The million dollar question these days is: “how do I retire early?”
Ironically this question seems to become more popular as life expectancies in the United States are increasing. This not only gives us the challenge of funding our retirement sooner, but also for a longer period of time! Approaching retirement can be daunting so let’s over simplify it and break down the three things you can be doing right now.
- Save more. This is a “duh”. Just remember there is no silver bullet for retirement. At the end of the day, you must save something. This is probably the most important on this list. You must have something to pull income from in retirement and you have to have something to earn growth on leading up to retirement.
- Spend less. This one is a bummer that I typically don’t talk about. There are three types of money: accumulated money, lifestyle money, and transferred money. I don’t ever like to touch or take away from lifestyle money. It is important to enjoy the journey to and through retirement. It is ALSO important to live within your means though, especially if you want to retire early and fully enjoy a long retirement.
- Earn a higher rate of return. This is last on the list. “Rate of return” gets the lion share of credit when it comes to finances, and it really shouldn’t. Let’s look at an example of a 50 year old making $100k a year hoping to retire at age 60 with $350k saved and $20k being saved annually. Let’s say their portfolio is earning 8% a year and they will retire on $70k a year. We aren’t considering social security or a possible pension, but this person would run out of money at age 75 as is. To stretch those dollars saved to age 90 would require a 16.79% annual rate of return. That just isn’t practical. If they didn’t have any return on their savings at all, the money would only last to age 67. Earning growth on your money is important like the other two points above, it just won’t get you all the way through retirement on its own.
We have obviously over-simplified how to retire early. There are other factors that go into prepping for retirement such as tax and debt service efficiencies, but these are the foundation of a sound retirement. These three components also work together in perfect harmony to give you the retirement you have always wanted.
What do YOU want to learn about your money? Let me know and I may write about it in a future post!