How to Retire Early

Retirement is the other innings of your life, to be filled with fond memories and ensuring peace of mind with a sense of security. It’s that phase of life where you take it easy and let the experiences set in.

Early retirement is becoming the norm these days. Do you wish to retire right now? Do you want to give up the rat race and invest time for your family and travel? Are you looking for more independence and stress-free life? It does seem like a fantasy but, with the right steps, it’s possible. But, before going further, you need to understand what early retirement is and is that want you really want.

The FIRE Movement

“Financially Independent, Retire Early” is a movement popularised on Reddit; the American social media platform. The movement specifically means retiring in your 30s or 40s. There have been diverse responses from the public and is open to debate. However, it cannot be denied since a good bunch of individuals, at the peak of their profession, have successfully called it quits.

This movement has inspired millions to take a look and determine what early retirement can be like. It stresses on extreme budgeting with saving and thoughtful investing that can lead to financial freedom a couple of decades before the previous generation reached.

It teaches you about living a life you love rather than go by the social norms. The movement has inspired several millennials to enjoy what they have and ways to increase their income source.

What is Early Retirement?

Is it not working anymore yet, living the life you are currently?

Is it having the freedom to do the kind of work you love doing?

Does it mean doing away with the routine of clock-punching?

Or is it anything else you are looking forward to concentrating on?

Whatever your reasons, you should have complete clarity of your decision and know where it will take you. You need to look into several aspects and welcome major alterations to your lifestyle if you want to retire early. Remember, retiring early is awesome for some but, not for everyone. Let’s look at some of the reasons why retiring is not a good idea for everyone.

The Drawbacks of Early Retirement

You can suffer from identity crisis

“What do you do for a living now?” is the most common question that pops out. It can be an eye-opener when you realise that you are no longer recognized as the expert in your area you once were. You can also realise how you were passionate about the profession only after quitting.

You can second-guess yourself

Once you retire young, there’s a possibility you may question your decision and regret the additional income you let go.

You may appear like a misfit

Retiring early is still considered unconventional and, people may be jealous that you are no longer busy. In other words, people won’t respect you the same way as respecting a working individual.

You may not be as happy as you thought you would be

You may think that quitting a demanding job and retiring with substantial savings will make you happy. However, it’s not always the case. You will be surprised to know that after a short-term high, you come back to the low phase again.

You can get really bored

Retiring early can leave you sad and, you wonder what to do next. Your motivation can take a beating and, you can easily get bored. This also happens when your working colleagues and friends don’t have time to meet you.

However, if planned well taking the complete perspective into account, early retirement can be a delight. It requires in-depth planning and a lot of homework before you decide to call it quits.

The following points throw light on the necessary steps to take for retiring early:

Determine the type of lifestyle you want after you retire

Think of all that you want to do in your retirement. Also, get a clear picture on the type of lifestyle you wish to enjoy. Whatever your dreams and goals are, that will help you determine the budget.

Increase your savings rate

This is a huge component for early retirement. Prioritize your needs and wants and cut down on unwanted expenses right away. You need to have substantial savings in your account to take advantage of a robust investment strategy.

Incorporate changes to your current budget

This is a continued slice from the previous point. Early retirement demands you to funnel at least 40% to 50% of your annual earnings into savings. Make a source for a second income that can go into your retirement account. You can get smart about controlling your spending on transportation, utilities, housing and other aspects.

These also include making major lifestyle changes comprising of:

Getting out of debt: Debt ruins your chances of retiring early with the lifestyle you have imagined. You cannot save much for retirement if you continue clearing your debt.

Start Investing

Wherever possible, put any extra money you make into retirement savings. Look for areas where you can cut down on the budget and yet afford the current lifestyle. Clothing, entertainment, gym memberships and other areas are where you can readjust your budget.

Boost your Income

Creating a second source of income is a great way to plan for early retirement. With substantial years of professional experience under the belt, this option is a possibility.

Get in touch with a financial advisor

Running your portfolio and your investment plans with a professional advisor is highly beneficial. It helps you be in control with your finances and also opens up new avenues for investment. Your financial advisor can help you keep track of where your finances go.

Other Important Points to Consider

While planning for early retirement, you should play it smart and stay alert. Make sure to consider the following before deciding to retire early:

Revisit your retirement dream again

A couple should be on the same page when it comes to early retirement. What do you both think about and plan about travelling? What are your hobbies? What your daily routine will be like? Being on par with your spouse make the process less daunting.

Think about a location

Do you plan to live in the current location, or do you wish to relocate? Know the states that have the highest standard of living and those that offer best tax breaks.

Do you want to work?

There are some people who look for some more income even after retirement. Check out part-time options or consider starting a business if you wish to. Are you looking for work that involves more social interactions? Get clarity on these lines and shape your retirement accordingly.

Keep a track of social security and healthcare

Though social security is not a major source of income, it does make a difference to the quality of your retired life. Keep track of how much you will get and make wise investment decisions. Also, make sure you get private health insurance if you want to retire early. It’s a leading factor deciding the quality of your retirement.

Manage your income streams

Income streams let you draw money easily without touching your emergency fund. You need to know when to draw money from these streams to avoid a tax penalty. A penalty can also be charged if you don’t take out the money within the prescribed date.

Benefits of Retiring Early

Retiring early opens up opportunities for exciting times you never thought existed. Check out the following benefits of retiring early:

You will probably be healthier

Retiring early reduces stress levels to a great extent and makes way for a more active lifestyle. You can concentrate on exercising and maintaining a healthy diet.

You can concentrate on things that excite you

It’s great to have an ample amount of free time to do the things you love doing while you are young. You can travel more and try new hobbies or adventures while your energy levels are high.

You can hangout with people on weekdays

Contrary to the common perception, there are people to meet and socialise during the weekdays. Not everyone works across a routine clock. You can also find people who share common interests.

You can find other sources of income

Retiring early means you have the time to start a potential second source of income. This could be in something you wished doing for a long time. It enhances your creativity and helps you discover your true interests.

The Takeaway

Retiring early is a dream for millions and, is a worthy dream. But the efforts and the work to put into practice are enormous. If you are ready to make some serious sacrifices and forego certain joys of life, then early retirement may be for you. Patience and perseverance are the keys and, serious investment is something that cannot be missed. You need to invest in autopilot mode and keep looking for options to increase your savings.

If you can go through this long phase, a remarkable retired life with immense financial freedom and lots of years to enjoy is yours to keep. It is the sacrifices you make today that bear the fruits in the stage of early retirement.