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Turning your retirement dream into reality

Many Australians have probably already resigned themselves with working until they are 70 years of age, but there is a way to retire earlier than that.

According to media reports, The Federal Treasurer Joe Hockey is likely to lift the retirement pension age to 70. That is, retirees won’t be eligible to receive a government-funded income until they hit the ripe old age of 70. The change is likely to be phased in over a number of years, much like the previous rules which lifted the retirement age from 65 to 67.

I’m here to tell you that it needn’t be the case, and you won’t have to work until you’re 70, if you can afford to support yourself before then. Theoretically, anyone could retire in their 20’s or 30’s if they can generate enough income to support their desired lifestyle for the rest of their lives.

Here’s one great example. The author and his wife retired at age 30. His blog also has some fantastic financial tips on how he got there.

One of the main reasons he was successful was because he adopted one of author Steven Covey’s key ideas from Seven Habits of Highly Effective People. And that is to “begin with the end in mind”. In other words, you need a plan. Work out what age you want to retire at, how much you are likely to need, and how you can get there.

Sure, you may not be able to meet your dream of retiring next week or next year, but I’d suggest that anyone can come up with a better plan than being forced to work until you turn 70 and then rely on a government pension to get by.

Taking some of the tips from the blog I mentioned include cutting out unnecessary expenses, cutting out everyday luxuries by making do with cheaper options, such as making your own coffee at home, rather than buying from a café, taking lunch to work and making do with the car you have.

On the investing front, the blog’s author specifically mentions simple, slow and boring low fee index funds. For Australian investors, some examples include the Vanguard US Total Market Shares Index ETF (ASX: VTS) which has an astonishing management fee of just 0.05%, or the Vanguard All-World ex-US Shares Index ETF (ASX: VEU). Both funds give investors access to international shares at a very low cost.

Locally the Vanguard Australian Shares Index ETF (ASX: VAS) tracks the S&P / ASX 300 Index (Index: ^AXKO) (ASX: XKO) charges 0.15% in management costs, while the Vanguard Australian Shares High Yield ETF (ASX: VHY) charges 0.25%. There are plenty of other ETF funds offered by different providers that track specific indices, and we have no affiliation with Vanguard, but mention the above as examples.

Foolish takeaway

One of the keys is to invest regularly, regardless of what the market is doing. Putting in a sum of money each month and not trying to time the market is virtually essential. Otherwise known as dollar-cost averaging, it can be a great way to achieve your retirement dreams.

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Motley Fool writer/analyst Mike King owns shares in Vanguard's US Total Shares ETF and All-World ex-US ETF. You can follow Mike on Twitter @TMFKinga

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