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A 26-year-old woman called into "The Ramsey Show" hoping to get some financial wisdom from Dave Ramsey on how to retire early—ideally by 40—without getting hit with penalties on her investments. While Ramsey gave her a solid investment strategy, his bigger takeaway was blunt: early retirement might not be all it's cracked up to be.
Ramsey started by questioning what "retirement" actually meant for the caller, Jennifer from Houston. "To stop working," she laughed. But Ramsey wasn't convinced that quitting work at 40 was the dream she thought it was.
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"I have a friend who sold his business at 31 for millions of dollars. And after two years, he almost died," Ramsey said. "Because he got fat, he got completely out of control, and...it was not a blessing to not have anything to do with his life."
Investing for Early Retirement
Despite his concerns, Ramsey laid out a three-pronged strategy for Jennifer. First, he advised her to start working on something she enjoys now instead of waiting until 40 to figure it out. Second, he encouraged her to keep using tax-advantaged accounts like 401(k)s and Roth IRAs for long-term wealth building. And third, for money she'd need to access at 40, he recommended investing in low-turnover mutual funds, like an S&P 500 index fund.
"You obviously cannot use 401(k)s and Roth IRAs because you don't have access to them without penalty until 59 and a half," he explained. Instead, he suggested keeping a portion of her investments in taxable brokerage accounts with minimal turnover to reduce annual taxes.
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The Bigger Challenge of Early Retirement
Financial independence is great, but Ramsey stressed that having a sense of purpose is just as important. "I don't know why you'd work from age 24 to 40 at something you hate," he said. "I wouldn't."
His concerns align with long-term studies on retirement. The Harvard Study of Adult Development, which has followed participants for over 80 years, found that the biggest challenge retirees face isn't missing work—it's losing the social connections that come with it. Similarly, a MassMutual survey found that a third of retirees aren't any happier post-retirement, with many struggling with loneliness.