Reader Case Study: Is this 26-year-old Ready to Retire?

Mr. Money Mustache recently received a request from an up-and-coming Future Early Retiree. His name is Mike, and at the time of writing he wrote a blog called “Mortgage Free by 30”. Here’s what he had to say:

Basically, I hate my job. The company is great. The job isn’t.  I want to work for myself.
After reading your blog, it has made me wonder if there is a possibility of “retiring” in the near future.  And by retiring, I mean working part-time.  If you’d be up for it, I would be willing to send you all of my specific numbers to see what I need to do to be like you.”

First of all, I must say this sounds like a very ambitious young man with wisdom far beyond his years. Being like Mr. Money Mustache? There’s a goal I approve of.

Mike is pretty new to the world of high-income professional employment, and the associated high savings rate that comes with it if you don’t become a typical martini-swilling car-financing Ultraconsumer. But he’s already got some big dreams – paying off his mortgage before age 30 (March 2015), quitting his real job, and moving to a creative and unbounded life of freelancing and other random ways to earn and save.

Here are some vital stats to get us started:
Annual Income: $70k
Annual employer 401K match: $4900
Total Income: $74,900
Income taxes, SS, Medicare deductions: $13,000
Total Annual Spending: = $18310 (further details at the bottom of this article for voyeurs)
Total annual savings is therefore $74900 – 15,000 taxes – $18,310 living expenses = $43,590.

This annual chunk of savings gets distributed roughly like this:
401K including employer match: $9100
IRA contributions: $2400
Mortgage principal payments: $32,090 (the man is really jonesing to be mortgage-free).

That covers the income/expenses side, now let’s review the ‘Stash to see how it is looking:
Home Value: $120,000
Remaining Mortgage Balance: $74,000
401K balance: $9,000
Roth IRA balance: $11,000
Other assets: owns a 2010 Honda Civic with no loan

So what’s the plan for Mike?

The key to financial success for any person is having expenses lower than income. He’s got it, with living expenses of $18k per year. These expenses currently include $2775 of mortgage interest, which will drop to zero as he gets his mortgage paid off. But once he quits the cushy job, he will want to replace his current employer-paid health insurance with a self-paid policy. At a good outlet like ehealthinsurance.com, this will cost him a similar amount to what he now spends on the mortgage interest.

The first option is quitting the job immediately and dropping down to a $40k freelance income. Can he afford it? YES.. but it will definitely slow down his mortgage payoff plans. For simplicity, let’s suppose his after-tax income will now be $34,000. If living expenses stay the same at $18k, he will have 16,400 to save each year. If he distributes half of this to long-term savings like an IRA, and the other half to the mortgage, he’ll take about eight years to pay off the mortgage. Even if he goes crazy and devotes all 16,400 to the mortgage, he will take four years or so. Mike might not become mortgage free by 30 with this program, and thus he would lose his prestigious blogger identity! But he’d probably have a lot of fun in the process.

The second option is keeping the Dilbert-quality job just until the mortgage is paid off. At the current payoff rate of $32k per year, that will be done in just two years. He’ll be 28 years old, and he will also have another $23,000 or so packed into retirement accounts from his 401k/IRA contributions and the employer match. Plus he will save a few thousand in health insurance premiums.

In the end, either option will work. It all depends how adventurous you feel versus how much you want some financial security. I’ve always been a bit on the conservative side myself – which is why I saved up a lifestyle-sustaining ‘stash before quitting my job, even though I don’t really need it since my lifestyle is cheap enough to sustain on just part-time work. I could have jumped into this lifestyle as early as age 21, but then I wouldn’t be Mr. Money Mustache, just Mr. Simple Living Sideburns or something.

The other issue is his longer-term savings plans. If he keeps the big corporate job and the frugal lifestyle, his wealth will exponentially rise into the realm of the Rather Rich. The mortgage will be gone in 2 years, and the 46k+ being saved per year, plus a growing amount of compounding gains and possibly even salary raises would place him solidly into the Millionaires Club sometime in his 30s.

