Early Retirement Isn’t Out of Reach
By David Dierking
For many people, the idea of exiting the workforce permanently and retiring seems like such a far away goal. Imagine what they think about not just retiring but retiring early.
Leaving your job while still in your 50s sounds like something reserved only for the wealthy but increasingly we’re seeing individuals all across the wealth spectrum deciding to call it a career. The one thing these folks have in common is that they’re willing to forgo some of the luxuries now in order to reap the benefits later. Early retirement isn’t as out of reach as it may sound but it does require time, careful planning and, yes, sacrifice.
The other thing that it requires is money. Typically, an individual has about a 40 year working career in order to accumulate enough money for retirement to carry them through roughly another 25 years after stop working. Those who set out to retire early will need to squeeze all that saving into a shorter time frame and make it stretch out longer. Early retirees may work only 30 years and need to stretch it out over 35 years or longer. Saving more than the typical investor will be vitally important to even considering early retirement.
It’s estimated that if you wish to retire early (let’s say you want to retire at age 55 instead of 65), your savings rate will need to be about 50% greater than if you were to retire at the typical retirement age. This also assumes that you’re starting in your mid 20s. If you’re already a few years or more past your mid 20s, your savings rate will need to be that much greater to make up for the lost savings opportunities. Again, it’s not insurmountable but it does carry an extra challenge.
That is unless you plan on cutting your spending in retirement. Being able to balance your retirement budget requires considering both your saving and spending. If you plan on travelling the world and dining out at fancy restaurants, you’ll need a bigger nest egg to fund these things. Conversely though, if you don’t plan on moving to a warm weather climate or upgrading your house or lifestyle, you may be able to get away with saving less. Here’s where a real honest assessment of what you want is helpful because the last thing you want is to say that you can live on less just to talk yourself into being able to retire early only to find that you don’t have the money to do what you really want.
Not retiring completely may be an option for you as well. Millions of retirees have found that maintaining part time employment in their golden years not only helps pay some of those bills but it also fills a very important need for activity and sociability. Many don’t realize that those hours that used to be spent at the office need to be spent on something else and doing something you enjoy can help fill that void.
Retiring while you’re still relatively young doesn’t have to be something that only other people can do. You can too. It just takes some extra planning and commitment to what will likely be some more aggressive saving and sacrificing. However if you’re up for the challenge, the rewards can be great.
Photo credit: mikebaird
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