Want to Live the Dream of an Early Retirement? Here are 3 Golden Rules from People Who Did it at the Age of 40
If you had a million dollars in your bank account and a retirement fund set up to provide a steady stream of income for the rest of your life, you would probably give up your job right now and move permanently to your dream holiday destination. We don’t blame you – after all, who wants to work a 9 to 5 job till they’re 60 years old? But even with a regular job, you can enjoy an early retirement by following in the footsteps of young retirees. Here are the 3 golden rules to your retirement plan into motion today.
Save More, Spend Less
Let’s start with the most obvious rule: Save as much as you can and spend as little as you need. This may seem simple in theory but most of us find it hard to put it in practice – especially when you get an unexpected bonus or a raise and you suddenly get the urge to spend the extra money on things you might not even need.
The most important step towards the road to an early retirement is to spend as frugally as you can and minimize all unnecessary expenses – which means that you may have to take an occasional raincheck for dinner plans with your friends, think more than twice before deciding if you really need that expensive pair of shoes or the pricy cable package for your television and even have to sell off any item that you may not be using.
Debt is your money’s worst enemy and as long as you keep paying interests on personal or credit card loans, you will never be able to save anything for retirement. Saving is a habit that needs to be built over time which is why most financial experts advise to start saving when you’re young – even if you are able to make only small contributions – in order to get into the habit.
You Need At least 80% of Your Preretirement Income
You can join the ranks of young retirees even if you’re not a millionaire, but you’re going to have to put away more money in your retirement fund than those who plan to retire late. The golden rule #2 is to save at least 80% of the total income that you earned in order to live a fulfilling life after retiring young.
This won’t be an easy feat – especially if you’re not making a lot of money in the first place. You may have to stow away half of your paycheck every month and even look into other income or investment opportunities to grow your retirement fund. Now is the perfect time to ask for a raise or look for a better paying job in order to meet your retirement goal.
Grow Your Investments
Diversifying your investments is a sure-shot way of getting ahead of the curve and retiring early to pursue your personal goals and dreams. The 401(k) at your current job can be rolled over into a brokerage and an individual retirement account (IRA) later which will provide a number of investment opportunities to grow your wealth.
Stock market is also a great way to invest your savings with a high return – but you’ll need to be wary of the risks that come with the volatility of the market. Since you’re planning to use your retirement fund for longer than the late retirees, you will have to withdraw a smaller percentage from your diversified investment portfolio every year in order to make it last longer. Most financial analysts suggest an annual 4% rule for most retirees but in order to stay on a safer side, you may want to take out even less than that.
If you’re worried about not being able to make ends meet, consider relocating to a cheaper metropolitan area for lower cost of living. There are several amazing countries with significantly lower cost of living where you can spend your post-retirement life worry-free!
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