Anybody who denies fantasizing of a rich and early retired life is lying! In fact, it is a dream of every working professional to retire early and enjoy life. But do they save enough for it too? The answer may not be yes always. If you fall in the 20s age bracket to whom retirement is so distant that it looks pointless to start skimping for it now, think again. Majority of people look at retirement that comes after they have toiled for 65 years of their existence. For some, it comes very soon, say at the age of 40! Early retirement is meant for those who are willing to work hard to earn it. This includes working for extended hours and scaling down expenses to a great extent. Despite these strenuous measures, nobody abhors the idea of retiring early. And rich!
Although you might have just begun your professional career and retirement is not happening anytime before 35-40 years, you couldn’t be more wrong than not saving up right now for your future. Follow these things you should do to retire early so you can cherish your golden time to the fullest:
1. Put aside at least 10% of your earnings for retirement right away
To remind you all of the greatest personal finance policy, ‘first pay yourself’, conserving for retirement is similar to paying yourself. You should begin right away, regardless of what you are earning. The earlier you begin saving, the easier it becomes on your funds. This implies that the earlier you begin, the lesser you have to scrimp as time will be on your side.
Conversely, those who don’t begin the moment they can, they are bound to work for more years to supplement for the sum they lost out on, or be even more insistent with the investments only to make up for the loss. If you pursue the “minus 10” principle, the older you are, the more you need to put aside for retirement. In reality, both these choices are wrong. Therefore, the first thing you should do is to start investing some funds towards your retirement account now and see the power of compound interest take care of the rest for you.
2. Time to focus on your income potential, if you’re not earning enough yet
Here comes a situation that most of the people are averse to. They cannot decide whether they want a lifelong profession that they love or do they want an occupation that will let them retire early. Typically, it is impossible to have both.
Youngsters who have just started on with their professions may not be earning enough money yet. If this is true for you too, then enhance your prospective income potential by getting advanced professional degrees in your field, achieving qualifications, and obtaining superior work experience that can hoist you to a level of better-salaried jobs. An ideal way to achieve early retirement is to maximize your income as realistically as you can. For instance, earning an MBA in a reputed college can improve your recruitment opportunities immensely, besides putting you on a quicker roadway to promotions. These will enhance your income potential and simultaneously let you to set aside more for the retirement. Earning degrees to get promoted and getting pay raises is an excellent choice. You can work out your subsequent steps to achieve higher designations and increased income level. For instance, if you are working in an IT organization, look for technologies that are hot and spend effort in learning technologies. For instance, technologies like Hadoop, Analytics, Digital Marketing and Cloud are hot in the market.
Besides, there may be certain departments that you may be fascinated with to earn more money. Check out sales, engineering, financial sector jobs or work a part-time job to earn an extra income. Income from passive sources can actually facilitate an early retirement dream. You can bring in money every month with only bare minimum or sporadic maintenance from your end. A few options for passive earnings comprise putting in dividend-paying shares, rental properties, etc.
3. Invest strongly
Young professionals can afford to be more aggressive with their investment plans in order to maximize returns. A brilliant thing to do the same is to invest in stocks. People in their 20s who intend to save for retirement years need to put in 80 – 100% of their investments towards equities. Even if, for some reason, a few of the stocks/equities lose money, the investment portfolio still has ample time to bounce back. Additionally, the portfolio will have ample time to expand.
If you are running past 20s, then you must regulate your fierceness level. You can always consult a financial expert regarding your savings priorities to make sure that your portfolio is healthy enough for retirement planning.
4. Install auto- deposits
Another thing to be borne in mind while planning to save for long-term is to fix and forget. Install a direct deposit bank account that pulls out 10% from your salary account every time the salary is deposited in it. In this way, money will be directly transferred to your deposit account. And you won’t feel the pinch! This will take a lot of burden off your shoulders and you will end up saving for a rich and early retirement without trying too hard. Incorporate this habit as a part of your financial practice. Much in the same way you can mechanize your investments too. You can regulate it such that you routinely endow in Rs. 5,000 worth of selected stocks every month, with a mere click. Setting up your investments and saving on an auto-deposit mode will make sure that your capital grows very soon, and that you are geared up for retirement.