At some point you have to decide how much is Enough. If you have plans to eventually own a bigger house, or raise some kids, you might find it convenient to stick to the high salary for a couple of extra years. Even if the job sucks on paper, you can teach yourself to enjoy it more if you know you are just around the corner from lifetime freedom. If you already had $300k or more in retirement savings, I would be suggesting you bail quickly. But since your Money Mustache is still just stubble at this point, it is wise to consider the fact that a short day at the office may pay as well as two long days of freelancing.

An Extreme Mortgage Payoff discussion would not be complete without considering the tradeoffs. Mike’s investment in extra mortgage payments amounts to a fixed income stream with a guaranteed 3.75% annual return, since that is his mortgage rate. It’s not too shabby – better than a checking or money market account.. but he could also easily get a smooth 6-7% dividend cashflow just by picking out some nice REIT funds – the topic of another article coming up later this week. The REITs have a bit more risk associated with them, but the higher return is usually worth it to people with decades of investing in front of them.

However, with the entire house tying up only $120k in this case, it’s not a big factor in his long-term wealth. In fact, I must again make fun of myself for owning a much more expensive house. It is costing me a lot of money (in the form of foregone investment returns), so the house must continue to deliver a very pleasurable lifestyle to the MMM family to earn its keep. In the long run when the young lad grows up, we’ll probably sell it and downsize.

To round out the case study, here are a few more details on the expenses as he sent them to me, in case you want to compare them to your own situation. As you’d expect, I have added a few MMM comments of my own to his numbers.



Mortgage $625
Condo fees $375 (Temporarily higher, but for the next couple years.  Normal is $250-ish)
Electricity $40 – $60
Groceries $150 – $200
Gas $100
Laundry $20
Internet $40
Dog $30 – $40
IRA $200
Restaurants $100
Gym $30 <-MMM: perhaps I can help you here.
Hair $20  <-MMM: And Here
Gifts $25
“Other” $100 – $150
** I have no cable TV bill or cell phone bill.  I have a cell phone, but I am part of a family talk plan and the policy is not in my name.
Auto Insurance  $440 every 6 months <-MMM: Driving around in a 2010 car is luxurious, but I’d definitely advise trading down if you can handle it, especially once you are done the job and thus not driving around as much. My own car insurance is less than $160 per 6 months because I do low annual miles and don’t need collision/comprehensive insurance. County taxes are much lower on older cars as well. And it’s still pretty new by my standards – a 2005.
Dog shots/meds $75 every 6 months

Property taxes $800 – $1,000
Homeowners Insurance $185
Car tax = $250
Some other details for you:My mortgage balance is $73,999, due to my prepayments.   I have some equity in the home.  Value is $120,000.
I have a paid off a 2010 Civic.  If I went freelance, I might ditch it.  I live in a city, but due to my overnight hours, I felt the need to get a car.  I won’t work overnights if I freelance.
Roth IRA balance is 11K.  This serves as my emergency fund as well.
401K balance is 9K
Total investments 21K
Checking accounts keep low balances intentionally, but I usually have 1K or so for emergencies.


What do you think? Early Retirement or Stick it out and Slave for a few more years?

  • Brandy August 9, 2011, 8:25 am

    I would stick it out until the mortgage is paid off. Two years isn’t that long and every month you get to see that balance getting paid off by quite a bit!!

  • Ginger August 9, 2011, 9:44 am

    I’d personally stick out out a few more years to pay off the mortgage and get something of an EF. The Roth should be invested in stocks and therefore is not an EF. He needs some more cash or cash equivalents. He really does not need it now, because of the large difference between his expenses and his earnings but if he does freelancing he would. I would start trying to freelance and start putting that money to the side as a EF. Once he is earning enough to cover his expenses freelancing (including health insurance) and pay off the mortgage by 30, I’d retire.

