Simple Certainty | How Do I Retire Early?

It’s a dream held by many: finishing work while there’s still a little lead left in the pencil.  Devoting time to those passion projects while you’re still young enough to do them justice, spending more time with family, or simply working through an extensive bucket list – whatever the reason, many of us aspire to an early retirement. But how exactly is that achieved?

Three questions you need to ask yourself

At what age do I want to retire?

This is the obvious first step, because the age you retire at determines how much you need squirreled away on your last day of work. For example, a person retiring at 55 will need more in savings than a person retiring at 65 (assuming they will have similar lifestyles). If you want to retire at 45, you’ll need more yet again. Speaking of lifestyles…

What lifestyle do I want in retirement?

What do you want your retirement to look like? Do you plan on having annual holidays? Domestic or international? Will you want to upgrade the car at some point in your retirement years? A lot of people can’t wait to retire so they can devote more time to hobbies and passions. What are yours? Think about their financial demands. If you love playing golf, how much will club memberships run you? If you own a boat, factor in the cost of mooring and, of course, general upkeep.

Even smaller expenses need to be taken into account. If you like eating out, think about how often you’ll want to do this. If you enjoy frequenting the finer establishments, those expenses will add up.

How retired will I be?

Hemingway once said that retirement is the ugliest word in our language. I agree. It’s too final; it sounds like the end of something, as oppose to a beginning (which it really is). And that beginning looks different for everybody. Are you stopping all paid work on the first day of your ‘retirement’? Or are you planning on scaling back so you can devote more time to fun things while still logging a few hours? Perhaps you’ll finish up with your current career and take up some paid work in another area, even if that’s only a few hours a week.

The point of these questions is to illustrate that ‘retirement’ may not mean the end of paid work. This is an important consideration because an income stream – no matter how little – will be a factor in determining how much you need saved when you enter that next phase of your life.

A rough calculation

Here’s a quick formula you can use to give yourself a guide on how much you’ll need saved by 5pm on your final day of work.

(Amount you’ll spend per annum) x 20 = Savings you’ll need

Here’s a case study. Rob wants to retire at 55. He’s answered the above three questions and decided that he’ll need $100,000 per annum in retirement to support the lifestyle he and his partner want. So, his formula would look like this:

$100,000 x 20 = $2,000,000

Start planning now

Early retirement doesn’t happen by chance; you need to plan for it. The sooner you do this, the higher the likelihood that you’ll achieve your dream of early retirement. Act now. Start by having conversations with the relevant parties, such as your partner and financial adviser, to figure out what you want retirement to look like and you how much you’ll need to realise it. This will enable the development of a sound financial plan that can bring forward the traditional age of retirement.

Disclaimer

Please note this is general information only and you should always seek your own personal
advice.