The typical American retires at age 62. One Minneapolis-based Millennial plans to shave more than 20 years off that average and retire by age 37.
"The Money Wizard," who goes by the pen name Sean and asks to remain anonymous, is well on his way to early retirement.
He opened his first investment account at age 16. By age 25, his net worth hit six figures. Now, at age 26, he has nearly $150,000 in the bank, thanks to smart saving and investing habits and a dash of good luck.
"No inheritances, no windfalls," he writes on his blog, My Money Wizard. "Just lots of saving, basic investment, and a desk job in the finance industry that places my salary barely above the median household income."
CNBC spoke with the 26-year-old financial analyst and blogger who's on pace to retire in a little over a decade. Here's a look at how he's making it happen.
"I always thought that in order to have enough money to retire, or to be financially independent, you had to hit it big," he says.
His grandfather changed his perspective and motivated him to start investing at age 16.
"He didn't appear rich at all," says Sean of his grandfather. "He raised five kids, he drove old cars, and he never made more than low five-figures."
Yet he managed to save $1.3 million in the stock market, thanks to two key ingredients: time and compound interest. "It really speaks to the power of starting early, living reasonably, and of compound interest."
Thanks to both of those factors, Sean — who puts about $33,000 a year into low-risk investments — expects to have $750,000 in the bank by age 37.
After reading Jacob Lund Fisker's "Early Retirement Extreme" at age 22, Sean decided to fast-track his retirement and get serious about saving.
"I had always assumed, like most people, that I needed several millions of dollars to retire," he says. "Yet here the author was proving retirement was possible on far less than I ever imagined. It's not one size fits all for everybody — it depends on how much money you spend and what your expenses are."
Sean graduated debt-free at 23 and landed a financial analyst position in Denver. "I was very fortunate to graduate with no student loans, thanks to extremely generous parents," he explains.
He started setting aside 35% to 40% of his $50,000 entry-level salary. After relocating to Minneapolis a year ago and moving in with his girlfriend, with whom he splits various fixed costs, he's able to set aside more than 60% of his now $70,000 salary.
Using the "4 percent rule" — the somewhat controversial guideline used to help you determine the amount you can withdraw from your retirement savings each year without running out — Sean figured he needed $750,000 in the bank to retire comfortably. He plans to live off of about $30,000 per year, which gives him some leeway, considering he currently spends less than $25,000.
He's confident he'll be able to cover large, future expenses, such as a house or kids, because his savings model is so conservative. It assumes he'll never get another raise (though he already has), that he won't earn a penny after retiring, and that any potential spouse will never save a dime.
"All of these things are pretty unlikely, so the conservative assumptions should allow for significant wiggle room in the budget," he explains. "As it turns out, in the past year, my expenses have actually gone down and my salary has increased, meaning I'm technically on pace to not only reach my number sooner than anticipated, but I also need less in retirement that I originally planned."
This doesn't mean he's adjusting his plans, he notes: "Instead, I'm just creating even more of a safety net for the planned and unplanned increases in life expenses."
"A minimalist mindset is simply realizing that more is not always better," Sean writes. "It means becoming aware of the things that you own, becoming aware of the burden 'stuff' can create, and carefully scrutinizing items before bringing them into your life."
Living minimally has allowed him to keep his expenses at bay. "If you look at my spending compared to most people, the two main areas I save the most on are rent and car payments," he says. "I drive a 13-year-old truck that's completely paid off and I split rent with my girlfriend in Minneapolis."
Here's a breakdown of his monthly fixed costs:
- His share of the rent, which he splits with his girlfriend: $640
- His share of the utilities, which he splits with his girlfriend: $30 to $40
- His share of the Internet, which he splits with his girlfriend: $10
- His share of the groceries, which he splits with his girlfriend: $100 to $150
- Car insurance: $50
- Gas: $50 to $100
- Gym membership: $27
Total fixed costs: $907 to $1,017
Additionally, he spends $150 to $200 dining out, which he calls a vice. Miscellaneous expenses fluctuate between $400 and $1,500 a month since travel is, he explains, another vice.
Sean's $150,000 is spread out in various places, he tells CNBC: He has about $7,000 in cash, $40,000 in his company's 401(k) plan, $59,000 in a Vanguard broad index fund, and $45,000 in a Merrill Lynch brokerage account.
"You don't have to be a stock-picking genius to invest," he says. "A lot of people think that you have to dive deep into the financials of a company in order to invest in the stock market. With the advent of low-fee index funds, you don't have to be an expert."
The smartest investment he's made, he says, is the the simplest for most people to do as well: contributing the maximum to his 401(k) each year.
"Investing directly into your 401(k) or similar pre-tax account drastically reduces your income in the eyes of the tax man," he explains. "I save over $6,000 per year in taxes just from maxing out my 401(k) contributions."
While the Money Wizard feels on track for retirement at 37, "maybe my estimations will prove to be far too optimistic and my retirement will be set back 10 years," he says. "In which case, I'll still be retiring decades sooner than the few Americans who are actually planning for retirement."
If he does become financially independent by age 37, it doesn't mean he'll be sitting on a beach for the rest of his life. "That's not what I'm looking for," he says. "What I'm looking for is freedom. If I want to continue working, I can continue working. If I want to go off and pursue something else entirely, I can do that. For me, it's just about freedom."