Let’s play a little game of word association. When we say Penn you think Teller, right? And when we say bacon, you think eggs. All of these are completely natural. But what about when say the word ‘retirement’? Yup, just as we thought, you’re thinking about the number 65.
The number 65 and retirement are as closely linked as anything else in this world, it is that age that we are all working toward, quite literally. But why? Why not retire early and enjoy a life of no routine, no commutes, no stress. You could get one of those signs you hang on the front door that says ‘Gone Sailing’ or bet yet ‘I don’t work, I golf’.
You may be thinking that this is totally unrealistic, unattainable even, that we have lost the plot completely, but we haven’t. We still have all our marbles, and we want you to keep yours for as long as you can after retiring too. You see, when people think about how they can retire early they tend to think of two things: lottery win and scratchcard jackpot. But there are tons and tons of ways to retire early, it is just a matter of looking at the numbers and figuring out the right strategy.
Don’t get us wrong, retiring at 65 is the done thing. We know that. But this is the 21st Century, this is the era of breaking the mold, doing what’s best for you, overachieving, being disruptive to the system and not just doing the done thing because it is the done thing.
That is why we have taken the time to speak to some people – retirement planners, financial advisers and average joe’s that made adjustments so they could retire early – and compiled a list of their top tips and tricks for getting onto that gold course a lot earlier than 65.
No one ever has enough money because everyone always pushes the limits of what they can afford. Rich, poor, somewhere in the middle; we all live to our means, and that is the issue. With that mentality you’ll be working beyond 65, never mind up to it. So start living below your means. Stop buying cappuccinos from Starbucks. Don’t eat out 3 times a week.
Start making what you would call sacrifices. Take the time to print out your last two bank statements, go through them with a fine-tooth comb and decide which luxuries you can live without and, yes, manicures, pedicures, maids, landscape gardeners, chauffeurs, and breakfasts out all constitute as luxuries. You don’t need them.
People invest their money as a means of making more money; that is what investing is, so start investing as early as you can. If you’re in your 20s then you are going to be streaks ahead. If you’re in your 40s, it still isn’t too late by any means of the imagination. It is what financial advisors call the power of compounding.
You see, the first dollar you save is the most important out of all of them because it is going to grow the most over time. Look at it like this, a twenty-six-year-old who puts $9000 into a savings account will have accumulated way more by the time they hit the retirement age than a 60-year-old putting away $9000 for five years. Basically, 39 years of interest is going to be way, way better than 5 years.
And we mean debt free too. Everything you owed paid back in full. All of it. Every last cent. Start with your mortgage and start by paying off more each month than you have been. You’ll be surprised at how much you save in interest repayments, even if you only close your mortgage deal two or three years earlier than planned. The same goes for credit cards, student loans, auto loans, and anything else you may have.
Interest rates are the big killer when it comes to people’s financial situations because, well, high-interest rates tend to go through your finances like locusts on a crop field. Let’s say you have a credit card balance of $15K and, with interest, you are paying it off at a rate of £400 bucks a month. Not only is this going to take you 5 years, it is also going to cost you about $24K. You’ll be paying almost $10K in interest rates over those 5 years.
No wonder early retirement seems so impossible. But look at it from the other angle now. Imagine if you could put $10K into a savings account every 5 years for the next 20 years. Boom. Hello, golf course.
This is becoming a more and more common trend among middle-aged people that are fed with the corporate life in which they have lived their lives. As such, people are starting to sell all of their possessions as a means of retiring early. Sure, it means living slightly more modest retirements than they had possibly hoped, but it still beats working for the man for almost 50 years.
This could be a route that has tempted your inner Christopher McCandless, and why not? Why not consider selling your house, selling your company, your collectibles, your furniture, your power tools and anything else that you consider to make up the bulk of your possessions and live a life on the road essentially. On a houseboat, in a campervan, in a modest shack in the middle of a wood.
Imagine all of the money you would make with these sales and all of the money you would save by not having those overheads; mortgages, interest, taxes etc. If you don’t believe this is a legitimate option then we implore you to read about the people who have done it. Trust us, it could be the very thing that sways you toward that leap of faith.
If you can’t quite fathom the idea of spending less now, well, then it could be worth rethinking how much you spend later on, in your retirement. Thinking about how you plan on spending your retirement and readdressing your definition of ‘comfortable’ could be the thing that sees’s your retire that much earlier than anticipated.
Put it this way, if you imagine your retirement to be you and your partner jetting back and forth between your family home and your lakeside vacation home, enjoying cruises twice a year, driving a classic sports car and becoming a member at three different golf clubs, you may need to tweak things slightly so that your not spending quite so much. For example, instead of jetting back between your family house and your lakeside vacation home, why not sell your family home, pocket the money and just kick back at the VK house? Hello, early retirement.
A little bit like the whole invest early thing – actually a lot like it – the early you open a retirement account the better off you’ll be, and quicker too. This is not something Millennials really consider because the future is so far off, but it is one of the most effective ways to reap huge rewards quicker than you thought possible.
The reason this is such an epic route to go down is because retirement accounts offer pretty great interest rates, usually around the 10% mark. So, let’s say you are 25 right now, and you’re willing to put away $350 a month until you are 35. By the time you have turned 60 the lump sum in your retirement account will be about $880,000. That’s amazing, and 60 isn’t even that old. You can probably feel the sand between your toes right now, and the taste of a mojito on your lips. A small sacrifice now can really pay off.
You can never predict what will happen in the future, so there is very little point sacrificing everything in your life right now in the hope that it pays off for your retirement. After all, seizing the day is about as important a motto as any of them. You deserve to go on holidays and have fun and spend money, it is just about being clever in how you do it. That is where the ‘Invest the Difference’ strategy comes in.
Let’s take the need to go on a holiday as an example. With things like Skyscanner, Airbnb, HomeExchange, and Uber; holidaying has become a lot more cost-effective. As such, why not start off with a figure, the maximum you want to spend on your holiday and then save the difference when you have totaled up the final cost using these different services.
You could end up saving thousands, and thousands put into a savings account or pension pot could account for tens – if not hundreds – of thousands. Going on holidays and still making enough money to retire that much earlier. That is what it is all about, huh.