How to retire by 40 (without a trust fund)

Colin Lalley 1600


Colin Lalley

Colin Lalley

Insurance Expert

Colin Lalley is the Associate Director of SEO Content at Policygenius in New York City. His writing on insurance and personal finance has appeared on Betterment, Inc, Credit Sesame, and the Council for Disability Awareness.

Published March 9, 2017|9 min read

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In a time when fewer Americans have retirement funds and more are working well into their 60s, retiring in your thirties seems like a pipe dream for most. But JW Brooks amassed his first million by age 30 and is on track to reach financial independence in his mid-30s—all on a 9-5 job. JW gave us some practical advice on setting goals and anticipating pitfalls in planning an early retirement.

PolicyGenius: You’re a big advocate for people setting themselves up to retire early. How did you get started, and what has your journey been like?JW Brooks: I got started on my journey early. As soon as I started making money at summer jobs in high school I was interested in saving and investing it in the stock market. That’s when I started learning the ropes of investing and mainly stuck to simple index funds.My journey was propelled further when I graduated college and began my career. I didn’t make a ton of money out of college, but I continued to save and invest as much as I could. I lived frugally and didn’t splurge on a new car or rent a huge condo, which helped to maximize my savings.While I began investing for my retirement young, I didn’t actually realize I was on the road to early retirement until my late 20s. My wife and I were pregnant with our first kid. While at the time I knew I needed to keep working, my desire to spend as much time with the kids as they grow up began to develop. That was really the seed that started to grow my early retirement journey.At 31, I’m still on my path to retire early. I’ve amassed my first million in invested assets and am working toward my target of three million before I hang it up for good. I expect another seven or eight years of work. While my family has always been priority number one, that will take on a new meaning when I retire and I’m looking forward to it!What has been the biggest hurdle to retiring early?The biggest hurdle has been changing my mindset. When I first started thinking about whether early retirement was possible or not, I had a lot of doubt. People don’t just retire early! And if it is possible for me, why aren’t other people around me doing so?To get over this hurdle and enter a new way of thinking about retirement, it required a lot of research. I stumbled across a number of blogs and realized there is a whole community out there devoted to early retirement. I’ve now entered that community myself and began blogging about my experiences and path toward early retirement at The Green Swan.Reading up on a number of these blogs was the turning point for me. I realized early retirement was possible and anyone can do it with the right mindset and determination. [Ed note: See here for some of our favorite personal finance blogs.]What do people need to take into account when they’re deciding if they’re able to retire early?There are two parts to this question, one being the psychological aspects and the other being the financial aspects. From the psychological perspective, it can be challenging to adjust to early retirement. To me, the key is finding your purpose in life once you retire. Specifically, what are you retiring to? Focus on these characteristics as a motivation to retire early rather than focusing on what you are retiring from (aka I just want to retire because I can’t stand my job anymore!). For me, I’ll be retiring to be with my family and raise my kids as best I can, and my wife and I also want travel more.From a financial perspective, there are a lot of resources out there on how much in investment accounts would be needed to support your lifestyle. This is referred to as the "safe withdrawal rate".Without getting into these details, I’d recommend people start tracking expenses. Know how much you spend from month to month and year to year. This has helped me immensely in getting a handle on my finances. And knowing how much you spend today will make it easier to determine and estimate how much you will spend in retirement.

What steps do people need to take to protect their finances in retirement?Early retirement can be hard to plan for as your investments will need to last 30 years or more. That’s a long time horizon! And a big unknown for many millennials and Gen-Xers is what form Social Security and Medicare will have upon entry into traditional retirement age.As such, I’m a big proponent of maintaining flexibility and a cushion in retirement in order ensure financial security is protected. Better safe than sorry! By flexibility I mean identifying certain discretionary expenses which could be curtailed for a few years to preserve cash flow in retirement. And by cushion I mean entering retirement with more investments than actually needed. It is important to be conservative with your estimates. How much cushion is up to you and your comfort level, but I am shooting for 20-30%.What costs should people who plan to retire early be ready to cover that they might overlook?Healthcare. This is a popular topic in the news lately given the evolving healthcare landscape. I don’t expect a quick resolution either as the debate will last for years, thus adding a lot of uncertainty for early retirees.Many retirees are used to employer-provided insurance; some employers even pay for a portion of the cost unbeknownst to you. This will make it difficult to understand what healthcare will cost in retirement and surprises can pop up. The options available for early retirees are pretty limited, too. Most resorting to buying health insurance on the individual exchanges which can be expensive.While the health insurance landscape will continue to evolve, it is best to start researching this early to understand your costs. And don’t neglect your health! Eating healthy and working out will certainly help. Lastly, as mentioned above, maintain flexibility and cushion!What are some immediate steps someone can take to get them on the track for early retirement?For someone who is new to the concept of retiring early, Step 1 is to understand where you are today and know your net worth. I’d recommend putting together a personal balance sheet, listing out your assets, liabilities and your net worth (assets minus liabilities).Step 2 is to know where you spend your money. Track every penny you spend and tally it up by month. This can be an eye-opening process as people often find they spend much more than they thought in certain categories like shopping or going out to eat.Step 3 is being a more conscientious spender. Do you really need to go shopping so often? Could you pack your lunch instead of going out? Do you really need 200+ channels in your TV package? I’ve personally found a number of expenses that I could cut or curtail and not actually impact my lifestyle and I’ve never been one to fall into the materialistic mindset.Step 4 would be continuing to drive your career forward. Finding ways to make more money, whether pushing hard for that next promotion or starting up a side gig at home, can help add fuel to your journey toward early retirement.Many folks focus too much on controlling expenses on the path toward early retirement, when an equal amount of focus should be placed on earning more income.

How does insurance play a role in someone’s retirement?Insurance should play an active role on many fronts on the path toward early retirement and also in early retirement. Just like with anything in life, insurance needs will evolve as life circumstances change.Insurance needs are very individualistic. What insurance coverage I need will most certainly be different than what you may need so it is important to do your own research and rely on professionals such as PolicyGenius for help.For me, my focus is on adequate health insurance for my growing family (for me, my wife, kid and another on the way!), life insurance for both my wife and I, disability insurance and long-term care insurance.My concern is what could delay early retirement or pose a risk once I’m in retirement. Assessing these needs closely on a regular basis is important and shouldn’t be overlooked!What’s the best piece of personal finance advice you’ve been given?I have a two part answer to this question, relating both to life in general and then specifically to personal finance. First, for those who are contemplating early retirement, remember that nothing in life worth having comes easy. Rewards require sacrifices and early retirement is no different. To me, I weigh the sacrifices of maintaining a tight budget and the extra hours I put into my job against the financial freedom that early retirement will afford me for the rest of my years.Specific to personal finance, the best piece of advice I’ve received is to not try timing the stock market. When I first started investing, I would track the performance of my index mutual funds daily (which definitely is not good for the psyche!). I’d see the market go up and down on a daily basis and think to myself how much money I could make if I could just cut out some of the down days and be more active in timing the market.Needless to say, that is a really silly decision that I’d equate to picking red at the roulette wheel in Vegas. Even the so called "experts" have trouble timing the market. Don’t believe me? Google "The London Whale" for a recent example. So instead, I resort to a buy-and-hold strategy which has been proven effective over and over.

JW is a corporate banker, a small business owner, a personal finance blogger, and a family man with a wife, a kid, and another on the way. He amassed his first million by age 30 and is on the path to reach financial independence and retire early in his mid-30s. JW blogs at The Green Swan to help others achieve their financial objectives and believes anyone can be on the path to retire early with the right habits and mindset.