Summary
Planning for Retirement
Most people work 90,000 hours in their lifetime, which is one-third of the average life span, according to a study from Gettysburg College. If you want to minimize the time spent in the 9-to-5 grind and retire earlier to travel more, this article discusses essential strategies for achieving early retirement.
“As the proverb goes, the ‘best time to plant a tree was 20 years ago,'” states Danetha Doe, a financial wellness educator. “The second best time is today.”
Saving for Retirement
It’s crucial to start saving for retirement as early as your 20s or 30s if you aspire to retire early. However, Doe emphasizes, “Don’t despair if you didn’t start saving in your younger years. It’s also never too late to start saving for retirement. The longer you wait to begin, the more strategic you will need to be to ensure you save enough for your retirement years.”
To determine how much you need to save to retire by 55, Doe recommends using the common rule of thumb: Take your current salary and multiply it by 10. This method serves as a starting point, although various other factors will also come into play.
For example, if you earn $80,000 per year, you would need approximately $800,000 to retire. Keep in mind, if you’re planning to retire at 55, you should have enough funds for at least 20 years. This means living on $40,000 per year, which may not be sufficient for everyone. Alternatively, $40,000 might be adequate if you decide to retire in a location where the cost of living is lower.
Strategies for Early Retirement
If you wish to achieve retirement even sooner, there are several strategies to consider, albeit requiring significant effort. Doe recommends exploring the F.I.R.E. approach, which stands for Financial Independence Retire Early.
“The principle behind F.I.R.E. is to minimize expenses drastically and live on 25 to 50 percent of your income,” explains Doe. The excess funds you save can be invested in low-fee options such as index funds.
Alternatively, you could aim for early retirement by building a successful side business that generates additional income or pursuing side hustles designed to create passive income, such as owning rental properties. Even without reaching a specific savings goal, Doe assures that it’s possible to attain a retirement lifestyle without fully leaving the workforce, which is beneficial for those eager to travel now rather than later.
Wealth-Building Opportunities
Doe acknowledges the inflation challenges of 2023 but has strategies to overcome them. “If you live in the U.S., consider transferring some of your funds into a Treasury I bond. The interest rate for most of 2022 was 9.62 percent and is currently set at 6.89 percent through the first quarter of 2023,” she explains. Also, depending on your risk tolerance, you may want to look into alternative investments such as wine or equity crowdfunding.
“Equity crowdfunding allows everyday investors to participate in funding innovative startups, which was previously reserved for those with a high net worth. Investing in this manner creates exciting wealth-building opportunities,” says Doe. Furthermore, her organization provides analysis on various equity crowdfunding deals to help individuals evaluate their investment choices.
“Ultimately, most individuals aspire to retire early due to their desire for financial freedom. They wish to travel, indulge in artistic pursuits, or engage in philanthropic efforts. All of these experiences can be realized without adhering to a conventional retirement timeline,” Doe concludes.
Her enduring advice boils down to a rich mindset. “While it may be tempting to focus on frugality or decisions birthed from fear, this approach won’t support a life filled with travel. Instead, focus on opportunities to amplify your income. By maintaining an abundant mindset, you’ll navigate the challenges of 2023 more successfully.”
