We all ache to quit the rat race. The daily grind of the commute, dark winters, a stressful office environment and performance reviews can lead us to wonder why we put ourselves through it. Surely, there must be more to life? The thought of retiring at 65 fills you with dread – that’s another 30 or 40 years with your nose to the grindstone. It doesn’t have to be this way.
You see stories popping up every now and again, complete with pictures of relaxed, smiling faces. People who have managed to retire at the age of 40, 45 or 50. With more than just a touch of the green-eyed monster you eagerly read their stories. Then only to discover that they sold their houses, bought a van and camped in their all too kind neighbors garden for a decade or more. This isn’t something that you’d entertain. Isn’t there an easier more appealing way to achieve the dream of early retirement? There is indeed.
I was age 40 when I made the decision to do whatever it took to retire young. Retiring early doesn’t necessarily mean living like a peasant for your remaining working life, eating gruel and never switching on your heating (although this is an option!) Early retirement means planning, planning and more planning! You need to know what you will be doing financially every day for the rest of your working life. Whether this is ten or twenty years.
You need to decide when you want to retire. It pays to not be too ambitious. It’s best to settle on an age that realistically gives you enough time to save enough and pay off all of your debt. If you’re in your twenties, you may be able to choose an age beginning with a four. If, like most people reading this post, you are a disillusioned thirty-something, fifty is the ideal age to shoot for.
Debt
Before you do anything else financially, you must get your debt paid off as swiftly as possible. This means getting all of your monetary ducks lined up in a row. You need to be aggressive and utilize any spare cash to pay off credit cards and high-interest loans before you take on your mortgage.
Make a budget and stick to it. Your list of incomings and outgoings needs to be as accurate as possible. Include everything from the blueberry muffin that you pick up as a treat from a well-known coffee chain every Friday to the gourmet trail mix you love to snack on at work. This way, you’ll be able to spot the items that you can forego immediately. You’ll be surprised at just how much this will save you over time.
Any disposable income that you have after paying your bills, food, mortgage and fuel costs must be used to pay off debt. Other than maxing out your company’s retirement 401K match amount, forget the retirement savings for a little while. It’s no good managing to retire at 50 with $500,000 in the bank if you still have $200,000 in debt. Get to work aggressively paying off a large chunk of your high-interest debt every month.
As you see the debt figure decrease, you will be even more motivated to continue. When the higher interest loans and debts have been repaid, you can then think about paying off your mortgage and having an asset in your name. Owning your humble abode outright will be a huge benefit to you come retirement day.
Home Loan
The joy of a home loan is that it tends to be repaid at a much lower interest rate than store cards or secured personal loans. Even so, you need to pay back your mortgage early saving you money on interest and leaving you with some bricks and mortar. Check the small print of your home loan agreement. The chances are that you can pay back ten percent of the remaining balance of your mortgage in over-payments every year. Utilize every penny of this allowance and ensure you don’t go overboard otherwise you’ll be hit with any penalties there may be. By doing this, you could pay off your mortgage in less than half the time of the original term.
If there are no early payoff penalties in your loan agreement then you can pay any extra amount you can without restriction. Being mortgage free at retirement will bring both peace of mind and a much lower retirement lifestyle cost.
Savings
While you are beginning to shift the mortgage debt, you can start to think about reinvigorating your savings plan. Saving can be hard with the wants and needs of modern life. Here, you’ll have to make some very tough decisions. If you love traveling and take three or four holidays/vacations a year to exotic, far-flung destinations, then this obviously has to stop or be considerably tailed back. Cut back to one annual vacation but make it a good one. Take a couple of weeks overseas being a little bit more financially aware when you are booking your flights and accommodation. Perhaps even cutting back to every other year and travel to great destinations closer to home in the between years.
First class isn’t a realm you should be setting foot in if you want to retire at fifty. Remember, wanting to retire early shouldn’t be to the detriment of your quality of life. It’s all about financial awareness. Finding a sustainable balance between your having purposeful spending discipline while still living a full life.
If you enjoy a busy social calendar, you may need to cut this back a little or adapt the way you meet up with friends. Dinner parties are a great way of cutting the cost of informal meets. Eating out can soon see your savings pot dwindle so save the restaurants for special occasions.
If you have a commute to work every day and need a car, don’t buy straight off the new car lot. Utilize a company discounted car policy if the business you work for has one. If not, buy second-hand and realize that you are using a vehicle to get from A – B, not as a status symbol. If all goes well financially you can leave that for when you are in the joyous throes of early retirement.
Investing
As you build up a little more capital, you may find that you have spare cash burning a hole in your pocket that could work for you more lucratively than if you placed it in a savings account. Consider venturing into the world of real estate. If there’s a new house for sale in your local area or in an emerging overseas market, take a look and consider its potential as a rental. By investing your money in bricks and mortar and seeing a second income from it, you’re making your money work for you more aggressively. Do the math and make sure that any rent you receive covers the mortgage. Real estate generally holds its value, and you could see a high return on your investment when it’s time to sell.
You could go down the stock market or Forex trading route. While lucrative, these forms of active trading investment also carry a greater risk. You can set up dummy accounts with agents and try your hand at the stocks before having a go for real. If you have a good decade before you hit fifty, it might be worth having a flutter on the markets. However, it pays to seek professional advice before launching yourself into the trading world.
The key to sound investing is not putting all of your eggs in one basket and spreading the risk. A varied range of high, medium and low-risk investments can ensure a well-rounded portfolio that should produce fruitful rewards. Most successful early retirees will find investment success in low-cost stock and bond funds.
Last Words
Retiring early is the dream of many yet realized by only a select few. The path to early retirement is bumpy and not for the fainthearted. You need to be proactive and aggressive, and it does involve some personal sacrifice. However, you need to weigh up the pros and cons of altering your lifestyle for the betterment of your early twilight years. It is a major life changing commitment. But by heeding this advice, you’ll be well on your way to a prosperous early retirement.
