = AnnualReturn/ReturnRate
Plug in my numbers:
Principle = $70,000/.07 = $1,000,000
“Looks like I would have to have a Million dollars to retire at 30” I say after punching the numbers into my calculator that I always carry with me, it also works as a phone too which is nifty. “How long would I have to save to get that much money?”
At this point my family is just acting as a rubber duck while I entertain myself with numbers. Here we go, More Math! Isn’t this fun?
I save about $500 a month, how long would it take to amass the Principle I need to retire?
$1,000,000/$500 = 2,000 months = 166 years
Well that wont do. What if I stepped up that savings to a grand? No, that’s only 1,000 months or 83 years. Better, but won’t work. Ok, I’ll look at this differently, what is the amount I need in the time frame I want?
$1,000,000/(7 years * 12 months/year) = $11,904.74/month
Well this won’t work. I only make $5,833 a month and that’s before taxes. Retiring by 30 must be impossible, it was worth a shot, at least I have math to prove my point. But wait! “Hey John, didn’t you retire early?” I ask my mom’s boyfriend.
“Yeah I retired once. After I sold my business.”
“What happened?”
“I didn’t have enough saved up”
This makes sense to me, since I’m expecting the answer to be it’s impossible. I drop the subject and watch the trees that line the streets in our suburban town go by. Dropping this as just another idea that I had that wont happen because it’s unrealistic…
Until Monday at work. I’m talking in front of the water cooler, not joking, as cliche as it sounds, this is apparently something that I actually do. My friend Kelsey, who recently started with me, is there and I ask “How’s your stuff coming? You catching on?”
“Pfft, No” She scoffs.
“Yeah me neither. And, we have another 40 years of this. I wish we could retire at 30.”
I go back to my desk and before getting to work I google how to retire at 30. I figured this would be a futile exercise since it’s obviously not even remotely possible. I guess, maybe, if I created a silicone valley start up and sold it or something it could work.
After spending more time than was justified browsing these sites I message Kelsey “Hey check out this site. http://www.mrmoneymustache.com/ I think I could actually pull it off. I read a few articles, this guy is pretty entertaining.”
I spend the rest of the day dreaming about how I could pull off retiring at 30 and what I could do with that free time. I read a few more articles and played with excel to figure out what I could realistically save. I went home and played with the numbers some more, read some more articles from that website and felt pretty confident that retiring by 30 might just work.
So here is a few things wrong with the math I originally did. First I was assuming that I would have the same income in retirement as non-retirement. This is faulty logic because if I spent all 70k I make then I won’t be able to save any of it. Second I wasn’t planning on making this goal my first priority so I wasn’t going to save as much as I could, only as much as was convenient to me so about $500 to $1,000. Using those numbers it was of course impossible. After a few hours with excel I figured out on my own the power of the savings rate. Seeing this on my own convinced me that I could pull it off, and all I would have to do is live off of 30% of my income. How hard could that be?
Let’s see the math that I ended up using for retiring early. Are you excited?
I make $70,000/year at my day job and I want to retire and live off of $25,000/year passively in order to support a family of 3. How much would I have to have in the bank? We will assume you can make 7% annually from the stock market, since that’s a number this Mr Money Mustache fellow uses.
Equation from before:
Principle = AnnualReturn/ReturnRate
Plug in my new numbers:
Principle = $25,000/.07 = $375,142.86
Wow that is a little over a third of what I originally calculated. Will it work? How much would I have to save to get that much by 30?
$375,142.86/(7 years * 12 months/year) = $4,465.99
Wow that’s a lot less! I make $5,833 a month but that’s before taxes. Is it possible? I’m also assuming that I never get a pay raise and my future wife doesn’t contribute anything, ideally she would be as excited about this as I am. After even more research, I’ve read every MMM post and branched out to other blogs, I determined since all these other people have pulled it off I’m sure I can too. Worst case scenario: I have to retire at 31.
This all went down back in September 2015 and 5 months later I still think it’s an attainable goal. I’ve started saving aggressively, stopped eating out on a regular basis, and I’ve even started biking to work. I’ve made a few dozen other transformations in my life and I am looking to make even more. I’ve assumed the alias of Kraken my first D&D character, he’s dead and wont be needing it any more, and I’m planning on documenting all these changes in this blog as you, my loyal readers, follow my path to retiring at 30.
Peace,
Kraken Fireball