Monday, October 19, 2020

A Comprehensive guide on “How to Retire Early”

Do you wish to retire early? If so, then you should have a proper action plan as retiring early takes time and a lot of discipline. In this post, we’ll guide you on ‘how to retire early’ and secure your future. Undoubtedly, retirement is a crucial stage in everyone’s life, and it’s when life takes […]

Do you wish to retire early? If so, then you should have a proper action plan as retiring early takes time and a lot of discipline. In this post, we’ll guide you on ‘how to retire early’ and secure your future.

Undoubtedly, retirement is a crucial stage in everyone’s life, and it’s when life takes an entirely new turn. The path to retirement is quite long as well as difficult, comprising of many obstacles. It takes a lot of discipline to earn, save, and invest correctly. Furthermore, life after retirement might not be the same for all, as many would like to live lavishly while some might prefer an average life. Irrespective of what life you are looking forward to, it is necessary first to secure your retirement. The faster you realize the formula, the better your life will turn out to be in retirement.

Discussed below are some points and tips that will guide you to retire early.

How to retire early: Useful steps to follow

Here are 10 proven tips that will allow you to retire early:

1. Decide your retirement essentials

Have a clear picture of how your retirement would start from the imagination of the place you would like to retire in.

You need to ask yourself- if you would like to stay in the same place or moving out? What about other expenses, and how much dollars it would require for you to survive? If somehow you plan to downsize, then you’ll have to choose a new place to live. You can find states with a low cost of living, and that offers tax breaks. All of these factors play a very vital role in determining your retirement plan. An unplanned move can shake the financial stability and might create hurdles in retirement.

The next step is to determine how much you can expect to be funded from any existing pension arrangements and state pension payments. Social security is not something on which you can rely completely after retirement. But you should take into account all the additional benefits provided by the government for your retirement when developing your retirement plan.

Worldwide, state pension benefits are only around 40% of your average earnings, while some countries do not provide any social security; you can be lucky enough to have good pension arrangements through your employee.

2. Ponder over the lifestyle you want post-retirement

Before you make all the calculations, it is necessary to determine what kind of lifestyle you prefer after retirement, as each lifestyle has a price to pay. Choosing a lifestyle will help you to frame a budget and to identify your goals.

For instance, some people would like to travel the world. For this, they need a decent budget. On the other hand, some people would like to travel to see their grandkids from time to time. It would require a comparatively smaller budget than that for the world tour. Furthermore, some might want to open a small business and keep themselves busy. It will again have its budgeting parameters.

3. Prepare a Rough Retirement Budget

Next, you’ll have to determine the expenses you are looking forward to every month post-retirement. You need to get specific and ascertain an amount, which would help to determine your monthly expenses.

Your monthly expenses you can estimate by completing expenditure plan such as:

  1. Food,
  2. Clothing,
  3. Utilities,
  4. Internet and phone connections,
  5. Car costs,
  6. Healthcare,
  7. Socializing and holidays.

It will give you a rough idea of your expenses in retirement. You need to input all these expenses to the calculator, which will generate a total budget every month. After that, you can use Wealthface’s financial planning tool to calculate the total amount you will require for your dream  retirement

The budget might look different at different phases of life; you might reduce your clothing cost or car costs as you don’t need to travel to work anymore. Also, a lot depends on the lifestyle you are going to take up, which might be traveling, volunteering, seeing family, etc.

4. Analyze your current financial situation

By now, you know how much amount you would require in retirement. The next step would be to analyze your current financial situation. For this, you have to take your total target retirement amount and subtract from this the total amount that you are likely to have as per your retirement portfolio. This amount must include all your assets like investments, real estate, cash, and all other assets. Below is an example that will help you understand the calculation of ascertaining the retirement amount required.

Now let’s take, for example, your age is 45 years, and you are looking forward to retiring at 55 years. Your retirement amount goal is $1.2 million. The total amount in your retirement fund as of now is $130,000, and you are hesitating how much you should invest monthly. Because after calculating, it turns out that if you retire at 55, your total estimated retirement comes to around $337,000 even if ROI will be around 10% per year. So you have to arrange $863,000 in 10 years. You’ll have to invest around $5000 more per month to bridge the gap. But let’s consider you have a mortgage for an additional apartment that will be paid out, and you are planning to sell it before retirement, if the estimated price of that apartment is around $500,000, then your gap will be only $363,000.

