Retiring early -- or leaving the work force for the golf course, if you like -- might sound like an unattainable goal. That is especially true if you look at the challenge from a pure cash paradigm. However, there are many ways to make it, so long as you consider numerous approaches. So this post is meant for those in their 20’s or 30’s or early 40’s with some advice for those who are retired or close to it.
1. Live Below Your Means
It is all in the math, if you live below your means, you will have some money to save and that money could be used to save for retirement, a new home, or a new car. However, we are talking about saving for retirement not for a new car.
2. Redefine 'Comfortable Retirement'
Less spending later constitutes the other side of less spending now. If you imagine comfortable retirement as a vacation home and monthly cruise ship trips, revisit that vision so you do not have to bleed cash -- but can still retire in style. Instead of two homes, for example, why not live in your vacation destination and pocket the principal from selling your primary residence?
3. Pay off All Your Debt
There are many debt reduction programs out there and many resources to help you do this. This will take time and courage, but in the long term will be worth the effort.
4. Consider Overlooked Financial Resources
Look at all of the resources you have access to when you retire, not just your company pension. In Canada people have access to many programs including Tax Free Savings Accounts, Registered Retirement Savings Programs, company pensions and Old Age Security Pensions. Government programs such as RRSP and OAS can replace 30-50% of your working income, so by knowing about these programs you are in better shape to figure out what you will need to save to supplement these programs.
5. Invest Early and Aggressively
Due to the power of compounding, the first dollar saved is the most important, as it has the most growth potential over time. $10,000 saved at age 25 versus 60. The 25-year-old has 40 years of growth potential at the average retirement age of 65, whereas $10,000 saved at age 60 only has five years of growth potential. For this to happen you cannot just leave the money in the bank, you have to find an investment advisor and invest in stocks, and other investments.
7. Practice Sound Cash Flow Management
The methodology is simple, yet the results can be profound: Put money at least monthly into systematic investments during your working years. Set up the program through your bank or credit union so that the money is automatically invested each pay period. Automatic investment programs work.
9. Start That Retirement Account Today
That is, the earlier the better. Millennials who kick off retirement accounts early will reap big rewards later. A 25-year-old who socks away $4,000 a year for just 10 years (with a 10 percent annual return rate) will accrue more than $883,000 by the time she turns 60.
10. Plan Smart Vacations and Travel -- and Invest the Difference
There is no sense in depriving yourself of every single thing, especially well-deserved time off. If you are travelling check out cheap of free accommodation programs such as HomeExchange.com.
11. Don't Let Your Money Sit Idle
To get to an early retirement, you have to periodically revisit your retirement accounts to make sure your money doesn't grow cobwebs. Make sure your cash is invested properly and that you are meeting your goals.
12. Hop off the Hedonic Treadmill
In this curse of consumerism, you buy something expensive, feel excited, and then scout for something else to purchase when the "new car smell" wears off. Read blogs such as MrMoneyMoustache.com, to get advice on how to do this
13. Look for Passive Sources of Income
Early retirement does not necessarily mean retiring all of your income, especially if you find ways to bring in money without hard work. Investing in rental properties is one way you can create a cash flow stream -- and you can minimize the labor by hiring a property manager. Or: Set up an internet sales business and hire a part-timer to fulfill orders and track stock based on volume.
15. Hit the Road or Go Jump in a Lake, Indefinitely
Some middle agers are selling the bulk of their possessions -- including the home -- and moving into tricked-out mobile homes and houseboats. These options also open the door to a life of leisure travel and can eliminate major expenses, such as property taxes and mortgage payments. Make sure this is the right option before you sell. Try renting a mobile home for six months and see if you like living on the road. I have many friends who hit the road and after a year are very sorry they did it. Try out any option for a while before you commit and sell off your assets to live the option.
You might enjoy your job immensely and have friends in the trenches with you. But if work is taking too much away from your family time, community bonds, overall health and peace of mind, you might do well to consider one of the smartest alternative investments of all: yourself.