Retire before 40? Some folks say it can be done

• Some young workers are finding ways to retire in their 30s
• A combination of strict financial priorities allow these workers to amass large savings fast
• Critics say that these extreme early retirees may be missing some important considerations

To most people, "retiring early," means 55. But to Jason Fieber, that's too long to wait.

Everything Fieber does is with one goal: Retiring well before he hits the big 4-0. Fieber, a 30-year-old service adviser at a car dealership in Sarasota, Fla., even moved to the Sunshine State from his Michigan home, in large part to live in a state without income tax. The sunnier climate has a side benefit, too, in that it allows him to more comfortably use the bus to get everywhere without a car.

By keeping costs down, Fieber, who earns $50,000 a year, is saving 60% of his net income each year and has saved more than $100,000 in three years. He figures he can bank more than $400,000 by the time he's 35. That's plenty for him to retire on, he figures, since he only spends $15,000 a year.

"I knew nine-to-five until you're 65 isn't the answer," says Fieber, who also runs a blog chronicling his plan to retire before 40. "The goal is to move from the working class to the investment class. Money can work harder than I ever could."

Briefcases, pocket protectors and martini lunches are all signposts of bygone days of office life. But some young workers are going even further, calling the idea of waiting until age 65 to retire as outdated as a lime-green cubicle.

Ambitious young workers, primarily in their 30s, but also in their early 40s and even their 20s, are turning the traditional idea of retirement on its head. They refute the idea that workers must slave away for decades until 65 or longer. These "extreme early retirement" fans are finding ways to make conscious financial decisions now so they have ample nest eggs to give them freedom by the time they're 40, or even younger.

To aspiring extreme early retirees, even the term retired is outmoded, as it sounds like someone who's resigned to the golf course after working to the bone for 40 years. For early-retirement hopefuls, the preferred goal is to be financially independent as quickly as possible. "I'm just trying to find the best way to play the game," says Ryan Farrelly, 31, of Staten Island, N.Y., who plans to be "financially independent" by 35. "It's about reaching financial independence, vs. just retiring."

Like many others with aims of extreme early retirement, Farrelly's plan started years ago. By being mindful of where he's spending, Farrelly has saved enough to buy two rental properties in addition to his house. At this clip, he says the rental income will be ample to support him and his wife in four years. They pay for everything in cash to discourage wasteful spending.

But retiring early isn't just about being frugal. The key principles that many extreme early retirees hold true include:

* Faith in nest-egg mathematics. Two simple and well-understood mathematical principles form the cornerstone of many über-early retirement plans. First, fans of extreme early retirement say any worker who makes the right choices has an even greater chance at retiring young, getting the most benefit of what Albert Einstein once called the most powerful force in the universe: compounding. Mathematics dictate that $100,000 saved by a frugal young worker is worth much more in the future than $100,000 saved by a 50-year-old, due to the power of compounding. Starting to save for retirement, while other thirtysomethings are loading up on expensive cable TV plans and fancy smartphones, speeds retirement.

Second, extreme-early-retirement believers typically hold great faith in the so-called 4% rule, which dictates that a retirement nest egg can last for decades or longer if the retiree withdraws 4% in the first year, then increases that dollar amount each year to adjust for inflation. Some extreme early retirees spin the 4% rule a bit by setting a goal of never taking more than 4% of their portfolios out each year no matter what. Doing so means that those who can save 25 times their annual expenses would have enough to last their lifetimes.

* Strict spending priorities. Extreme early retirees dodge the trappings of the rat race, avoiding wasting money to reach financial freedom. The urge to get that giant house, fancy new car or shiny smartphone are lost on them. "Most Americans spend more than 100% of their income, including the debt they accumulate," says John Greaney, 57, of the Seattle area, who retired when he was 38, largely by banking a majority of his income as an engineer for an oil and gas company.

Early retirees see items that aren't necessary or something they highly value as barriers standing in the way of early retirement. Housing is a big area when in which many people overspend, Greaney says.

But that's just the start, says Patrick Meninga, 37, of Kalamazoo, Mich., who quit his full-time job two years ago at an addiction treatment center.

By avoiding costs others think are necessities, such as cable, expensive cellphone plans and movie services, Meninga currently spends less than $1,000 a month and says he can cut spending even more. At $12,000 a year, Meninga figures he can easily live off his $180,000 in savings invested in stocks, by withdrawing no more than 3% a year and making up the difference from income generated by ads from websites he runs mainly for fun.

While some might think that avoiding a luxurious lifestyle is a sacrifice, to many, trying to avoid the work-to-65 routine is what makes life interesting.

"The key is living like you did when you were a student," says Rich Ligato, 45, who lives in San Diego. While not completely financially independent, Ligato and his wife, Amanda, stopped working steady jobs more than a decade ago. Their goal is working for three years, taking odd jobs, saving their money, then enjoying a year-long vacation break, doing something such as living in India or biking along the Western coast of the U.S. When they return, they take entirely different jobs.

Rich is currently teaching biking classes and managing an apartment, while Amanda is teaching yoga. "It's not about money, it's about freedom," he says. "If you're just driving to make things secure and safe, think about what that means. There's nothing interesting in life. You might as well die."

* Banking on a diversified low-cost stock portfolio. Extreme early retirees must be very savvy in managing their nest eggs. If they're too aggressive, or make a big mistake, such as panicking and selling in a bear market, they could devastate their portfolios. But if they play it too safe, they won't get the returns they need to make a portfolio last for 60 or more years. Many extreme early retirees have benefited from the market's run this year.

But retiring early also requires a new perspective with investments. Unlike other retirees who load up on low-return, ultra-safe investments such as Treasuries, Greaney has 85% of his portfolio in stock and 15% in fixed income. The key is to bet on low-cost investments and resist the temptation to panic and sell during bear markets.

There's plenty of healthy skepticism from traditional financial advisers about the merits of retiring early.

Cary Guffey, a financial adviser with PNC Investments, cautions that early-retirement hopefuls might be overlooking some hidden risks. He says he's seen clients successfully retiring in their mid-50s, but usually with the help of a pension plan, which most younger workers don't have.

He also warns young investors of the high costs of medical insurance and the financial risks of a major health event. Furthermore, he warns that if the portfolio doesn't last as long as expected, young retirees may find themselves returning to work with outdated skills and a big gap in their résumés.

Christine Fahlund, financial adviser at T. Rowe Price, says the 4% withdrawal rule is designed to generate a reliable stream of income for someone planning to retire for 30 years, not 70.

But many extreme early-retirement fans insist they've thought through all these factors. Changes to health benefits make it easier for people to retire early, Greaney says. Fieber says there are many high-deductible plans available that are cost effective, although he currently doesn't have life insurance. Meninga says he's easily found high-deductible health insurance policies that fit his budget.

Regarding the worry about skills getting outdated, Greaney keeps his engineering license current by taking continuing education classes. He didn't retire early because he didn't like his job. He just didn't like the office politics, he says. "I liked engineering; I just got fed up going to all the meetings."

Maybe only time will tell whether the traditional planners or the early retirees are right. But the opinions on either side run hot. The operator of the Mr. Money Mustache Web site that encourage extreme early retirement, Pete, declines to give his last name since there's such a negative feedback on his plan from those that doubt it. Pete, 38, says he's retired after just nine years of saving more than $600,000, so he could spend more time with his son. But he's constantly criticized by other workers who think the work-to-65 is the only plan that pencils out. "It's like an ongoing argument with society," he says.