Want to retire at age 57? Here’s how

Recruitment firm Randstad has surveyed nearly 10,000 people, with most saying their ideal retirement age is 57.

Unfortunately, many of those people are headed for extreme disappointment. Unless people have a significant retirement sum, estimated at more than one million dollars, most people will have to keep working for well beyond their 57th birthday.

Already the government is progressively lifting the retirement age to 67 between 2017 and 2023. That’s the age when people will become entitled for the aged pension. But surviving on the aged pension alone is unlikely to be a please thought for most. And the Productivity Commission has called for the retirement age to be lifted to 70, saving the government an estimated $150 billion over 50 years.

If you want to retire at age 57, there are several steps you need to take right now, if you haven’t already begun.

As you can expect live on average for between another 20-30 years, you need to save as much money as you can and invest it now. The earlier you start, the more you can use the effect of compounding to your advantage. Earning 7% a year on your investments is much easier than trying to generate a 15% return in just a few years.

Spend less than you earn. That may sound simple, but it’s amazing how many people live on debt, credit cards and save nothing. The more you forego now, the better chance you have of achieving the goal of retiring at age 57, or even earlier.

Over the long-term, the share market has been found to generate the highest annualised real returns at around 7.4% since 1900 – according to Credit Suisse Global Investment Returns Yearbook. That’s where you want to invest a large percentage of your funds. Leaving money in a term deposit or a bank account will be lucky to beat inflation, let alone allow you to retire early.

Don’t be a trader, but an investor. Buy and hold investing may be un-sexy, but it’s still the best way to generate decent long term returns. Invest in companies that will be generating higher profits and earnings in 10 to 20 years’ time, like Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW), CSL Limited (ASX: CSL), BHP Billiton Limited (ASX: BHP) or Coca-Cola Amatil Ltd (ASX: CCL).

Foolish takeaway

Generating a return of around 7.4% each year will roughly see you double your investment in around ten years. Use that as your ruler to decide how much you need to have by the time you reach age 57, and whether you can meet your targeted retirement fund.

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Motley Fool writer/analyst Mike King owns shares in CSL, Coca-Cola, Telstra and Woolworths. You can follow Mike on Twitter @TMFKinga

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