January 23, 2020
Early Retirement: Organizing Your Finances to Get There
Guest Author: Alicia Rennoll
ORGANIZING YOUR FINANCES TO ALLOW FOR EARLY RETIREMENT
The most common age to retire is 62, but with some smart saving and investing, it is possible to retire years earlier. This allows you to lower your stress levels by having more free time to do the things you enjoy. At the same time, retiring early doesn’t mean slowing down. You will be free to travel the world or take up new and exciting hobbies, knowing that you still have many years left to be adventurous.
None of this is possible without hard work, though, and that work begins today. The earlier you start saving the easier it will be to hit your financial goals. Once you are free from work, you can consider moving somewhere new, perhaps a new country where the quality of life is higher and living costs are lower. In order to achieve this dream, there are several steps you need to be willing to take.
FIGURE OUT YOUR SCHEDULE
Retiring early means different things to different people. At what age do you realistically believe you can leave work for good? For some, this could be in your 30s, while others will be happy to be fully retired by 59. Whatever your target retirement age, you need to figure out how many years you have to save and therefore how much money must be saved each year. This concrete annual target will ensure you hit your goals.
SET A TARGET
Next, you need to decide how much money in savings to have when you reach retirement. Financial experts recommend that you have 30 times your annual income in either investments or savings. This will allow you to live comfortably for the next 30 years, while saving more should you live longer or want a large inheritance savings to leave behind. Having a large buffer will cover extra medical costs that are guaranteed to come with getting older.
PAY OFF ALL YOUR DEBT
So you have a target amount set in stone and a schedule for achieving it. This will be impossible if you still have debts to repay. Whether it is student loans or a mortgage, pay these off as quickly as possible. Direct all surplus income into paying the debts off so that you can focus on opening retirement savings accounts.
LIVE BELOW YOUR MEANS
Once your debt is paid off, you need to start setting money aside. This can only be done if your living costs are lower than your income. So sit down with a calculator and figure out where you can make savings in order to live within your means. This is a sacrifice you make now, so that you can have an incredible, stress-free last few decades on this planet.
INCREASE YOUR INCOME AND INVEST IT IN RETIREMENT ACCOUNTS
You should now be living a relatively simple, inexpensive life. In order to give your savings the boost they need, however, you must also increase your income. This means asking your boss for a raise, doing overtime, or even seeking a new better paid job. Over time, as you become more experienced and better at your job, it is almost certain that your income will increase. At this point, it is important to avoid lifestyle creep. Rather than using the extra income to improve your standard of living, invest it in retirement accounts to help you reach a higher target more quickly.
Early retirement is a possibility for almost everyone, but it requires work and dedication. Make sure you know your target retirement age, the amount of savings you need, and set in place a schedule to achieving it. Once all your debts are paid off, live below your means and focus on boosting your income to make early retirement all but inevitable. Then enjoy your free, and relaxing yet exciting life as a retiree.