Embarking on the journey of early retirement is a shared dream for many. The prospect of embracing your golden years ahead of schedule is undeniably appealing, but it demands careful planning and disciplined financial choices.
While the question of “can I retire early?” may seem overwhelming, with the right mindset and approach, it is an attainable objective. In this piece, we will outline practical and straightforward steps to position yourself for early retirement by the age of 55.
Step 1: Develop a Robust Financial Plan
The cornerstone of any successful early retirement endeavour begins with a meticulously crafted financial plan. This plan should consider your current financial standing, future income projections, and anticipated expenses. Importantly, it should be rooted in your values.
This means firstly you need to ask yourself what retirement truly means to you.
Do you envision ceasing work at 55, or is your aim to have financial freedom to spend time as you wish, with the people you cherish? Collaborating with a financial planner will assist in determining the funds required to support your desired lifestyle during retirement, factoring in aspects like inflation, healthcare costs, and unforeseen expenses.
Step 2: What is your Number?
Understanding the amount, you need to save is pivotal.
A helpful starting point is the rule of 300. Multiply your expected monthly lifestyle expenses by 300. For instance, if you anticipate spending £5,000 per month in retirement:
£5,000 * 300 = £1,500,000.
This implies you would need at least £1.5 million to maintain your lifestyle in retirement, although this rule of thumb comes with caveats considering tax, inflation, investment returns, and unexpected expenses.
It gives a good indicator though of the financial ballpark you need to be in.
Step 3: Calculate Your Required Investment Return
Early retirement often necessitates higher required investment returns.
The need to consider you money in real terms is crucial, accounting for the impact of inflation on savings. Historically, the global stock market has outpaced inflation by around 6-7% per annum over the long term. Assessing market volatility and your risk tolerance is vital to navigating potential challenges.
Step 4: Understand Your Lifestyle Expenses
Balancing savings and enjoyment are key during the pursuit of early retirement. Evaluate current spending habits and identify areas for potential cutbacks without compromising your quality of life.
It is essential to eliminate non-essential expenses but be cautious not to overly restrict spending. Conscious spending is encouraged over implementing strict budgets.
Step 5: Explore Alternate Income Streams
Even a modest additional income in retirement can make a significant difference.
As you are likely to have your mortgage paid off and your children should be independent, a lot of your current expenditure may not be relevant.
Many of our clients who retire early, engage in self-employed work, utilising skills developed over their career.
Contemplate how your expertise could be applied in retirement, whether through contracting or consulting work that provides flexibility.
Step 6: Continuously Monitor and Adjust
Financial landscapes evolve, as do goals and aspirations.
Regularly reviewing and adjusting your financial plan is vital. Life events, market fluctuations, and personal goals may necessitate changes to your investment strategy, savings rate, or retirement timeline. Flexibility and adaptability will help you navigate challenges and seize new opportunities.
What’s Next?
Achieving early retirement is an attainable goal for those who are committed to effort and discipline.
By following these practical steps – from crafting a robust financial plan, calculating the retirement pot required and to managing expenses – you can set the stage for a fulfilling retirement at YOUR chosen age.
Remember, early retirement demands dedication and consistency, but the rewards of financial freedom and the ability to enjoy life on your terms are well worth the journey.
If you would like to discuss your retirement plans further, explore early retirement possibilities, or set your personal plan in motion, feel free to give us a call.