In recent times the trend of early retirement is very high, but it isn’t as simple as it seems to be. Do you know why it is so popular? These days, people love to follow their passion rather than sacrificing it for the sake of money. Moreover, early retirement allows individuals to enjoy their lives with serenity and joy. The reason is most people plan to enjoy their remaining life after the legal retirement age, which is around 62 to 65 years.
But that does happen in most of the scenarios because people lose their interest in their hobbies and many others due to their age. So, keeping this fact in mind, people opt to retire early to enjoy every moment of this life to the maximum. If you are also thinking about retiring at an early age, then you should consider many things into account. First of all, it’s a fact that you can’t get benefits from social security, which typically starts after 62 years of age.
Other than that, many companies that are giving pension funds on a traditional basis don’t give you any pension or gratuity if you choose to retire early. You might be thinking after knowing the downsides of early retirement whether it’s appropriate for you or not. Yes, it is ideal, but without proper planning and measures, it’ll make you financially unstable. So, you have to plan and properly execute an early retirement strategy.
Below given are some you are must follow if you want to retire early:
First of all, be mentally prepared
It looks like a very simple and easy step but do you know there is a complete difference between a working and retired life. So, if you’re planning to retire a few years from now, then it is imperative for you to change your mind because it will have a significant impact on your life after your retirement. You also have an understanding of how to retire early.
We suggest you don’t behave like an average individual who follows the philosophy of eating, drinking, and being merry. The reason is if you do so, you’ll not be able to save money for your life after taking a rest from work early. Media is the driving force behind that thinking of the public, and statistics show that nearly 70 percent of US citizens have less than $1000 as savings which stops them from retiring early.
If you are super struck about saving money, then you are 50 percent done. But if it’s not the case, then you should have to learn how to save for early retirement. As we know that every dream demands sacrifice to come true, so be ready to live a less luxurious life to enjoy a financially stable life after retirement.
You might feel exhausted when you see your buddies, colleagues, family members, and neighbors enjoy a luxurious life by buying an expensive car, apparel, and a lot more, but you shouldn’t compete with them. They are savers, but you have to become a saver to make your early retirement plan a pipe dream.
Now calculate the numbers you want to target
It’s the technical side of an early retirement strategy, so be careful while going through this step. Better is to calculate the amount you basically need for your early retirement. The reason is you are going to estimate the expenses of approximately 35 to 45 years of post-retirement life. So it’s completely different from standards of 15 to 20 years post-retirement life planning.
People find it really difficult to calculate how much money they need to have to retire early. However, some question: Is $1 million enough to retire early? The answer depends on your lifestyle and spending habits. To know how much do I need to retire early, you have to calculate your last 12 months’ spending, including accommodation charges, in case you’re living in a rental house.
Let’s say if your yearly spending is 50000 USD, then you need to invest your money to generate this sum for yourself. For this, you have to learn how to invest for early retirement. Besides, let’s suppose you have invested 60 percent in stocks and 40 percent in mutual funds. Stats show a 6 to 7 percent annual return over this composition of investment.
After retirement, you have to withdraw 4 percent of your profit for your living and 2 to 3 percent for retaining to cope with inflation. Now, if we do simple maths, it shows that 4 percent of 1.25 million USD = 50000 USD. It indicates that if your yearly expenses are 50000 dollars, you need a 1.25 million dollar portfolio for early retirement.
Change your lifestyle completely
If you are serious about retiring earlier then it is irresistible to change your lifestyle and eliminate various evils from your life. To make your young age retirement dream come true it is necessary to don’t buy anything expensive like a car in debt. The reason you’ll have to pay an interest rate on it as well which stops you from acquiring your dream by not letting you save enough money.
However, if you’re under debt then try your best to pay it as fast as you can because except that you’ll not be able to save money. Moreover, if your feel your current job can’t financially help you in retiring early then you can do a part-time job along with your full-time job. In this way, you can earn extra money that you should put into your investment portfolio.
How to acquire the required money for early retirement?
It is evident that you can reach the early retirement portfolio by just saving. For example, at that moment, if you are earning $50000 and manage to save $10000 out of it, then after 20 to 25 years, you’ll only have 200k to 250k USD. But if you start investing $10000 wisely from day one and get a 6 to 7 percent annual return, then there is a huge possibility of your success.
Therefore, if you’re an ordinary employee, just like most people, then investment will be your genuine peer to execute an early retirement plan. To get success in investment, we advise you to never invest in stocks that are profitable but not sustainable. On the other hand, investment in those stocks promises long-term growth.
The reason is long term, and sustainable stocks are not very volatile. Thus, you can sell them at any time without any mess. From day one to date, on average American stock market grew 7 percent year by year. So, if you put your money in the right stocks, then it is not a difficult task to get 6 to 7 percent profit out of your portfolio. You have to take 4 percent for spending and the rest of the profit for reinvestment.
Have an eye on your spending after the retirement
If everyone works well for you, you have succeeded in creating the portfolio from which you spend only 4 percent profit out of 6 to 7 percent. You are reinvesting 2 to 3 percent to stabilize your spending as the average inflation rate of the USA is 2% per year.
You have to make sure that you’re spending extra money because you don’t have to spend money to travel by bus, which you might usually do when you aren’t retired. Moreover, it isn’t the right approach to have a trip to a foreign country frequently as it costs you too much and you’ll be short of money in the end.
For example, you shouldn’t buy an expensive car after retirement on debt which can create hurdles in your post-retirement life. Further, if you can’t have a check and balance on your expenses then there is a chance that you will gradually finish your savings and in the end, you have to go back to work.
