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Kate Ashford
What if you didn t have to wait until you were in your mid-sixties to retire?
What about 50, or even just as you hit your 40th birthday? Don t laugh with
enough dedication, you could say goodbye to your full-time job years sooner
than you think.
We all dream of retiring early with a fantastic pension and no money worries,
said Victoria Lewis, a financial adviser with the Spectrum IFA Group in Paris,
France. You just have to put the right plan in place.
What counts as early retirement? In the United States, the average adult
retires at 61, according to a Gallup poll. In Australia, men retiring within
the last five years were 61.5 to 63.3, on average, and women were 59.6,
according to the Australian Bureau of Statistics. Whereas in Japan, the average
worker retires at 69.1, and in Luxembourg, the average retirement age is 57.6,
according to the Paris-based Organisation for Economic Co-operation and
Development.
Based on those averages, financial experts consider an early retirement age to
be under 55, and typically between age 50 and 55. But in some countries, like
India, for instance, where two-thirds of the population is 35 or younger, this,
more youthful working population has its goal set to retire earlier at 45 or
50, said Lovaii Navlakhi, founder and chief executive officer of financial
planning firm International Money Matters in Bangalore. Here is some advice on
making it happen:
What it will take: Dropping out of the workforce years before everyone else,
means you have to be completely debt free, with savings equal to about 25 times
the income you wish to achieve in retirement, taking any government pensions or
payments into account.
A basic financial rule of thumb maintains that you can withdraw about 4% from a
retirement portfolio per year or 1/25th of the balance. That means you should
be able to safely withdraw about $40,000 per year from a $1,000,000 retirement
portfolio added to whatever you might be receiving (or expecting to receive
later) from the government. Earnings and interest will presumably make up the
difference annually, making it possible to withdraw 4% a year indefinitely.
(Market fluctuations may affect this, of course.)
How long do you need to prepare: It depends on how dedicated you are to your
cause, and how quickly you can pay off any outstanding debts (including paying
off your mortgage) and accrue the required savings. For Pete, a US blogger who
writes at MrMoneyMustache.com (and prefers not to give his last name to protect
his family s privacy), he and his wife were able to retire at about age 30
after nine years of serious savings and low lifestyle expenses.
Darrow Kirkpatrick, an engineer in New Mexico in the US who writes at
CanIRetireYet.com, decided to focus on retirement while still working in his
mid-30s and was able to retire at age 50. A financial professional can help you
determine what kind of timeline is realistic.
Do it now: Start immediately. Early retirement becomes an impossible dream for
many people purely because they didn t plan for it early enough.
People don t really start thinking about retirement until their 40s, said
Helen Hogan, an investment adviser with Sunset Financial Services in Missouri
in the US. The earlier you start, the better, because of the power of compound
interest.
Downsize your lifestyle. The mantra for early retirement should be save more
and spend less. The less you spend now on housing, cars, and holidays, the more
disposable income you have for debt and savings. Consider whether you really
need the fourth bedroom, the luxury car, the deluxe TV package and dinner out
twice a week.
It is definitely all about reducing your living expenses, or as I like to put
it, living slightly less ridiculous-than-average lifestyles, said Pete of
MrMoneyMustache.com. (Part of the reason Pete and his wife were able to retire
so early was that they pared expenses down to about $25,000 a year, he said.)
Pay off your home. Think about how much money you re spending every month on
your mortgage. On average, mortgage payments take up 30% of your disposable
income, said Brett Evans, executive director of Atlas Wealth Management in
Southport, Australia. The sooner you make the last payment on your property,
the faster you can throw money into savings and the less you ll need to live on
in retirement.
Do it later: Work a little. For many early retirees, retirement doesn t mean
the total absence of employment. It s common for people to quit a full-time
position but maintain a small business on the side or work part-time at
something they love for supplemental income.
They ve racked up their years of service, and maybe they have enough money to
work part-time and just slow down, Hogan said. The plan is that they ll work
for another 10 to 15 years, but at a much slower pace.
Don t forget about family. If you have a spreadsheet of expected retirement
expenses, make sure family expenses are included. I remind people that
grandchildren and children take a lot of retirees money, Hogan said. I have
told clients, You need to stop giving the kids money because you can t afford
it.
Do it smarter: Make sure you re ready. Do you have a plan for your retirement?
And are you really prepared to say goodbye to your working life? Some people
get depressed after retiring because they miss the office, Hogan said. They
really need to think about what they re going to do with their time.
Give it a test drive. Live on your proposed retirement salary for 12 months
to make sure it s manageable before you make the leap. You ll be able to tell
if your numbers are realistic, and you can push even more cash into savings
while you re doing so. Make it a game, Hogan said. Save as much as you can.