  • K S August 9, 2011, 11:07 am

    Roth IRA as an Emergency Fund? Only 20K saved towards a traditional retirement?

    • MMM August 9, 2011, 11:29 am

      I’ll have to step in here and add an alternate perspective on this Emergency Fund business. I think the Dave Ramsey idea of an emergency fund is silly. Any source of money – stocks, bonds, cash, a car you can sell, a credit card, or a line of credit on your house – will do just fine as an emergency fund.

      It is a waste to leave ANY money sitting around in cash not working for you, and I have never done so. Occasionally I have had “emergencies”. Small ones, less than a month’s take-home income, just go on the credit card and get paid off automatically when the credit card becomes due. If there are medium-sized ones, I can easily draw from a $75k line of credit on my house, which costs me nothing to own when the balance is zero. For enormous ones, like the time I had to pay off a $406,000 mortgage on a rental house to avoid a complex legal problem, I just sell some shares. It only takes 1-3 days to get the money.

      As for cash – I just checked and I have $17 in my wallet right now. The regular bank account is down to $800 for the rest of the month since I just cleaned it out to buy some the discounted shares available these days in the stock market.

      I feel the idea of an emergency fund is valid for people just starting out on a recovery plan from financial ruin – living paycheck to paycheck, such that even a broken refrigerator would normally cause an unpayable credit card bill. But once you have some assets, and especially with low living expenses, your worries are gone forever.

      As for the traditional retirement savings – you are definitely right that 20k does not go far. Mike will have to continue adding to his retirement fund for at least 20 more years if he quits now and lives off a 40k income that only just keeps up with inflation. But if he enjoys the work, that’s not too bad a fate to have, and he’ll still end up fully financially independent earlier than most people.

      Plus, most ambitious and intelligent 26-year-olds find that their income goes up throughout their adult life. It’s hard NOT to make money in the United States if you are a hard working and computer-savvy person with good interpersonal skills. People just want to pay you to do stuff for them. Just one of the reasons I love this country :-)

      • Oskar August 9, 2011, 11:38 am

        I agree, once you are in good financial shape, having a separate bucket for money that is called emergency fund and that does not work for you does not make much sence? In smaller cases you can cover expences with cash or credit at hand and for larger issues ALL your money and assets are the emergency fund….!

      • Steve August 10, 2011, 2:38 pm

        I agree with this. Your money should be WORKING.

        • Lily April 19, 2014, 9:18 am

          I keep hearing this, but our emergency fund is specifically held in cash in a bank to pay our mortgage over a long period of unemployment. The money in the bank earns almost nothing, but the cost of the mortgage does not go up, so the security aspect cancels out the lack of investment edge. We can rest easy at night. I think resting easy is key. I know my spouse would be extremely unhappy if that fund was invested in the stock market even if it was earning a lot of dividends or growing exponentially in value.

          We’re in a period of unemployment right now, severance about to run out, so we shall soon test whether the emergency fund is necessary and in what dollar amount.

      • Melissa Wannabe blogger March 12, 2014, 4:40 pm

        So I currently save 20% in 401k and we save 500 a month approximately… Are you saying I’m in the group of people that should not be worried about having a safety fund… We have more then 10gs just sitting around smoking and eating doughnuts… But per your other articles I did drop 4 into paying down car loan. Which I had on top of the 10… I guess I’m paranoid.

  • Oskar August 9, 2011, 11:41 am

    To be retired I think you need a steady passive income stream that supports your basic living expenses i.e. not need the part time income. If you need the part time income to pay the bills you are working less but you are not retired……Or?

    • MMM August 9, 2011, 11:53 am

      True, true.. the definition of “Early Retirement” is a bit of a variable thing.

      Some people think it means you are not allowed to work at all. These people accuse me of not being retired.

      I think it means you have passive income that eliminates the NEED to work, but you are still allowed to work if you enjoy it.