5. Take into account health allowances
Health issues can amount to be the biggest financial concerns once you retire. How will you finance health related issues? Your strong retirement nest egg could disappear in a flash if you or any dependent family member of yours ended up needing costly medical treatment during your retirement lifetime. However, this concern can be taken care of by keeping aside a fixed stock for your future medical expenses. The insurance plans come with various riders that allow coverage for certain categories of medical claims only. To tackle this uncertainty, you need to inspect the illness or hospitalization clauses so that you can upgrade your insurance plan to reduce the cost in case of hospitalisation or grave disabilities. There are medical plans that offer coverage up to 80 years of age. Choose the one that suits your financial condition. Having a room for health allowances is the next best thing to do once you have decided to go for an early retirement. It will not only ensure your financial fitness but also your physical fitness at a time when you need it the most.
6. Check out retirement plans
You are showered with plethora of products once you start searching for the one to choose for your retirement years. Some of them offer dividends over the pension account; others guarantee a retirement support after 65 years of age together with cover equivalent to the face value of your plan. A latest offering in the retirement products segment is the proposal to earn tax free benefits and assured income. Different companies dole out different plans to suit diverse retirement needs. The thing that you need to do at your end is to determine your goals, investigate the choices and get in touch with experts, if required, to hit upon the plan that goes well with your goals and funds.
7. Cut down your spending rate
If you long for an early retirement and are willing to put together as much as you can, then try cutting down expenses too. Spending less can drastically boost your savings speed. Check for expenses that you may cut back. Everybody loves to enjoy money but spending it in a prudent manner would not harm either. Curtailing costs does not imply that you must rip every fun element out of your life. Rather, you ought to strike a healthy balance. Some ways to put prudence into action (get the best for your money) are checking for discount, buying only good quality products, utilizing coupons, etc. One of the commonest expenses that you can cut back on is your housing. See if you can move to a comparatively affordable and modest accommodation. Besides housing, check out other things that you might cut down from your financial plan. According to experts, cutting down your expending pace is much more effective than enhancing your earnings. It not only adds to the residual money to save for every month but it lastingly reduces the sum you will require month after month during your life.
8. Check online expense calculators
The digitalization of the economy has revolutionized the way you can monitor your minute-by-minute spending. The expenses are automatically classified through pie charts or graphical representations. You can add your different accounts to make a category and any transaction gets automatically reflected in the chart. This is a practical way to keep a tab on your expenses and also check if you are endowing and saving enough for your retirement goals. Quite innovative!
Now that we have discussed the financial aspects of an early and prosperous retired life, let us wade through some emotional aspects of an early retirement.
• How do you wish to spend your retired life?
It is a relevant question to ask yourself at this juncture when you have made up your mind for an early retirement. You need to actually dwell on how you wish to use up your retirement years so as to decide how you will accomplish an early retirement. Do you wish to travel around the world? Do you desire moving to an affordable city? Will you stay with your children?
• How much you wish to spend during retirement?
It comes as a common thought in our minds that we will scrimp and save in retirement. However, frugality is not everybody’s cup of tea. As you will have plenty of spare time, you might need more money to enjoy and utilize it. Even your medical needs attention that was till now being taken care of by your company. The steep medical costs may leave you surprised, or rather shocked.
• How much you ought to save?
It is a big question to ask yourself before you even begin to think about retirement. How can you dream of an early retirement if you do not have enough funds for it? You ought to work out precisely what amount you must possess to retire and would you be able to survive on that sum for years to come. If a 35 year old decides to retire in the next ten years, then he/she needs to work out the exact amount that would be needed to carry on and how much he/she needs to stretch the funds for nearly another 50 or 60 years after retirement.
Starting early and investing diligently holds the key to retiring rich. Take your time to achieve your professional goals and in the process make sure that you have done the right things to enjoy the kind of retirement you’ve dreamt of the entire life.