- There is a lot of information available on how to achieve financial independence and retire early.
- But usually it only gets you a minimal amount, which is unrealistic for most people.
- With my clients, I recommend saving 30% of their income and knowing why You want this.
There is no shortage of information on how to achieve “financial independence” so you can retire early. However, these strategies generally focus on building just enough assets through investments to provide a benchmark annual income for many decades.
That’s not the route I take with my financial planning clients who want to set a goal to retire early.
The fact is, you won’t be in a strong financial position if you scrimp and save over the next 10 years to have enough to retire in your 30s or 40s and live on $30,000 or less for the rest of your life (which could be another 50 years). to 60 years!).
So what do we tell clients to help them retire when they want? We focus on three basic concepts.
Create a solid plan instead of aiming for the bare minimum
We define financial power as the ability to have freedom and choice about how you live your life.
When you design a plan that requires you to live on less than the median US household income for half a century, that leaves you with an extremely limited set of options for what you can do with your money over time.
Frankly, not having contingencies in place is also poor planning.
What happens if your health deteriorates? If you make a bad investment decision, what does it cost you? If the cost of living simply exceeds what you planned to spend annually?
When our clients want to retire early, we support that choice, and we want to build a realistic plan to do it. That means we don’t assume they’ll be able to spend half of what they do now once they retire, or that their current lifestyle is what forever be happy for all eternity.
You are not the same person you were five years ago, and it is highly unlikely that you will be the same person you are today in 10, 15, or 20 years. Don’t lock yourself into lifestyle choices now that you may find unfulfilling in the future.
Save a very large percentage of your income
So how do you build the financial muscle to support a plan that allows you to retire early without limiting yourself?
you contribute a significant amount of your current annual income into long-term investments to increase your wealth over time.
By significant, we’re talking about saving a minimum of 30% of your gross income each year.
Realistically, that figure probably needs to be closer to 40% or even 50% if you want to retire in your 40s or 50s. (Remember, “normal” retirement age is 67, so mid-50s is still early!)
yes this is a batch of money. It is not feasible for everyone. But an aggressive savings rate is required for early retirement because the loss of income from not working makes a big difference to financial results over time.
Even working five more years can mean having hundreds of thousands more in assets at the end of your life.
When you start talking about shortening your career from 10 to 20 years, that means your savings have to make a batch to support your expenses, even if you spend relatively little or much less than you did while working.
We make sure clients understand that even if they have a tight grip on their cash flow (and save a lot), not earning an income has a big impact on how much they will have in the future in their later years.
If early retirement is even a consideration, then saving 10-15% of your income just won’t get you there. The sooner you want to retire, the more aggressively you’ll have to save now.
Understand the “why” behind your goal
You can use your money to create happiness in your life, but only if your financial goals align with your values and what’s most important to you. To do that, you need to know what those values and priorities are in the first place.
Early retirement can be a great goal when used as a path toward something important to you. However, it may not be all she hoped for if she’s trying to retire early just because she hates his job.
Before setting such a huge financial goal, it’s worth checking your mindset and considering what feelings seem to be constant in your life, regardless of your circumstances.
Can you think of a time when you thought, “If only X were different, so I’d be happy,” but then X changed, and you still felt the same?
This is a very human experience and there is nothing inherently wrong here. But it’s important to recognize this trend and realize that the grass isn’t always greener on the other side.
If someone has values like Contribution, Community, and Meaningful Work, then early retirement might be a terrible goal! On the other hand, if you identify something like Autonomy and Adventure as part of your value system, then early retirement could be a great goal that allows you to more fully live out those values.
That’s why we spend so much time talking about values and priorities with our clients. Of course, we’ve got the numbers covered, too, but good financial planning goes way beyond spreadsheets and projections.
Understanding the why and purpose behind your actions is a critical piece of the puzzle. Your values are the driving force that shapes and informs the goals that will truly feel satisfying to accomplish.