      Mike feels it means quitting the rat race and working on his own terms, with a very low amount of fixed costs in his lifestyle. With his house paid off, he could work almost any casual job and still stay afloat.

      I’ve decided to still let him call himself “retired” once he reaches this goal, because it still meets the Mr. Money Mustache philosophy, which involves consuming less, living creatively, and growing as a human being. This move still amounts to giving a big middle finger to the destructive overworking and overconsuming lifestyle that I’m fighting against here.

  • Petra August 9, 2011, 11:52 am

    The money coming in seems to good to be true, so sticking with it could be worthwhile. He could also consider sticking to it for one year instead of two (which is a compromise between fun and money) AND perhaps starting to work on his freelance / future career plans in the evening hours. That helps with remembering why you drag yourself to work every day…

    • MMM August 9, 2011, 12:03 pm

      Yeah, it is too good to be true, isn’t it?

      I find it interesting that in this country, some people slave away for 10-20 years to reach a salary that may still be less than $75k per year, whereas in other fields like software engineering, you can graduate from a state university, 4 years after finishing high school, and Boom, you start at over $100,000 per year plus stellar benefits and start rising from there.

      That’s just the nature of supply-and-demand capitalism, but the high-income people often don’t realize how good they have it.. so they just spend it all. You have to realize how powerful any income above minimum wage truly is – and then use this amazing power for Good (saving) instead of Evil (spending).

      • Uncephalized June 9, 2012, 10:30 am

        Damn. I really should have gone into software engineering instead of mechanical engineering, I guess. My starting salary (which is what I’m making now, having just graduated last year) was half that, and the benefits are mediocre. Granted, I went to work for a pretty small company, but even my peers working for big mining or defense contractors are only (ha! “only”!) making about $60k. I also have no student loans or other major debt so I’m in good shape, but damn, $100k starting salary? I was always good at coding and enjoyed it a lot, even took some classes in it just for learning’s sake, and wondered if I should have gone that route instead. Too late now I guess! I can still teach myself JavaScript for fun…

        • Jian September 18, 2013, 11:28 pm

          It’s not too late at all! A bright young person who can program will always be able to find a $100k job in, say, Silicon Valley; but the living expenses are also very high.

          I’d say if you really enjoy coding, go for a software job as soon as you get competent with at least one programing language, like java. But try stay in a moderate area like Mr. MMM, so you get to save a big chunk of your income and retire young! Good luck!

  • Mike August 9, 2011, 12:21 pm

    Thanks to everyone for the comments. They are great. I’ll post more on my blog on Thursday.

    But in the meantime, I wanted to weigh in on a few things:

    1) Retirement income: Obviously, my 20K balance won’t go far. For me the idea of ‘retiring’ in the near future is leaving the corporate world behind and working for myself. I would continue to fund my ROTH IRA throughout those years of freelance or self-employment, preferably part-time. I guess it’s just how you define retirement, and I think we can all agree, that definition is changing in America.

    2) Emergency Fund: Suze Orman says 8 months of living expenses. Dave Ramsey says 3 – 6 months. While I don’t have that amount of money sitting in my checking account earning ZERO INTEREST, I do have ACCESS to that amount of money.

    Let’s say I lose my job. The first thing I would do is sell my car, worth $12,000. I would stop prepaying the mortgage, which would drop my living expenses to below 2K a month, as detailed above. That’s 6 months of living expenses. I would be able to use public transportation or a Zipcar to get around the city.

    I could also tap into my ROTH IRA, without penalty, but I would rather not do that. Credit cards could also help me get by. And at last check, I had $2,100 in my checking accounts. Wost case scenario: a home-equity loan.

    I’m not trying to knock emergency funds. If I were to go freelance, I would definitely boost my savings account first to prepare myself for the unknowns. A couple of you have pointed that out. I think that’s a good insurance policy, given the economic climate. You never know when freelance dollars might dry up. But it’s all about assessing one’s individual situation and right now, my risk is low. For me, I have a steady job, prospects of additional work and nearly 3K left at the end of the month, after paying my expenses. I’m OK with not following Suze and Dave on this one.