It is just a basic example, and you can input your budget as per the same sequence followed above to ascertain the amount required to retire peacefully. Every person will have a different budget based on their needs and wants. Keeping this in mind, we can easily calculate the amount to invest monthly or annually.

5. Get a hold on your lifestyle

It is the right time to start taking action so that your retirement goes smoothly. There are certain steps that have to be taken to keep a check on your lifestyle. Taking these actions will help to bridge the gap between the amount you estimated and the amount you require before retiring. For instance, you can avoid splurging on recreation activities or travel, if needed.

6. Keep all your debts at bay

One the most important way to retire with peace of mind is by paying off all debts before you retire. That’s because debts can harm your retirement plan terribly as there is a lack of regular income. Having to pay mortgages at your retirement is like entering a quicksand from where there is no way back. The best thing you can do is to prepare an estimate of all the debts and mortgage. Next, take the number of years left for retirement and calculate how much you can pay off every month to get freedom from debts before retirement.

It is advised to pay off any high-interest debts that you owe, to live to the fullest after retirement. This interest might haunt you in your retirement years if not paid off quickly.

7. Lower your expenses

The rule is quite simple; if you are looking for something good in your retirement, then you have to cut on your expenses at present. It can be something like extra clothes, sugar, cable, memberships, and different subscriptions. Create your budget and stick to it.

8. Get a part-time job

To retire early, you will need to work harder and earn more. It is a great choice to take up a part-time job that adds up to your savings. You can take up a simple job that suits your timings and rewards well, as this amount will be added directly to your savings.

9. Try to save and invest as much as possible

You have to put every extra dollar that you make towards investing for a brighter future. You have to get this clear: to have a good life for you and your family after retirement, you need to cut down on some entertainment from now. Apart from these, there are several other expenses where you can save money. These expenses are generally marginal but saving money from every month, amounts to a whopping number.

  • Entertainment expenses
  • Cable/internet expenses
  • Clothing
  • Gym membership
  • Various subscription services such as magazines, audiobooks, streaming videos, and many more.

Imagine what would be the total amount if you could save a mere amount from every expense mentioned above. For example, by decreasing $10 on every expense mentioned above, you will save almost $50 a month. Now, calculate this saving for a complete year by multiplying it by 12. It comes to $600 every year. Also, you will be saving a lot from vacation expenses. When you calculate both together, the amount is much more than you could expect!

10. Get assistance regularly from a financial advisor

Even if you have a detailed budget, it’s difficult to predict how your lifestyle expenses could change 30 years from now. Developing a comprehensive retirement plan with the support of an advisor who can keep an eye on your money and guides you to make the right decisions that will need to be made before and during retirement through the economic and lifestyle changes.

Do not feel shy while discussing the amount and make sure you ask a lot of questions. Remember one thing, your anxiousness to invest now will prove worthy after your retirement. However, before making any big investments, make sure to consult a financial professional. Get all your statistics cleared and consult someone who knows how to deal with the situation.

The process might seem difficult in the initial stages, but sooner it will all make sense. The aim here is to manage your investments and financial portfolios well. You can sometimes go wrong and get influenced by emotions. So, it is advised to make decisions based on the solutions provided by a financial professional.

Conclusion

All these points mentioned above can change your retirement scenario, thereby giving you a bigger budget and a life that you had envisioned. Always remember nothing in life comes easy. To retire with a huge amount in your bank, you must make some sacrifices. These points above will help you do the same but more smartly.

Make sure to carry out your retirement plans much in advance as it will help you to invest for a longer period. Always remember little savings every month can add up to a huge amount annually. Keeping all the above points in mind will surely help you retire early and pave a financially secure path.

Wealthface - Your online investment solution


Wealthface is a one-stop online investment company that services all kinds of investors. It provides affordable high-quality investment products and services, tailored to each type of investor, and delivered at a low cost in a fully transparent manner. The company plays the role of a Fiduciary investment advisor, which means it always puts the client’s interest first.

You may also like

0 comments

Leave a Reply