Savvy Americans Save Enough Money To Retire Early in Japan

An online user has successfully achieved FIRE (Financial Independence, Retire Early) by living frugally in Japan as an American expatriate. The individual reached their goal of retiring at age 40 while living in Japan with their Japanese spouse and four children. Their journey to FIRE began in their 20s, despite initial setbacks such as overspending on cars and losing a job unexpectedly.

A turning point came when they discovered the Mr. Money Mustache blog in late 2014, which inspired them to adopt a more frugal lifestyle and focus on saving. The user worked as a Department of Defense contractor in Japan, earning around $186,000 per year take-home pay at their peak.

As an expatriate, they benefited from significant tax savings, paying only the mandatory 11% for Social Security and Medicare, without additional U.S. or Japanese income taxes. They managed to accumulate approximately $1.3 million invested in an S&P 500 index fund (SWPPX) by the time they retired.

Their savings rate increased dramatically over time, reaching over $100,000 per year at one point, including maxing out their 401(k) and Roth IRA. The user’s net worth grew from around $800,000 in 2018/2019 to over $1 million in 2020, partly due to selling rental properties and paying off their home in Japan.

Living in Japan helped their journey to FIRE by providing a lower cost of living compared to many parts of the United States. The family was able to live comfortably on about $40,000 per year, excluding international school tuition for their children.

They own a paid-off house in Japan worth between 30 and 50 million yen ($200,000-$350,000 USD), which significantly reduced their living expenses. The user’s spouse did not work during this time, allowing them to focus on maximizing their income and savings from a single source.

They supplemented their income with side hustles like fixing computers and booking flights, as well as credit line swaps, which all contributed to their savings. The COVID-19 pandemic provided unexpected financial benefits, as they received substantial payments from the Japanese government while maintaining their U.S.-based income.

Their investment strategy included reinvesting dividends, which helped compound their wealth over the years. The 4% rule suggests they can safely withdraw up to $52,000 per year from their investments, which is over 6 million yen annually.

This withdrawal rate is more than sufficient for their lifestyle in their part of Japan, where it exceeds the income of most local families.

The user submitted their two-week notice, with their last day of work coinciding with their 40th birthday. Their success in achieving FIRE in Japan highlights the potential advantages of geoarbitrage and expatriate tax benefits in reaching financial goals.