    As for a time-table, it’s a lot to think about and the main thing on my mind. I have thought about 2 years, as described above. 3 makes sense too. But for me, staying in a bad situation in order to ‘get rich’ might leave me emotionally bankrupt. That’s what I have to weigh over the course of the next few weeks, months or maybe years.

    Thanks for your comments. Keep them coming.

  • Kevin M August 9, 2011, 1:51 pm

    Sounds like a good plan! I would definitely stick with it for a couple years (assuming you’re not getting physically wrecked by the job) and get that mortgage paid off. Then go for it – you’re young, you can probably find another job if it doesn’t work out.

    Keep in mind going freelance the cash flow may not be like a regular paycheck. You’ll be treated as a vendor and at the whims of the A/P department. Might want to boost the savings by a couple months living expenses just to offset this.

  • Marcia @Frugal Healthy Simple August 9, 2011, 2:25 pm

    As a 40-something parent, I am in a different place. I am fiscally conservative, so my focus has always been different from where you are. On that, I would pay off the mortgage first, maybe work an extra year, then quit.

    I am lucky, however, to have a job that I love. There have been times in the past where I have been less than thrilled with the job, but it has never been one that I hated. So I simply cannot put myself in your shoes.

    I would, however, start working on my freelance work now nights and weekends. If it’s something you love, then it shouldn’t tire you out too much to do it on the side. With that, you might find that you are both earning money and becoming more emotionally ready to make the jump even faster. Dip a toe in the shallow end before doing the cannonball in the deep end. (Sorry for the swimming references, we are teaching our 5 year old to swim).

    You are young enough that you can plan your life around this lifestyle. How you live your life, how you spend your money, who you marry (or not marry). While it’s not my style, there are many many people who live in my area of So. Cal who are freelancers. There are amazing benefits when it comes to flexibiity of schedule. Big bonus when you’ve got kids.

    • Moxie August 13, 2011, 8:42 am

      I was surprised no-one mentioned getting an additional job or starting to freelance part-time until now! I agree with @Marcia that boosting your income now will be a way to help you reach your goal faster.

      Be selective with the projects you take, make sure you get the feel of running your own business, get your name out in the community, and by the time that you really want to rely on freelancing as your primary/sole income source, the business will be flowing in. (hopefully!)

  • Mike August 13, 2011, 12:13 pm

    @moxie and @marcia — that’s great and sensible advice.
    I have been pursuing freelance and part-time opportunities for a few months now. I actually just started on a new project this past week. It has the potential to be very profitable, so I’m hoping to use that money toward paying off the mortgage and building a solid reserve fund. Hopefully the last line of your comment will become a reality. If this project works out and I continue to aggressively pay down the mortgage, I will be in a position to grow by my own power in a year or so. I should have mentioned that my current full-time employer is pretty much a sure-thing for freelance, so that would be another source of revenue. The upside of freelance at my current employer would be the ability to set my own hours and taking on a different role. Thank you again for your comment

  • Gerard September 4, 2011, 5:28 pm

    Another possibility is to take any freelance income you get now and devote it specifically to growing your business, if that makes sense in your context. It’s great to see the mortgage shrink, but there may be things you can do now that will set you up better for the future. Courses to take? Associations to join? Equipment/tools? Advertising, publicity?

  • Poor Student January 25, 2012, 10:41 am

    I wish I had read this before. For a 26 year old to conceivably be able to live on part time/ free lance work is very impressive. This is definitely something I never considered despite what I thought were ambitous dreams. I want to look into my chances of something similar to this.

  • Liz February 17, 2012, 4:06 pm

    Question for Mike: Did your parents buy your car and put your down payment on the house, and if so, do you have to pay them back?

