Tuesday, September 19, 2017
How This Woman Retired at Age 32 - and Says You Can Too
How to Become Financially Independent
Anita Dhake is retired. At 32 years old, she walked away from her well-paid job as a lawyer and hasn't looked back since. Yes, she racked up almost $100,000 of debt during three years of law school, but once she got out of school, Anita took a different approach than many of her peers chose.
After graduating from the University of Chicago's law school, she decided she would work hard until she paid off her debt and saved enough to retire as soon as possible. She did the math, and that meant quitting once she had saved 25 years' worth of living expenses, which she would keep relatively low. She wouldn't have a fancy car or house, but would make up for it with the personal freedom and energy to check off her personal bucket list. After five years of working and maintaining a frugal lifestyle, Anita reached her goal and left the office for good.
Anita's story almost sounds too good to be true, but after talking to her, I realized that she's simply making trade-offs available to many other young people - even those who don't pull in a six-figure salary. Since retiring in 2015, Anita now writes about her life as a financially independent 30-something on her blog The Power of Thrift and believes other young people can retire early, too.
Even though she's retired, Anita is still productive and growing; she travels the world and even wrote a book, set to come out later this year. But instead of doing this "work" for the money, she does it for the pleasure of improving her life. If you want to know her secrets, including the practicality of how she actually invests her savings to make it last, read our interview below.
How to Prepare For (Very) Early Retirement
POPSUGAR: How much money do people generally need to save to retire early?
AD: You need about 25 times your yearly expenses to be safe. The less you need, the sooner you can retire. The day I quit, I had $690,000. It's almost two years later, and I've earned perhaps $400 from my blog, but my net worth is now more than $800,000 thanks to investments.
PS: Could you share how much you made each year as a lawyer? Out of that, how much did you spend vs. save?
AD: My starting salary was $160,000. By my last year, I made about $320,000. I was living in Sydney, Australia, and got a cost of living adjustment plus bonuses. I never saved less than 75 percent of my paycheck. Sometimes as high as 90 percent. My expenses in Chicago were around $1,500-$2,000 per month. In Australia, it was maybe $3,000 or so.
PS: Do you think someone with a lower salary could retire early, too?
AD: It's more about your savings rate than your income. With a lower salary, of course it will take longer than my five years working as a lawyer, but isn't retiring at 45 still better than retiring at 65? If you think it will be impossible to retire early, then it will be. It takes creativity and determination, but it's possible.
PS: What is the first thing a young person should do if they want to retire early?
AD: Ask themselves why and what kind of life they want. Then work toward that life. I wanted to travel and sleep in and write and read and just generally be a bum. Every time my alarm clock woke me up for work, I'd reiterate to myself what I wanted. Keep in mind the big goal so you're not distracted by the shiny objects of everyday life. Know what you're working toward.
It's easy to get lost in the day to day. That's the point of working. To buy stuff. Keep your eye on the big prize and go for the big and harder happiness. The autonomy. The ability to design your own life. I also think people don't track their spending, so they have no idea how much they're actually wasting on short-term happiness splurges that fade way too quickly for how much of your precious money you just wasted on it.
Anita uses her newfound freedom to travel the world, including Rio de Janeiro, where she took this photo.
How to Make Sure You Don't Run Out of Money
PS: How do you make money today if you're not working?
AD: There are different paths to financial independence, but I took the lazy path. My investment vehicle of choice for my savings is VTSAX, which is the total stock market index fund from Vanguard. With my strategy, I'm betting on civilization continuing. I pay the lowest amount of fees possible. Fees are what ruin your portfolio.
PS: So your long-term "savings" plan is to live off the gains from the original money you saved and invested?
AD: The market returns, on average, seven percent per year. I guesstimate I'll lose three percent for inflation. This means I can take out four percent each year and still maintain my buying power and not touch the principal [the original $690,000 she saved]. Theoretically. So far, so good. Also, I practice sensible flexibility. I recently spent about $7,500 crossing off life bucket list item number six - writing a book. So I house-sat for five months instead of renting.
PS: You mention you need to save 25 times your yearly expenses, which would be about about $27,000 per year for you. Did you accurately estimate your yearly expenses? Do you still feel comfortable living within that budget?
AD: I've been tracking my expenses for years, so I knew exactly what I needed. So far, I've always spent way under what I'm "allowed" to spend per my retirement chart. I'm not concerned at all. I buy everything I want, whenever I want. The key is, I just don't want that much. I know what makes me happy and buy that. I also have a lot more time to save creatively. It's cheaper to fly on a Tuesday than a Friday. I can house-sit all over the world. I can always alter my extravagant lifestyle, hang out in a cheap country for a bit. It's about sensible flexibility.
PS: You're still young so a lot could change in your life, including adding a romantic partner or child or dealing with an unexpected health issue. How do you think that would impact your financial independence?
AD: If I were to find a romantic partner - which I hope happens! - I imagine my finances would improve. I'd have someone to split housing expenses with. I'd eat more dinners at home. I feel asinine talking about kids when I don't have any, but I do think kids don't need as much stuff as we buy them. The most valuable thing you can give your child is your time. And isn't childcare the most expensive part of having children? If you don't work, you can stay at home home with them. I know people who have used cloth diapers and made their own baby food. I wouldn't save for my child's education. I graduated with student loans and think it gave me perspective. It's better when everything isn't handed to you. Again, I'm childless and single, so feel free to scoff and ignore me here.
A health scare is the hardest part for me. But there's a good possibility I could go bankrupt if I got sick with excellent health insurance. There are too many holes in that system. I've read about people going to other countries and paying out of pocket where it's cheaper. I know that's not a satisfying answer.
What It's Actually Like to Be Retired in Your 30s
PS: How did your friends and family take the news that you wanted to retire at 32?
I'd been talking about retiring early for years before pulling the trigger. I paid off nearly $100,000 in student loans in a year and wouldn't shut up about it. I had a retirement chart where I tracked my expenses and my projected passive income and I showed it to anyone who expressed interest. By the time I pulled the trigger, people expected it. My family in particular just sees it as normal and "Anita" because I've been obsessed with the idea for ages. I also tried to talk to all my friends about it because I think it's so attainable if it's even a little bit appealing. It just takes focus and creativity.
PS: What would you say to people who worry they would be bored in early retirement? Or that they would rather work so they don't have to watch their spending so closely?
AD: I don't understand the boredom comment from people. There's so much to do! So many books to read. So many places to travel to. So many people to meet and befriend. So many items left on my life bucket list to tackle. Plus, I love to sleep.
I realize this life isn't for everyone and that there are some people who genuinely like to work and make money. I say awesome sauce to you if that's the case. Enjoyment of time is primary, and if you love your job and can happily do it for the rest of your life, then it doesn't matter how long your working life is. All I care about is that people are thoughtfulabout the decision and don't just mindlessly go along with it because that's what most people do.
PS: What do you make of "minimalism" trends like KonMari? Do you see an overall trend toward wanting fewer material things and striving for financial independence?
AD: I'm a huge fan of KonMari. She perfectly encapsulates how one should look at stuff. The more you have, the less it all individually means. If you're deliberate about your stuff, it most certainly can bring you joy. As long as it's not mindless consumption, stuff can be super useful and help your life. I love how mainstream the idea is becoming, but I think it still has a long way to go.
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