The Ultimate Definition of Early Retirement

There’s a lot of buzz in the personal finance blogosphere on what’s considered early retirement.  

People get somewhat opinionated over whether someone should be considered retired if they still generate income through a side hustle or non-passive means.

Since a lot of my articles refer to financial independence and early retirement, I figured it would be good for me to weigh in on the subject.

That way, I can always link back to this article, any time I’m trying to explain what I mean by early retirement or financial independence.

Financial Independence

I consider financial independence to be a fairly straightforward concept.  It’s the ability to live off passive income for a set period.  It means you don’t need a job to maintain your lifestyle, or a side-hustle or any other means of generating labor-intensive income.

That financial independence could be based on a pile of cash, income from investments, or even social security or a pension.  The extent to which your financial independence status lasts will be primarily based on the size of your stash, the amount of risk you take (or don’t), and your lifestyle.

Plan wisely, and you can hang on to that status almost indefinitely.  Play it lose, and you could find yourself losing this precious status symbol.

You can have a financially independent person with investable assets of $100K or one that requires $10 Million.  It all depends on their circumstances and lifestyles.  I happen to need around $2 Million to claim the status.

If you’re still working a day job, or side hustling or running a business, you can still be considered financially independent.  But only if the income from those activities is inconsequential to maintaining your lifestyle.

You can be financially independent without being retired.

Traditional Retirement

Traditional retirement is also a concept that’s understood by most.  It usually means the end of one’s dependence on a conventional source of income.

That source of income could have been a career, job, business, or even actively managing investments.  It’s meant to be a transition.  From spending most of your time on activities dictated by your income-producing commitments.  To a period where you have the freedom to choose how your time is spent.

A precursor for retirement usually is financial independence, although it’s clear many people are ill-prepared for that period of their life.

In my opinion, you can’t be considered retired if you’re still actively generating income unless that income is not necessary to maintain your desired lifestyle.  This means side hustles, part-time work, and similar income-producing activities are fair game in retirement.

You can be retired and still generate income, as long as you’re financially independent.

What’s Considered Early Retirement

What distinguishes traditional retirement from early retirement is simply timing.  I find this one pretty easy to define.

What we need is a proper and current baseline of when the majority of people retire.  Thankfully the LIMRA Secure Retirement Institute has done all the hard work on when most people retire in the US.  This data will naturally continue to change over time as people live longer.

This MONEY article found that half of Americans retire between the age of 61-65, with 82% retiring after the age of 60.

Only 18% of individuals retire before the age of 60.

And only 5% of individuals retire before the age of 55.

What’s fascinating is that only 1% of individuals retire before the age of 50.  That’s the type of 1%er I want to be!

Based on this data, I would classify anyone retiring before the age of 60 as an early retiree.  Those retiring before the age of 55 would be considered extreme retirees.

Those early retired folks are getting a considerable discount on their freedom.

Like traditional retirement, you can be early retired and still generate income, as long as you’re financially independent.

Closing Thoughts

It’s no wonder there’s a bit of stigma associated with early retirees.  Especially those under the age of 55.  The chances that someone will ever meet or come across one of those individuals is rare.

This leads to quite a bit of ignorance around how most people have achieved such a significant accomplishment.  And to a certain extent, maybe even some hostility.  All you have to do is read through some of the comments on mainstream personal finance news outlets that highlight early retirees in a given article.  Those comments are a window into how stigmatized this subject still is.

Since I’m pretty entrenched in the FIRE community via this blog, I’ve grown accustomed to reading about all sorts of people achieving financial independence and early retirement.  As a result, the concept has become relatively normalized in my mind.

I’ve also realized that what I’m really chasing is financial independence at this stage of my life.  Early retirement will be a natural outcome once I hit that milestone.  Of course, I want to claim my freedom as early as possible.  Based on the data shared here, it seems like having the option to retire before the age of 50 would put me in rarefied company.

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5 thoughts on “The Ultimate Definition of Early Retirement

  1. That is a great treatment of the issue. I decided to retire at 59 and pulled the plug right after my 60th birthday. In my industry nobody retires at 60, typically they work to 65-70. For example, my boss at the time I retired was 65, he’s 68 now and still in the same full time job because work is his only hobby. I think he may retire this year. So I consider myself to be slightly early retired because of what is normal for my field of employment. I make six figures at very part time side gigs but do not need the income at all, just enjoy earning it doing very flexible work mostly from home. So I also agree with your definition of being retired. I may be working some but don’t need the money so I’m retired, although usually I tell people semi-retired because they are confused about my status.

  2. LOVE the bubble chart! It’s funny how immune we become to FIRE when we’re a part of the community. In reality, it’s a very small % of people who have the discipline to achieve retirement before Age 55. I’m done in 26 days, only 3 months past my 55th birthday. I should have retired 4 months ago to get into an even smaller minority of early retiree!!

  3. What I find from the graph scary is that 21% don’t retire until after 70, YIKES! So under 50 is a 20 year swing with 20 years of still working after that. A 70 year working career, talk about poor planning. Count me out.

  4. I think these two sentences about sum it up for me:

    “In my opinion, you can’t be considered retired if you’re still actively generating income. Unless that income is not necessary to maintain your desired lifestyle. This means side hustles, part time work, and similar income producing activities are fair game in retirement.”

    To many in our community FIRE = Financial Independence Retire Early.

    To me…Financial Independence Recreational Enthusiast (i.e work optional everything is pursued based on passion and what’s fun)

    Dom

  5. I’ve never met anyone who has retired before fifty. I’ve only met one person whose retired before sixty. My goal is to be retired at fifty five. Years to enjoy sounds good to me.

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