  • Mortgage Free Mike November 10, 2012, 6:28 pm

    Liz, I paid for everything myself. I have been working since the age of 14, independent since 16.
    And my mortgage is now 95% paid off. Will be gone next month.

    • Everett November 3, 2013, 12:22 pm

      So how did everything turn out? I see you quit the blogging.

    • Phil November 9, 2013, 8:34 am


      It would be amazing to see a summary of how the last two years went. I’m sure a bunch of readers would be interested in seeing how things played out.


  • Val July 5, 2013, 5:03 am

    Question for Mike : I know it’s all a bit old now, but did you ever consider changing company to get a better day-to-day job, even if your income dropped a bit, which might have helped you not feeling “emotionnally bankrupt”?

  • Amanda M. September 9, 2014, 4:52 pm

    One issue I have with this post (along with many millennials) is the cell phone comment: I have a cell phone, but I am part of a family talk plan and the policy is not in my name (no cost associated)

    There is someone paying for that phone, and the 26 year old (now 29 YO) is apparently not that person. Just because it’s not in your name does not mean that you shouldn’t be paying for it. An adult with a good paying job who is paying really well on a mortgage should be able to split a cell phone bill (with I’m assuming his parents). It’s like letting parents pay auto insurance just because you’re on the same bill. My parents gave me my first cell phone at 16, and I paid for it after a year of service. That’s just how it worked.

    • Mortgage Free Mike September 9, 2014, 4:58 pm


      Who’s to say I didn’t compensate my parents in other ways?

      FYI, my cell phone plan is currently in my own name. I have Republic Wireless. I also paid off my mortgage in 2 years and I’m continuing to follow MMM’s guidance.

      All the best,


  • Noriko March 5, 2015, 11:01 am

    I was wondering how you arrived at a total of $10,000 for income, SS and Medicare taxes on a gross earnings of $74,900. I’m kind of a spreadsheet nut and it shows he would be paying the following:

    Federal Taxes: $11,944
    State Taxes: $2,288 (for Arizona at least)
    Medicare & SS: $5,730

    This is a total of $19,962. I know this post is a couple years old so tax rates have changed a bit and the state taxes are likely off as he probably isn’t in Arizona, but this is still a pretty significant difference. I can send you my spreadsheet or if you could send me yours I’d love to see your calculations. Maybe I’m the one doing it wrong.

    • Jo_bof March 20, 2015, 5:26 am

      You’re missing (1) pretax income is something closer to $60k after removing his $9,100 401k contribution, plus another $200 toward deductible IRA, (2) he probably itemizes his deductions based on mortgage interest and property taxes, thereby driving the liability lower.

  • John March 5, 2015, 11:27 am

    It’s March 2015… I just found this website the other week and have already saved $200 in recurring monthly debt. I’m also 26, with a house valued at around $120k, and I’m wondering if Mike was able to achieve his goal.

    I will be going to his blog after making this comment, I just figured I’d ask here, as hopefully you get a notice about it, MMM, and can do a follow up if you were looking to. :D

    • Peggy April 7, 2015, 1:18 pm

      John if you go back a few comments you’ll see a comment from Mike in 2012 and again in 2014; he did indeed pay off his mortgage.

      • David April 27, 2015, 3:27 pm

        But did he quit his 8-5 job and start just working part time?

  • Will September 8, 2015, 6:04 pm

    I’d also love to know what Mike ended up deciding to do and how it all worked out!

  • Wolfgang September 6, 2018, 7:54 pm

    Heads up numbers are off
    Total Income: $74,900
    Income taxes, SS, Medicare deductions: $13,000
    Total Annual Spending: = $18310 (further details at the bottom of this article for voyeurs)
    Total annual savings is therefore $74900 – 15,000 taxes – $18,310 living expenses = $43,590.

    Badass story. WOOT Mike

  • Moa Wessel October 30, 2018, 11:47 am

    Curious to find out if he made it!!


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