About the Author: Andrew May is a hedge fund attorney and the founding member of May Law in Chicago. He is also an avid blogger and enjoys sharing his expertise on a variety of business and financial online publications.
Most of us feel an innate pressure to live the life society expects us to live. You grow up, go to school, get a degree, find work, earn as much as you can and live off the savings when you are old enough to retire.
It’s the average life, and there’s a great deal of advice out there on how you can fit in and achieve that life. But have you ever stopped to think if it’s really the life you want?
Most people start thinking of retirement when they reach their 40s. It’s then that many people realize there may not be enough money to support their lifestyle when they’re no longer working. And that deadline is now hurtling towards them faster than ever.
A Gallup poll showed that the average age an American expects to retire is 62. That’s climbed from 59 since 2010.
But is there a way to knock a few years off the age you can expect to retire? How about a plan that can help you knock a whole decade off so you can retire significantly earlier than most of your peers?
If you’ve ever played around with a financial calculator, you know that there are a ton of ways to get creative with money. Not only is it technically possible to retire early by taking extreme measures, it’s actually doable. In fact, many people around the world have pulled it off with flying colors.
One of the best examples has to be Mr. Money Mustache, an anonymous blogger who retired in his mid-thirties. His fascinating blog outlines the ways people can save money and boost the returns on their savings to be able to afford a comfortable retirement much earlier than most people.
Then there’s the blogger who claims to live on just $7,000 a year. So, extreme living can yield extreme results. Saving up for retirement is no easy feat, however, and there’s an entire trillion-dollar industry around this struggle, but with a little creative thinking and discipline, knocking a decade off your retirement age is very doable. Here’s what you need to know…
Start Saving Early (If You Can)
For some, it may be too late to start building up a nest egg from scratch, but if you’re young enough, starting early is one of the best possible strategies for working towards an early retirement. Compound interest on your savings is among the basic principles of financial planning and starting even a decade earlier than most do could dramatically improve your results.
Unfortunately, many people don’t start thinking about their retirement until their 40’s, so if you’re reading this while in your 20’s or 30s, congratulations on being ahead of the game and putting yourself in a position to earn more on your own money over time.
Most retirement advice assumes you’ll be spending pretty much the same amount of money as you did when you were collecting a paycheck. Some planners consider two-thirds of your income as a baseline for how much they expect you to spend in retirement. What’s ignored is your ability to cut costs not just while saving for retirement, but during retirement as well.
One of the best ways to lower your cost of living is to move to another country that has a dramatically lower cost of living than the US. Panama and Ecuador, for example, often top the list of destinations for moderately wealthy retirees looking for a bargain abroad. Your money goes much further than it would at home and you don’t need to save as much to reach financial freedom as you would have to in most American cities.
Of course, you can even cut costs while staying in the same home you’ve owned for decades. A budget managed with discipline can help you live frugally anywhere on the planet.
Planning it safe is often the most popular mantra for people saving money. But locking money away in a pension scheme may not be the best option if you want to see money grow faster. Try to take advantage of the local economy and increase your exposure to stocks and other investment opportunities to boost returns substantially.
A 4% withdrawal rate is assumed as rule of thumb for retirement savings. The thinking goes that inflation-adjusted returns are likely to be higher than 4% over the long term, so it’s safe to withdraw that much annually. But maybe your expenses are lower and your nest egg larger than average. This would mean that withdrawing less than 4% annually would help make retiring early more attainable.
Pay Attention to Taxes & Benefits
Try to cut tax expenses as much as you can. The government understands the need for retirement savings and offers numerous benefits to people trying to save up and be smart, so take advantage of what’s available. Understand the use of IRAs and tax codes when you invest.
If all of this seems a bit overwhelming, that’s OK. You don’t actually have to be a financial expert to achieve your goal of retiring early, but you may have to consult one.
A professional can help you to make the smart choices that will set you on the path to sipping frozen drinks on a beach while your peers toil away into their 60s.