Could You Afford to Retire Early?
The idea of taking early retirement is certainly a tempting one. After several decades of hard work and a regular routine, many people would like to enjoy a more relaxed way of living. In fact, recent studies have shown that over 50% of workers aged 30 to 50 hope to stop working early.
Of course, for most people the biggest stumbling block to retiring early is money. So, how can you work out whether it is possible for you to retire when you would like to?
Your Regular Income
If you have a pension plan, rental income or some other source of regular income then this is going to be vital in helping you to plan your early retirement. It is usually said that when we retire we start to spend about 80% of what we did when we were working. This might sound like a high figure to you but you don’t want to be left short once you have given up your job by working on a lower amount. These days people are retired for longer than ever before, due mainly to advances in medicine. This means that you need to be sure that you are going to have enough income to support you all through these days. For example, if someone retires now at 50 it is not unreasonable to think that they could be retired for around 30 years, which might be almost as long as they worked for. Perhaps you will want to take on a part time job once you retire in order to keep your income ticking over.
As we have seen, you can expect your normal outgoings to drop by about 20%. Is there anything you can do to push your expenses down even lower? Maybe you could pay off a loan or a mortgage, downgrade your car, grow your own food, use solar energy, get cheaper insurance or find some other way of living less expensively. A lot of the ways of reducing your outgoings involve an initial expense, so it is best to do this while you are still working and leave the savings for when you really need them. Of course, it is important to not overestimate the savings you might make.
Assuming that your outgoings are around about the level of your expected income you should be able to live comfortably most months. However, without regular wages coming in you might struggle to pay unexpected bills, repair problems in the house or treat yourself to the odd trip. This is where a good level of savings will come in handy; to cover the occasional shortfall in your monthly income. A lot of new retirees go for a safe and steady option such as a bank account, in order to avoid risking their life savings. If you have enough savings to potentially generate an income then this is something worth considering. Maybe you could buy a property and let it out or start up a business which someone else runs but which gives you additional income. It is essential that you make the most of your savings, as they could potentially have to last you a few decades.
Finally, perhaps the most important point of all is around your expectations. If you are going to be happy enjoying a relaxed retirement working in the garden, looking after grandchildren and reading books then you won’t have such pressure on you to have big savings or a strong income stream. However, if you hope to take advantage of these years to do the things you couldn’t do while you were at work then you might find that you need even more money than you did when you had a job.