Early retirement means something different to just about everyone. Some believe early retirement is having enough passive income to cover expenses for the rest of their lives. Others think early retirement is ditching a soul-sucking day job and finding work they love. Others believe it’s a combination of the two.
Whether early retirement is about having 30 times your annual expenses saved or finding work you love, it can be done. The best approach can be keeping both in mind as you plan for your early retirement.
Here are some steps to take with early retirement in mind.
Saving Enough Money
We all know that the earlier you start saving the less you’ll have to save. But, have you actually done the math to see what you should be socking away each month?
Here’s an example for you.
A 25-year-old is just getting ready to save for retirement. She currently makes $50,000 per year and determines she’ll need $50,000 per year to cover all her expenses (including travel) once she hits retirement.
Before we get to the numbers, here are the assumptions:
- 3% inflation
- 8% return on investment
- Retirement age of 55
- Retirement income to last 40 years
- Social Security not included in the calculation
With all that in mind she would need to save 27% of her annual income. This would equate to $1,126 per month or $13,508 for the year. Is saving 27% of her annual income doable? Yes it is. Plus, if she receives an employer match on her 401(k), she’d have to save even less. If you factor in Social Security the amount drops once again.
If she started saving at age 20 then she’d only have to stash away 20% of her income, or $832 per month. If she waited until age 30 she’d need to save 37.4% of her income, or $1,559 per month. Also, remember that you can change the math by saving half your income!
This is an oversimplified example but it still gives you the big picture.
Take some time to plug your numbers into a retirement calculator and get a ballpark figure of what you should be saving. This way you’ll know if you’re on track for retirement.
Finding Work You Love
I think we can all agree that saving an adequate amount of money for retirement is a must. But in terms of early retirement, many people are simply looking to branch out on their own and do work they enjoy.
But no one said you have to wait until retirement do work you love.
Many of my friends that I’ve met online have two passions: early retirement and side hustles. They are motivated to make their money work for them. They start a business on the side (usually online) and use the profits to fund their retirement accounts.
They start building a business that they love at a young age and many of them are able to eventually turn their side business into a full-time income while still socking plenty away for retirement.
There’s no point in dreaming of an early retirement so that you can quit your soul-sucking job while doing nothing about it in the meantime. Start doing work you love on the side and saving it. You’ll be able to beef up your retirement savings while simultaneously working on an exit strategy from the job you hate.
Here are a few quick pointers:
- Pinpoint a low-cost side business you’ll enjoy doing.
- Plan out a strategy for how you’ll make money, find clients, and market your business.
- Dedicate an hour each day to your side business.
- As your business grows, begin dedicating more time to it.
- Take your profits and invest them — let them work extra hard for you.
I’ve tried to start several side businesses. I’ve had several failures and a few successes. When you finally find something that you enjoy doing, you’ll be able to easily grow your business and your income. Stick with an idea for a little while, and if it doesn’t feel right to you, move to another one.
Work, Save, and Invest
Early retirement doesn’t have to be just a dream to you. If your current job is paying the bills but doesn’t excite you, don’t be afraid to step outside of your comfort zone and create your dream job. Start small and work on the side.
Look for ways to save on your everyday expenses, grow your side business, and invest your profits. With hard work you can create the job of your dreams and save enough for early retirement.
Just remember it’s up to you. If you want to retire early, you’re the only one who can make it happen.
What are your thoughts on early retirement? Is it in your future?