The key to retirement -- early or otherwise -- is to have enough passive income (social security, pension, investments) to cover living expenses. The higher those expenses are, the larger your retirement fund has to be. And the longer the wait to reach retirement. One can either work longer or reduce one's expenses to reach freedom sooner. Here is how I approached that reality.
When I took a look at my spending 5 years ago, I saw that every expense was not a baseline living expense (money I needed to spend to have an acceptably comfortable life). Many expenses were discretionary (money I wanted to spend). I saw that separating baseline from discretionary expenses could show me the way to a much earlier retirement -- and many added years of job-free life*. But where would I draw the line between what is necessary and what is optional? On what basis would I make a choice between what to include in my retirement budget and the additional job years it would cost me the more I included in that budget?
The real cost is time. I started looking seriously at the time cost of these choices when I learned about the 4% Safe Withdrawal Rate (SWR). I realized that following the SWR meant that I needed to have $25 saved for each and every dollar that I included in my retirement budget. So I analyzed and revised my budget with that 25 to 1 ratio firmly in mind. That did wonders to clarify my thinking.
Calculating the time cost of my budget choices opened my eyes. A $300 monthly car payment was no longer just that; it also was $90,000 more that I would need to save to be able to retire**. ($300/month x 12 months x 25 years). One month's snowbirding in Florida*** was not just $2000; it also was another $50,000 I would have to stash away before I could reach freedom. Even something as "trivial" as a $60 monthly cable bill morphed into an extra $18,000 I would need to squirrel away before I could pull the retirement trigger.
It was not the money that troubled me. My real problem was with the on-the-job time it would take to save up that money. Even at a respectable 20% savings rate, I would have to stay at my job another 2 years just to fund the cable bill! And having a $300 a month car payment in retirement meant that I would have to work TEN MORE YEARS before I could reach freedom.
Our supply of time is limited. None of us lives forever. Every year spent working is one year less of free life left. It is a zero-sum game. So, for me, every extra $100 a month that I would put into my budget would require me to give up 3 years and 4 months of free life! ($100/mo x 12 mo x 25 yrs =$30,000/$9000 saved per year = 3.33 years).
It was with that awakened perspective that I then approached the question of what was a baseline necessity and what was a discretionary option for me. How much more time at work was that budget item worth to me? How much of my remaining life was I willing to give up to keep that item in my budget?
* My Financial Independence Key:
** My Oldie-Goldie Thrifty-Nifty Truck:
*** Florida Snowbirding the Affordable Way: