While early retirement may seem like a farfetched idea for most of us, it is a real possibility if you are willing to put your journey to financial independence on high-speed rails.
In general, retirement confidence remains low with nearly half of all the households being at risk of not having enough money in retirement. For extreme savers with ambitious goals of achieving financial independence by age 40, the general lack of retirement preparedness in this country does not affect their desire to challenge conventional wisdom.
Early retirement is a dream many people would like to achieve. But the reality is that transitioning to an early retirement creates some financial planning challenges. The first challenge is trying to figure out how much money you will really need to have saved once you reach Day 1 of Financial Independence.
How to Retire at 40
16. Don’t spend on a lavish wedding
Of course, you want to get hitched in style but do you know what the average wedding in Canada costs? Spending too much on a lavish wedding is a sure way of getting into debt and eating into your retirement savings.
Scale down on your wedding now and at 40, you’ll be able to afford a second honeymoon with your partner: one that can last as long as you want it to because you won’t have work commitments.
15. Consider working after retirement
You’ll find it easier to adjust to retirement if you can keep on working. This may sound like missing the point of retiring but it really just means that you scale down on the 9 to 5 and work on your own terms instead. By doing one of the best jobs for retirees, you reduce your stress and still earn an income.
14. Become an entrepreneur
Once you’ve built up a successful business, you can step back, let others do the actual work and just live on the profits. You don’t even have to quit your day job to become an entrepreneur. Be creative and bold and you’ll be surprised at how even the craziest ideas can become a business you can run on the side.
13. Find ways of earning a passive income
A passive income is a money you earn without having to do anything. It includes the interest you earn on your savings account, the money you earn from a property you rent out and income you earn on the stock market. There are many ways to earn money while you sleep: you just need to look for them and be creative.
12. Build up an investment portfolio
According to Time, you should plan to live on 4% of your investment portfolio every year once you’ve retired. Of course, this means that you actually need an investment portfolio. A good financial advisor will help you make sense of the stock market and where to invest for the best returns.
11. Pay off your debts
Whether it’s student loans or a mortgage, owing money can seriously eat into your retirement savings. The longer you take to pay off your debts, the more you’ll be paying in interest: money that you could have put into a retirement savings plan. Start with reducing your credit card debt and the rest will follow.
10. Take freebies
It’s surprising how many things in life are free. If you do a bit of research, you’ll find that there is a lot of free money you might be missing out on. Take every freebie you can, since this will help you cut down on your spending.
9. Learn how to be happy with less
You don’t need to spend lots of money to be happy. Change your mindset and learn how to find joy in the simple things. This way, making sacrifices to save for early retirement won’t feel like sacrifices.
8. Cut down on your spending
If you want to retire early and still live a good life, you’ll have to make sacrifices now, while you can. The less you spend, the more you’ll have for putting into your retirement savings. Find every way you can to cut down on your spending: from buying cheaper groceries to cutting your car costs.
7. Start saving
The only real way of retiring at 40 to even be a possibility is to have enough saved up for when you don’t have a regular income anymore. The earlier you start saving, the more you’ll have by the time you’re ready to retire.
6. Have a good pension plan
While most pension plans only come into play when you actually reach pensionable age, a good pension plan will make it easier to retire early. You won’t have to save as much as you would’ve had to without one. When you’re considering a new job, look at the kind of retirement benefits the company offers.
5. Get a high-paying job
The more money you make during your working years, the easier it will be to retire early with a good nest egg. Work towards landing – and keeping – one of the highest paying jobs in Canada so you’ll have more to put aside for your post-retirement life.
4. Know how much you need to save
For early retirement, you need to save more than you would have otherwise. Remember that you only become eligible for retirement benefits in your sixties. A good retirement income calculator like the one from the Government of Canada will help you crunch the numbers. Don’t forget to factor in taxes! There are some very useful retirement tax tips that will help save your nest egg.
3. Know how much you’ll need
For a stress-free retirement, you’ll need to have enough money to pay for your lifestyle. The general rule of thumb, according to Forbes, is to have 80% of your pre-retirement income if you want to maintain the lifestyle you had while still working.
2. Know what to expect
Early retirement comes with endless possibilities. There are also many things about early retirement that might surprise you. If you know what to expect, you’ll be able to make better decisions about how and when to retire.
1. Know what you want from retirement
There are many great things to do after retirement and retirement doesn’t mean the same thing to everybody. For some people it means lying on a beach all day, sipping piña coladas. For others, it means still being able to work, but when, where and how you want to. If you know what you want from retirement, it will be easier to come up with a plan to work towards your goal.