Retired life is the promise of 7 day weekends, they say. Early retirement without enough money is the way you break that promise.
You spent a lifetime investing in yourself. You calculated your assets, inventoried your investments, focused on efficiency and value, streamlined your spending. Whether you realized it or not, you, became your own business venture. If you did it right, you can now cash in and move down south, to sunny Florida or sandy Algarve. If you manage to clock out early, before your sixties caught you by surprise, then you’ve defeated the powers that be and outran the running misconception that you have to work yourself into the ground, literally, for money.
So if your goal is to retire as soon as possible, but don’t really know where to begin, here are a few strategies to implement. Then, all that’s left for you to do, the 30 or the 50-year-old, is to quit working forever.
Early Retirement Strategies to Implement Right Away
1. First Things First – Conquer your fears!
“You get old faster when you think about retirement.” – Toba Beta, Master of Stupidity
Give up hope that you’ll ever reach the promised land of health care and social security hand in hand with the government. It wasn’t for nothing laissez-faire economist Friedrick Hayek called it the Road to Serfdom.
This pension granted upon retirement for lifetime service in the line of work goes under different names, depending on your geographical location. Retirement plans in the United States, pension schemes in the UK, superannuation plans in Australia and New Zealand.
But, in the end, governmental support has such a poor record in supporting its elderly population that general trust in the system has waned considerably in the last decade.
Economic fluctuations or extreme political events can put on hold your monthly retirement money. One highly criticized practice of businesses in the United States is to purposely underfund their pension schemes in order to lay the costs onto the increasingly sagging shoulders of the federal government.
With that in mind, don’t fear to bend the curve and conceive your own early retirement plan. After all, one of the most common mistakes that most people make when it comes to their retirement is they do not plan for it. Relying upon yourself is always the best option.
2. Lower Your Basic Cost of Living
This is the first obstacle to sabotage your efforts of retiring early. Early retirement involves tradeoffs, and one thing is for sure. No one likes those. Even the word has earned a bad connotation.
Nonetheless, if you want to get off the working grid earlier, start aspiring to the principle less is more. Contrary to popular belief, scaling back luxuries, challenging yourself to a more austere lifestyle while banking the extra cash might prove beneficial not only on a financial level but also to your general state of mind.
At the same time, this newfound talent will condition you to live on less money once you get a start on your early retirement. The only money that will be there when you get there is that which you’ve sent ahead.
3. Calculate your early retirement numbers
You don’t need to be a math whizz, but do your calculations wisely, as this is the amount of money that will see you through retired life. One figure circulating around is that you should be able to retire on an income that is 80% of your pre-retirement income.
Two points that you should take into consideration:
- The annual income you will need to live on in retirement.
- The size of the retirement portfolio. Here is where you’ll be dipping your hands in every time you want to tick off another item on your life’s bucket list.
To stay on the safe side and not overspend, follow the safe withdrawal rate. It means that if you withdraw 4% out of your retirement purse each year as income, you’ll never run out of money. That is, if your portfolio will meet expectations and return an interest of up to 10%. There are such things as inflation.
Of course, the numbers will vary according to how you plan to live the rest of your non-working life. Early on in retirement, there’s always the tendency to untighten the belt and fritter away the money on all the things you were too busy to do before. Add a mid-to-late life crisis to that, and you’ll be shaking your head at your freshly painted name on the side of a yacht that you can’t sail.
Retire young, and your free-spending years start early. So make room for contingencies in your income equations while also keeping in mind the following point.
4. Never forget inflation
Track the tides of inflation over the past 20 years and bookmark this website of the Bureau of Labor Statistics as a reminder that early retirement doesn’t mean a way out from under the economic highs and lows.
5. Don’t get comfortable with debt
Debt is a slippery slope, and while you’d think this is only a figure of speech, you’d be surprised to know of the existence of the Debtors Anonymous. This group is the AA of compulsive debtors, and you wouldn’t want to be one if you’re still aiming at that early retirement.
Credit cards are, by nature, expensive and wasteful. No debts should be allowed to linger in that economic limbo, so never spend more than you can afford. Remember, less is more. More money in your pocket that is.
6. Do not live beyond your means
“The goal of retirement is to live off your assets not on them” – Frank Eberhart
If you’re aiming at early retirement, being house poor will certainly fray your plans. Why own a house that will strip much of your income on mortgage payments, property taxes, utilities, maintenance, the gardener, etc. when you can lose two out of the five bedrooms and still proudly advocate that ‘A man’s home is his castle’.
Better yet, why not move to a town off the expensive crowded coastal regions where property taxes and lower living costs will serve your early retirement plans better. Don’t worry, you can still keep up with the Joneses whether is San Francisco or Colorado. And besides, why do you want to keep up with Joneses, why not let them keep up with you.
7. Stack up on your Income
“He had an answer to almost everything and he retired at an early age.” – Dejan Stojanovic
This is a question of when you plan to retire. If the answer is in 40 years, you can keep saving at a pace of about 10% to 15% of your income every year. If you’re running out of patience and want to press the fast-forward button, aim at a solid 50%.
A number of options are available to you. You can upgrade your finances with a part-time job on top of your 9-to-5 work.
If the pressure is too high, choose a project-based work instead. Keep it up at what you do best, or start anew. And because we know how scary fresh beginnings can be, we’ve compiled a list that might help you with that. (here link to passive income article)
Ready for Early Retirement yet?
While the early retirement notion may seem like a distant dream, the great many who have pulled it off are an encouraging sign. By embracing simple living, prudence, and healthy investments, you can also not ever work again. The choice is yours. If you cut back, spend less, save more you can join those who have reach that dreamy place called retirement.