A growing number of Australians are eyeing early retirement.
A recent article in The Australian discussed the growing trend of younger Australians aspiring to retire well ahead of the average retirement age.
The article noted that the COVID-19 pandemic changed people's attitudes around work and retirement. In recent years, Australians have prioritised life experiences over slaving away in the office.
Based on the latest Australian Bureau of Statistics data, the average retirement age in 2022 was 64.8 years.
The pension was the main source of income for most retirees. However, most Australians don't become eligible for the pension until age 67.
Additionally, while Superannuation is a tax-effective way to build a retirement nest, Australians cannot access these funds until they're 60.
According to The Australian, rising awareness of concepts like FIRE (financial independence, retire early) has inspired younger Australians to focus on saving and investing.
How much is required for a comfortable retirement?
According to ASFA, a 67-year-old single man needs $428,533 for a comfortable retirement. For a single woman, the figure is slightly lower at $379,483.
However, those retiring earlier will likely need a higher balance due to a greater number of years without income-earning capacity.
An action plan to reach FIRE
In an increasingly complex world, young Australians may not be clear-eyed about the best way to achieve their retirement goals.
However, it doesn't need to be complicated.
In most cases, the most important factors that will determine retirement eligibility are how much is invested, how early a prospective retiree starts investing, and what they invest in.
While saving cash and investing in term deposits may feel like a safe option, ASX shares are likely to be a much faster way to reach early retirement.
According to the Vanguard Index Chart 2025, Australian shares have grown at a compound annual growth rate of 9.3% over the past 30 years.
Since inception, the Vanguard Australian Shares Index ETF (ASX: VAS) has almost exactly matched this return, averaging 9.39%. Therefore, this VAS ETF is a good option for Australians looking for the simplest way to invest in Australian shares. Investors can buy shares on a regular basis and achieve diversification benefits.
On the other hand, cash has delivered a return of just 4.1% over the same timeframe.
Timing and magnitude also matters
Turning to the impact of timing and amount of funds invested.
Of course, the sooner the aspiring retiree starts investing, the earlier they can retire. However, the impact of compounding is often under-appreciated.
An individual who invests $1,000 monthly for 20 years at a 9.3% return will grow their balance to just short of $700,000.
However, if delayed for 10 years, the impact is significant. If the individual invests the same $1,000 a month at 9.3% for 10 years, their balance will be just below $200,000 10 years later.
If you're in your 30s, retiring in your 50s is very possible if you start planning and investing today.
The effect of delaying this by 10 years could be the difference between retiring early and working beyond the average retirement age.
