Retiring early needn’t be a forlorn hope. Here’s how, writes The Motley Fool.
The latest AXA Wealth Pension Index data, in fact, suggests that while the average age people in the UK would like to retire at is 58, the average age they can afford to retire at is 71.5 — a gap of some 13.5 years.
We don’t know what the figures are here in Australia, but we suspect they are somewhat similar.
But it doesn’t have to be that way.
Early retirement is still possible, by following some simple guidelines.
1. Plan ahead
Time and again, we see people who are very vocal in announcing their intention to retire early — but in practice are doing nothing whatsoever about it.In short, they’re on a trajectory culminating at their ‘normal’ retirement date — whatever that will be by the time they reach it.
But to retire early, you’ve got to do something different, and additional. And that involves breaking away from the rest of the herd, and planning ahead.
2. Avoid debt
Other things being equal, we’re firmly of the belief that there’s one important difference between people who can’t afford to retire early, and those who can.
And it’s this: those who can afford to retire early haven’t borrowed from their older selves by ratcheting up debt that they must pay back tomorrow, in order to fund the good life today.
Not all debt is bad, or avoidable. But every dollar less that you borrow is a dollar you don’t have to pay interest on. And the money you spend on interest is money that you could otherwise invest to provide for an early retirement.
3. Invest, don’t just save
To some, the words ‘invest’ and ‘save’ are synonymous. They’re mistaken.
Saving involves safe, boring risk-free bank and building society accounts, where your capital is protected.
Investing in shares puts that capital at risk — but offers a potentially higher rate of return. A return that in the long run has equated to a nice 10% a year, even if it was stuck in a low-cost index tracking fund.
And to retire early, make no mistake, you will need to earn the sorts of returns that the stock market delivers — and not the underwhelming (and negative in real terms) returns offered by the bank or building society.
4. Invest regularly
With us so far? Easy, isn’t it? Well, here comes the hardest part: putting your hand in your pocket or purse and doing something about it.
Simply put, all the good intentions and armchair planning in the world won’t bring your retirement forward by a single day unless you actually back those plans and good intentions with hard cash.
And rather than making sporadic payments as and when, or at the end of every tax year, it’s best to budget for early retirement, and every month put some money aside to pay for it.
And if you can’t afford to do so right now, you face two stark choices: deferring your early retirement, or doing without something now, so that you can afford to retire early later on.
Put like that, what are you waiting for?
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