When the Social Security Act was passed in 1935, retirement officially began at age 65.

And the life expectancy at the time was 58.

So from the very outset, “retirement” wasn’t exactly considered a universal experience.

But over the last century as life expectancies have climbed, the concept of retirement has become synonymous with the final chapter in a person’s life.

Then, the book “Your Money or Your Life” came out in the 90’s and introduced a radical concept.

The author, Vicki Robin, proposed that by living with extreme frugality for a few years, younger people could essentially become “retired” long before old age.

She claimed to have achieved financial independence… in her 20’s!

Today, the phenomenon of financial independence at a young age goes by the acronym “FIRE”.

It stands for “Financial Independence; Retire Early”.

And it’s no fringe movement - FIRE has been covered by the New York Times, Market Watch, and Forbes.

And it’s got more and more millennials wondering “could I quit my day-job too?” This isn’t about dropping out of society or living in a cave… necessarily.

FIRE practitioners work extremely hard while living far below their means for years to amass enough savings to leave the workforce.

And it doesn’t mean you’ll spend your newfound freedom just hanging out in bowling alleys like Jeff Lebowski.

Many people who manage to retire early continue to work--but only on projects they’re passionate about.

But the question remains… is it possible to achieve through savings alone?

Pete Adeney, aka “Mr.

Money Mustache” (no relation), might be considered the modern FIRE movement’s founding father.

Adeney was working as a software engineer while living dramatically below his means during his 20’s.

He took his savings and paid off debt and invested it it in stock-index funds.

By 2005 and in his early-30’s, Adeney and his wife had amassed around $600,000 and a paid-for home.

He calculated he had enough to leave the work-force-permanently.

Adeney suggests that early retirement is possible through three fundamental concepts: Frugality, Investing, and the “4% Rule” of withdrawals.

Let’s face it - unless you luck into a large windfall of cash, you’ll have to save up a serious nest egg to retire.

And the simplest way to do that is to slash your lifestyle.

Normally, financial advisors suggest a 10-15% savings rate to retire at a normal age of 65 or so.

Want to retire ahead of schedule?

Then you’ll have to level that up.

Most early-retirees adopt a 50% to 75% savings rate… or more!

It’s not uncommon for them to cut restaurants & bars, buy cheap cars, bike to work, make do with a smaller house, and avoid luxuries like gyms, fancy vacations, and expensive hobbies.

Simply stashing cash into a bank account is a good start.

But the FIRE proponents rely on the power of the markets to boost their savings rates.

Assuming you saved your money into a general stock-market index fund, you might expect 7-10% rate of return, based on historical averages.

Any experienced investor will tell you that year-to-year returns will swing wildly, maybe even crash!

So that’s where the third rule comes in… A 1998 study by Trinity University concluded that a 4% annual withdrawal rate of your money in retirement should allow you to never out-live your money - even in a bad economy.

This means that even with the dramatic ups and downs of the stock and bond market, as long as your yearly expenses stay below 4% of your total savings, you should be able to live off them for… well, theoretically, forever.

Put another way: you take your annual spending needs, then multiply it by 25.

That’s the amount you need to become financially independent.

By now I imagine you’re wondering what it would take if YOU wanted to to retire early.

I think it’s time to… RUN THE NUMBERS!

Let’s imagine you have a household income of $85,000, but you live way below your means and only need $35,000 a year to be happy.

According to our rule of 4%, you’ll need $875,000 in the bank in order to be financially independent.

Through extreme thrift and aggressive cost-cutting, you’re able to save $50,000 a year, which comes to 59% of your annual income.

At that rate of savings, and assuming your stock-index funds got an average return of 7%, you’ll have hit your goal in... 12 years.

A good income, frugal living, and compound interest are a powerful wealth-building combination.

You might be wondering “What if I don’t make a ton of money?

Is this realistic?” A common critique of the Early Retirement movement is that Adeney and other leaders of the movement had high-paying jobs in medicine or engineering.

Making big bucks can certainly speed up the process.

But it’s not a requirement.

Take Jillian Johnsrud.

She began working toward financial independence at age 19.

Her husband served in the armed forces and she worked in customer service and sales.

Over the next 13 years they made an average household income of $60,000, with no year over six-figures.

And by 32, Jillian had saved enough to be completely financially independent.

All while raising adopted & biological children and climbing out of $52,000 of debt.

She uses her freed-up time to travel the country, write, and raise her children.

Today she does some work as a writer and coach, but it’s on her terms.

If you think that “early retirement” is all about lounging around and avoiding work, you’ve missed the point.

Instead, it’s about taking an active step to replace a job you hate with work you love… and often finances are the biggest hurdle.

As Adeney says about the FIRE phenomenon: “Early retirement means quitting any job that you wouldn’t do for free – but then continuing right ahead with work in something that works for you, even when you don’t need the money.” And if you’ve already got a fulfilling job you love-- congratulations, you already have the benefits of early retirement without having to save up for it!

So whether or not you want to sprint toward early retirement, the mindset of reducing your lifestyle, living simpler, and building a more rewarding work-life is something we should all be aiming for.

And that’s our Two Cents!

If you were to retire today, what would you do with your newfound freedom?

Tell us about it in the comments!