Early Retirement Planning Advice: Strategies to Retire in Mid 40s

Being unable to cope up with work related stress and uncertainties at the work place, most of the current generation workforce seek early retirement planning advice with retirement experts. Current youngsters would like to embrace retirement as early as they can, mostly they want to hang up their boots in their 40s itself. However, there are a host of impending worries in the horizon. Is it possible to retire in your early or mid 40s itself? Instead of seeking early retirement planning advice with the so called retirement adviser or financial expert, come on, let’s do some analysis ourselves to know how ease it is to retire early:

For you to alleviate worries and lead a peaceful retired life, all you need to have is a fat wallet. How much money you will need to lead the rest of your life after retirement depends purely upon your lifestyle and family obligations. Furthermore, if there is a way to substitute the lost salary with a residual passive income, it could be a heavenly retired life. Let us look at the things to ponder to retire in the 40s and the expenses that we need to anticipate.

Post-Retirement Expenses That Need to be Considered

• Cost of living adjusted to inflation. (The living expenses include from basic needs viz., food, clothing, and shelter to entertainment, communication, transportation, and vacation.)
• Education of children.
• With innovations in health care and increasing knowledge about leading a healthy lifestyle, your life expectancy calculation may even run up to 90 years or more. Consider associated health care expenses with increasing lifespan.
• All the expenses of dependents, if any, who do not have an income. If your spouse is not an earning member of the family, take that also into consideration.

Once you calculate the retirement corpus to lead a comfortable life after retirement, deducting the savings that you have now from that amount gives you the target amount for retirement.

Now we know the goal. Let us chalk out the strategies to retire early, to accomplish the dream of retiring in the 40s itself.

Start as Early as You Can

For you to retire early, you should start early. You should start planning early, start earning early, start saving early, and start investing early, as early as teenage, for your money to work for you, to take advantage of compounding work in your favor. For example, if you start saving 1000 bucks a month and start investing from age 20, compounding at 10% annually for the next 25 years (300 months), you will end up with a sum of 1,243,160 (without taxes). Suppose if you start saving and investing from age 30 thrice that amount, 3000 bucks a month, for the next 15 years (180 months), you will still end up a tad lower at 1,204,864 (without taxes) on your 45^th birthday. That is the power of compounding. You don’t have to work harder but have to act smarter to ease the financial burden, to make the money work for you. Let your savings work for you whether you are asleep or awake, whether it is a holiday or a working day. What matters most is that you should start early for the compounding effect to work in favor of you. There isn’t any age barrier for you to start, the more you start early, the more the benefits. Most importantly, you should start your family early, probably by the age of 22, so that your first kid (and the only kid making it a small family; read below) is on its own when you are 45. Early to start, early to retire.

Lead a Simple Lifestyle and Save

The second aspect that could retard you from early retirement depends on your spending habits. If you earn 100K a month, but if you go bust before the next paycheck, you are going to end up nowhere! Your spending habits are a matter of choice; it is for you to decide whether to be a follower of pomposity or a leader of simplicity. You can save money on umpteen things, right from avoiding a cruise or a costly foreign vacation to simple frugal living at home; even small things like spending less on gas with a small used car, to sensibly spending on electricity, to having a three member family, all matters a lot. A small family, a small car everything makes it possible for you to retire early. Same as in journey, less luggage means more comfort in life also.

Say No to Debts and Plan Your Taxes

Interest will be the major outgo from your wallet if you borrow for consuming, right from credit card bills to buying a car to buying a home. In fact, credit card debt is the deadliest of all of them and should be avoided at any cost to avoid falling into a debt trap. Instead, live within your means and save money that otherwise you might have spent as interest. Instead of paying the government as taxes, exploit all the ways of lessening or deferring the taxes. You are throwing free money away if you are not fully utilizing all employer matched retirement contributions. Contribute the maximum to compel your employer contribute to your retirement corpus. Make your employer and the government feed you after retirement.

Should You Own a Home or Not?

Everybody has a dream to own a home to live peacefully at the sunset years. Buying a home is a good idea if you are buying it with your own cash, if the real estate prices are at a reasonable level to cost just two years’ earnings, if you get a good bargain with a used or foreclosed house. However, buying a home is a bad idea if you’re borrowing to possess it given the interest outflow, legal expenses, repair and maintenance costs, local taxes etc. I would say, if you are keen on retiring early, don’t invest in a home, instead grow your money and live in a rented home, you save a lot on repair, maintenance, taxes etc. You also have the liberty to choose a home nearby your workplace and a new home every couple of years.

Make Your Savings Work for You

Okay, earlier I said you should save all that you could for your retirement. However, keeping the saved amount without investing wisely would do no good but would erode its value over time, thanks to inflation. To make your money work for you after you have retired, invest in stocks, bonds, real estate (land), precious metals like platinum, gold and silver; though I would say investing in gold is arbitrary. History shows that out of all asset classes, investing in equity has fetched more returns. Investing for a long term is the secret to making money in the stock market. Use it to your advantage to grow your wealth. Find a good stock that has at least survived three decades and will at least survive another three, and invest heavily in it when there is bloodbath in the market and forget it. That’s it. It should come to your rescue in the later years when you retire.

Buy to let is another option for an income after retirement; however, taking into consideration all the aspects of owning a property, carefully do the computation to know whether it will be profitable or not before jumping into one.

Choose a Hobby That Pays Well

Retirement means plenty of time at disposal. You just can’t simply sit and wile your time away. Then how do you plan to spend your time? Sleeping always? Cooking? Doing household chores? Watching TV? No. So you should have a hobby to spend at least 6 hours of your daytime. Why not choose a hobby that pays well? Searching the Internet for hobbies that pay well could get you an idea. Start and streamline a hobby that you are passionate about, well ahead of retirement; that should ensure a steady income after retirement.

Conclusion

Advancing your retirement early to the 40s is very much dependent on the decisions and strategies that you make early in life, whether you need a child or two, whether you own a small car or a guzzler, whether you own a home or not, whether you stick to the same job thinking about job security with no increments or in constant search of a better paid job, whether you pile up debt or remain free of debt, whether you are a thrift or a spendthrift; everything matters. For you to retire early, it doesn’t matter at all how much you earn but what matters is that how much you save and how you grow the thus saved money. Yes it is possible to retire early, as early as mid or early 40s itself as you desire; however, every dime that you spend without a second thought delays your retirement by a day.