“I can’t retire. Not yet, anyway.”
A coworker who was closing in on 65 said that over beers about a year before COVID-19 put happy hours on hold. The idea of being stuck in a cubicle—or, in a pandemic, a home office—at that age sent me back to thinking about how to retire early. These aren’t just tips; they’re more like rules.
My family is lucky to live in a pleasant neighborhood inside the city. We have sidewalks, big shady trees, and fall colors. The grocery store is four blocks away, and the library and a good liquor store are one block further. Those conveniences were golden during lockdowns.
On a recent walk I tried to name the three things that keep people from retiring early. Is it just houses, cars, and tuition? Do we really need bigger homes, fancy Lexuses to sit in during rush hour, or private schools for our kids? Maybe not. Still, we feel we must have them.
We’re influenced by our neighbors and now by social media, watching everyone’s upgrades. We can’t retire because we think spending equals happiness. It’s FOMO.
What stops people from retiring early? Big houses, flashy cars, and expensive schooling.
Big houses
In the last decade the average U.S. home grew by about 1,000 square feet. People still pay top dollar for space. Walk around my neighborhood and you’ll see older 1,200–1,500 sq ft homes replaced by 3,000–4,000+ sq ft houses.
In the Minneapolis area, a house that big can easily reach $500,000–$800,000. Even the 1,500 sq ft place is tough to justify at $250,000+. If you feel you have to keep up with the McMansion next door, think about these costs:
– 1,500 sq ft home: $225,000 loan at 4% interest = $1,074 monthly payment
– 3,000 sq ft home: $450,000 loan at 4% interest = $2,148 monthly payment
Property taxes for the bigger house will be about double. Around here that means paying roughly $6,000 a year. Utilities and insurance go up too. Small house utilities might be $200/month; the larger house about $300. Homeowner’s insurance rises because rebuilding costs more—expect $600–$1,200/year for the small house vs. $2,000–$3,000/year for the bigger one. Furnishing and maintaining a larger home adds another cost—say $2,000 a year.
The annual opportunity cost for the big house works out to about $35,376 vs. $18,288 for the smaller home. Over 20 years, assuming you invested the difference and earned 7% annually, the penalty for choosing the big house is about $815,693.
Cars
Cars can be another financial anchor. A vehicle’s job is to get you from A to B when walking, biking, or transit won’t do. Ads show you zipping along empty country roads, but real life is different—you’re one of many overpriced cars stuck in traffic.
Drive only when necessary in a paid-off, fuel-efficient car, and you’ll save a lot. But many choose style over savings.
Compare a luxury car like a BMW to an economical used Honda Fit:
– 10-year maintenance: BMW ~$17,800 vs. Honda Fit ~$7,200
– Fuel: assuming 10,000 miles/year and 30 mpg, that’s ~333 gallons. Premium fuel for the BMW costs about $1,028/year vs. $852/year for regular in the Honda.
– Insurance: roughly $2,000/year for the luxury car vs. under $600/year for the used Honda with no collision coverage.
– Purchase price: modest BMW 3 series ~ $45,000; used Honda Fit under 80,000 miles ~ $7,000.
If you choose the fancy car instead of a used Honda Fit, the opportunity cost over 20 years at 7% compounding is about $258,806. (This assumes one luxury car in the household.)
Combine the big house and fancy car choices and you’re already down about $1,074,499.
Tuition and private schooling
I’m not against saving for kids’ education. We plan to cover at least half of our kids’ college with IRAs and 529s; scholarships, part-time work, and summer jobs will help too. In-state public universities still offer good value. Many high earners got their degrees from state schools.
An Ivy or top private school can open doors, but long-term earnings aren’t always that different from public university grads. And the idea that kids must attend private K–12 to succeed is often overblown. Some private schools are great, some are average—same with public schools. You can’t buy ambition, curiosity, or work ethic.
Paying for private K–12 for your kids can cost a lot. The penalty for choosing private schooling for two kids, using the same 20-year, 7% compounding assumption, comes to about $322,971.
Total opportunity cost
Add it all up and the “early retirement tax” from these three choices is about $1,397,470. That doesn’t even include shopping, dining out, and expensive vacations. Factor those in and you could easily be over $2 million—the money that could fund an early retirement.
Remember what early retirement buys: time. Time with your partner, time to support your kids’ learning and curiosity, and a less-stressed, happier version of yourself.
My own mistakes and recovery
About 15 years ago I was nowhere near early retirement; I was headed to Cubicle Foreverland. After ten years of work my investment savings were only $42K. Meanwhile, some bloggers like Mr. Money Mustache had amassed over a million. I had my work cut out for me.
Two things to note: don’t beat yourself up if you didn’t save in your 20s, and even if you start in your 30s, disciplined saving and hard work will get you ahead of most people.
Looking back at a 2005 budget, the top expenses were credit cards, plus lots of small recurring costs—clothing ($125/month), home security, haircuts, a landline, the Sunday paper, and Netflix. Those add up. I did install a security system after my house was broken into. Haircuts? If you’re losing hair, home cuts save money—my wife buzzes my head every two weeks.
We weren’t perfect. Between 2006 and 2012 we took many pricey trips—Switzerland, Costa Rica, Paris, Mexico, the British Virgin Islands—and we ate out a lot. A $150 weekly restaurant habit cost us about $150,000 over 12 years. But life is for living, and we made trade-offs.
Still, I always saved at least 8% into a 401(k) and paid off debts quickly. I lived in a cheap apartment with a roommate for several years and used hand-me-down furniture. I paid off $18K in student loans early on.
From 2013 onward things changed: twins arrived and childcare ran about $25K/year. We also got into real estate, with help from a mentor. Mrs. Cubert built a thriving practice and my salary and bonus more than doubled since 2006. When we combined finances in 2006 our net worth fell into negative six figures—Chiropractic school is expensive—but she’s more than paid back that investment.
Where we are now
Yes, we hit seven figures, but it took time, patience, and learning. We’ve lived in the same house since 2004 and have no plans to buy a McMansion. I drive a used Honda Fit; both cars are paid off and we don’t carry collision or comprehensive. Our cell plans are on Ting, and we haven’t upgraded phones since 2015.
Our roughly $1.3M net worth gain since 2006 came from compounding and real estate. Half our net worth is in retirement accounts; the other half is in tangible assets: our house, four long-term rentals, and an Airbnb condo. I’m not even sure of the exact value of Mrs. Cubert’s practice, but it’s well into six figures. In the last three years our net worth rose nearly 70%, thanks to booming stock and real estate markets. Is another bubble coming? Maybe.
Net worth is a useful number, but it can be misleading. I believe in the 4% rule—taking 4% of your nest egg each year—but I also want steady cash flow as a buffer. If you’re planning early retirement, diversify: include a business, real estate, or other cash-flow assets to balance stocks. The next 10 years matter a lot; compounding is powerful.
What about you? Do you have any tips for retiring early? Please share them in the comments.