3 Ways to Fund Early Retirement

I’m sure most readers are familiar with the old “3-legged stool” of retirement. This term stems from the earlier days when you could count on 3 sources of income in your retirement.

1. Social Security Benefit
2. Pension
3. Personal Saving

The 3 legged stool might work for the previous generations of retirees, but it won’t work for us. Generation X, Millenials, and Gen Z will need to figure out a different way to fund our retirement. Pensions aren’t available anymore except in a few rare cases. We’ll need to replace it with the 401k or other defined benefit plans. As for personal savings, the average personal saving rate in the US hovers around 5%. That’s too low. And who knows if Social Security Benefits will still be around when we’re 65? Retirement is looking pretty shaky for the younger generations. However, all this doesn’t really matter if you plan to retire early.

Pension and Social Security Benefits only become available when you’re near the traditional retirement age of 65. You could draw on personal savings, but it’s pretty difficult to build up a substantial amount before you’re 40 years old. If your goal is to retire early, then you will need to figure out a different way to fund it.

*Originally written in 2015. Updated for 2022.

3 Ways to Fund Early Retirement

My early retirement withdrawal strategy is somewhat ambitious. I want to leave our retirement accounts alone until we’re 60. This will give them plenty of time to accumulate via compounding (compound interest.) In 2015, we have about $900,000 in our retirement accounts. That’s not enough to fund 40+ years of retirement, but if we can keep our hands off them for 20 years, we should be able to have a financially secure retirement.

*2022 Update – Currently, we have about $1,700,000 in our retirement accounts. The market is crashing as I write this post so I need to update this again in a few years. I’m pretty happy with our progress since 2015.

Anyway, how do we fund 20 years of early retirement? Here are my 3 ways to fund early retirement.

1. Dividend income
2. Real estate investments
3. Part-time work

We are in a transition phase right now. Mrs. RB40 is still working full-time, but she plans to retire in a few years. In 2015, our passive income wasn’t enough to cover our expenses, but we made a lot of progress since then. Over the last few years, our passive income surpassed our expenses in 2019. Mrs. RB40 can retire if she wants to. However, she still wants to work for a few more years. Maybe she’ll retire after the next big recession.

Passive Income

In 2022, we spend about $4,500 per month. Our investment and part-time work are enough to cover that. However, there is one issue. My part-time income has been steadily decreasing since 2015. I’m working less and less every year. Also, inflation is much higher than anyone expected. Incredibly, we kept our annual cost of living about the same for the last 7 years, but that won’t last much longer. By 2027, I think our monthly expenses will increase to around $6,000/month. We need to plan ahead to deal with these changes.

Our cost of living will increase tremendously due to a couple of reasons. The first reason is inflation. Inflation is over 8% and everything is a lot more expensive lately. The Fed is trying to hammer it down, but we don’t know how long it would take. Another reason is that we plan to expand our living space by taking over the rental unit. We live in a duplex and rent out the upstairs unit. When our son is in high school, we’ll need more room. We’ll need to grow our income over the next 5 years.

Dividend income: I think this one is doable. We need to grow by about $120/month each year. I invest with dividend growth in mind and these companies should help us by growing their dividend payout every year. We’ll also need to add more money every year to be able to reach our goal. We probably need to add about $10,000 each year to our dividend portfolio so we can reach $2,000/month dividend income by 2027.

Real estate investment: Currently, we have 2 rental units and have about $120,000 invested in real estate crowdfunding. I plan to sell the rental condo and reinvest the money with CrowdStreet. In 5 years, we should have $350,000 invested in real estate crowdfunding. From my experience, I think we should get about 10-15% ROI. The rental market in the US is still very hot. I don’t think that will change anytime soon. We’ll see how it goes.

Part time work: This is a tough one. Blogging has been a great way to generate part-time income, but it’s getting harder. Hopefully, I can keep it at this level for the next few years. I made extra income from charging scooters in 2020 and 2021, but this side hustle is gone now. I’ll look for another easy side hustle next year.

Those are the 3 main ways that will help fund my first 20 years of retirement. Actually, it’s been over 10 years since I quit my engineering career and we are doing quite well. The next few years will be tough, but I’m optimistic. Things should smooth out once RB40Jr goes off to college.

Once we’re 60, then we’ll downshift again and start withdrawing from our retirement accounts. Rental properties are a great way to generate income and build long-term wealth, but they can be a lot of work. I’ll sell and move the money over to real estate crowdfunding. It doesn’t have the same capital appreciation potential and fewer tax benefits, but it is a lot more passive. The income is still really good, though. Sign up for a free account with Crowd Street and check out the upcoming projects. Personally, I like to invest in apartment renovations with seasoned sponsors. There is still a big housing shortage across the U.S. so apartments should do well for many years.

How about you? Do you have a plan to fund your early retirement? I think having 3 main sources of income is ideal for early retirement. If one dries up, then you have time to adjust.

Real estate crowdfunding

Real estate crowdfunding has been an excellent investment for us. I plan to increase our investment substantially over the next few years. There is still a big housing shortage across the U.S. so apartments should perform well for many years. Here are the real estate crowdfunding companies that I’m working with.

• CrowdStreet – CrowdStreet focuses on commercial properties across the USA. You can invest in apartments, self-storage, strip malls, office buildings, medical offices, and more. CrowdStreet is the best RE crowdfunding company on the market right now. Sign up for free and check out their projects.
• RealtyMogul – All investors can invest in their REIT. In addition, accredited investors can invest in private projects and do a 1031 exchange.
• Fundrise – Non-accredited investors can invest in iREIT here.

*Accredited investor needs to have over $200,000 of income over the last 2 years or has a net worth of over $1,000,000.

Disclosure: We may receive a referral fee if you sign up for a service through a link on this page. The content contains testimonials from Joe. The actual experience of other customers may differ from the testimonials. The testimonials do not represent guarantees of future performance or success. Moreover, no person nor any other entity assumes responsibility for the accuracy and completeness of the testimonials.

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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