You want to retire early, don’t you?
Of course you do. I mean who doesn’t right?
Early retirement is big these days. It’s the first thing on the mind of every forward thinking worker out there.
Some call it the moment of succor. The period to relax and enjoy.
But What Exactly Does Early Retirement Mean To You?
Ask five people what early retirement means to them and they would all have different answers.
To some, early retirement means that period when they can do whatever they want, when they want to do it.
This means not having to work for money, having beer at lunch, not having to shave every morning, not having to deal with office politics or put up with that co-worker they really don’t like, having self imposed deadlines, etc.
For some others, early retirement means quitting their main job, but continuing another to supplement their finances.
So what exactly is early retirement?
The word ‘retirement’ according to Webster dictionary, means withdrawal from one’s position or occupation or from active working life.
You can retire when you have accumulated enough funds to take care of your needs or have sources of income that do not have to be earned by working.
That is why the words ‘retirement’ and ‘financial independence’ are often interchangeably used.
Both are used when you have reached a level of financial buoyancy in the form of combined savings, investment income or pension income to cover your expenses from there on out.
However, one of the biggest decisions you will have to make is to know when to retire.
Early retirement might seem like some far-fetched concept to some – a mere daydream, but some workers are already making it their reality by joining the FIRE movement.
FIRE stands for “Financially Independent, Retire Early”.
Their goal is to retire in their 40s or 50s to pursue lifelong passions like traveling, or simply not having to work.
Essentially, FIRE is redefining early retirement. This means that it is becoming less about leaving work and more about having the financial independence to decide when and how to retire, and for whom you want to work.
STEPS TO TAKE TO MAKE EARLY RETIREMENT A POSSIBILITY
Like most good things, retiring early requires a lot of work. But with some strong resolve and a few good strategies, retiring early doesn’t have to be a daydream.
Here are five steps you will want to take to make early retirement a realistic possibility:
1. Determine how old you want to be when you retire
The first step to take if you want to retire early is to decide how old you want to be when you retire.
To some, early retirement means age 50, to some others it is 60.
So it is essential to pick a target retirement age or date and plan towards it.
Every other decision you make thereafter would be hinged on this knowledge. You would need to map out what would need to happen at that age such as how much you would need to save relative to what your expenses might be at the time.
2. Determine how much you would need during retirement.
After you have determined the age you want to retire, try to establish how much you need to make it a reality.
You have to factor in things like life expectancy which would determine how many years you will need retirement income and lifestyle changes (new hobbies, for instance) that may cost more.
To adequately calculate your ‘target number’, try to break your expenses down into monthly, weekly and even daily savings goals.
A good financial planner can help you achieve this.
The goal for this is to determine how much money you will spend each month once you retire.
If you’re still paying off debt, you should factor in those payments in your expenses. Though, if you’ve worked towards being debt free from the onset, you should enter retirement debt-free.
Read: How To Pay Off Debt Fast
Another thing to do is to add in any extra expenses you will have. You never know when you might want to splurge on a new purchase.
So payments for things like travel, entertainment, new hobbies, etc, should be included in your budget.
After taking down this estimate, your financial requirements for retirement would start becoming clearer and you would have a target number to save for.
Ideally, you should have between 25 and 30 times your expected yearly expenses (depending on your predetermined age of retirement), plus cash to cover an extra year of retirement.
3. Look for ways to increase your income
Now that you have taken into account how much it would cost you to retire early, now is the time to look for ways to boost your income so you can save more towards retirement.
If your regular job gives you that financial liberty, or you’re sure you’ll hit your retirement target with the income your regular job provides, then congrats, you needn’t worry yourself too much.
But if your regular job won’t fund your retirement goals, then it’s time to branch out.
Believe it or not, there are a thousand and one things you can do alongside your normal job to make money.
So diversify, learn new skills now so you’ll be better positioned for higher pay. Don’t forget to always ask for promotions in your job. All these would give your early retirement goal a fighting chance.
4. Start living below your means
Okay, you have set your retirement age and you have a financial target you’re working towards – that’s fine!
But there’s still something else to do that would be the difference between retiring according to plan and dragging debt into retirement.
Yep, it’s time to cut down all unnecessary expenses and start living below your means.
It is very difficult to build long term wealth if you spend more than you earn. Hence, you should strive to live below your means as its the only way to save more.
You should cut down on your biggest expenses which are probably housing, clothing and food.
Cooking your meals at home will be less expensive than eating out, so try that.
The more you earn, and the less you spend, the sooner you can quit your regular job and start enjoying retirement.
5. Start Saving Now and Max Out Your Retirement Accounts
Regardless of how old you want to be when you retire, it is important to start saving early and frequently.
If your employer offers a 401(k) retirement plan, use it as an opportunity to automate your retirement savings.
If you start saving early enough, you’ll be able to enjoy the compounding interest on your IRA or 401(k) retirement accounts.
What is important is that you do everything to max out your retirement accounts as this will help you retire early.
You have to define what early retirement means to you. Does it mean not working? Or does it mean you’d simply have the freedom to choose how you want to make money?
There are tons of ways you can still make money at retirement. Many online businesses offer passive income that do not require you to do much work to manage.
So all is not lost if you do not meet your financial retirement goals on time. Your passive income and other investments can take care of this lapse.
Most importantly, while you plan towards retirement, don’t forget to live in the present because the future is highly uncertain.