I would like to welcome Good Nelly. Here’s her guest post on early retirement. She offers great tips on how we can achieve early retirement! Let’s do it!
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Early retirement! Perhaps it has become the most talked about term nowadays, a new trend. Many people are working towards achieving FIRE – Financial Independence Retire Early.
Stats Canada states that about 45% of Canadians want to retire before they reach the age of 65. So, you are not alone if you want to retire early. There is no harm if you want to enjoy work and not work only for money.
It is better if you start working from your 30s for early retirement. Even people start early retirement planning from their 20s.
How can you achieve early retirement?
First of all, be clear what FIRE means to you. Does it mean maintaining your current lifestyle without working at all or you want the flexibility to work on your own terms after early retirement?
Once you figure it out, it’ll be easier for you to plan your early retirement.
Do the required calculations
The experts say that if you want to retire early, you need to save about 25 times your annual expenses. That means, if you need about $40,000 per year, then you need to have at least a million to retire early. Some experts say to have around $1,200,000 if you spend around $40,000 every year.
However, it will also depend on at what age you want to retire and the inflation rate.
You can use an early retirement calculator that will take into account your CPP (Canada Pension Plan) and OAS (Old Age Security) payments along with private and company pensions if any. It can help you decide how much you need to save as per your retirement goal.
Plan a strategy according to your savings goal
You need to have a strategy to reach your targeted savings goal within your desired time frame. You need to have a good investment portfolio.
Consider these 4 factors when you’re investing for early retirement:
● The amount you want to save for a comfortable early retirement
● How much retirement income you’ll need after leaving work or your present job life
● The return you’ll get from your savings and investments
● How much return you’ll be left with after paying the taxes
Prepare a realistic budget and stick to it
Planning a budget is a prerequisite when you’re making a financial plan. It has to be realistic so that you can follow it without much difficulty.
A budget can also help you to cut back on unnecessary spending. Once you free up money, you can save the amount.
Saving money includes everything. Like, negotiating with your mortgage lender to reduce the interest rate by refinancing your home loan. A reduction of just about 0.2% lower than your current mortgage loan will help you save about tens of thousands of dollars. Likewise, shop around and see where you can save an amount. Negotiate with your cell phone provider, insurance providers; shop around, and try to save as much as you can.
Even people rent their unused space like an unused garage for an extra income. You can also sell your extra car and manage it in one car.
Automate your savings. Link one of your savings accounts with your checking account and transfer a set amount once a month. Plan your budget with the rest of the amount.
Increase your income as much as possible
When talking about saving a substantial amount every month for early retirement, increasing your income also helps to reach your savings goal. You can take up a part-time job to add to your monthly income.
When you get a bonus or your income tax refund, birthday money, or anything else, put it aside, accumulate it, and invest the amount for a better return in the future.
People are using various ways to increase income and savings.
Many Canadians use the equity in their home to fund their early retirement. You can sell your big family home and move to a relatively smaller home or apartment.
Build a good investment portfolio
The personal finance experts always say that you should start saving from the first month you start earning. So, start depositing in an RRSP (Registered Retirement Savings Plan) from the time you start earning. You can start depositing if you’re a Canadian and have employment income and file a tax return. You can also contribute to an RRSP as a guardian. To contribute to a TFSA (Tax Free Savings Accounts), you need to be 18 years of age.
You can also withdraw tax free ($10,000 per year) from an RRSP before 65 through the Home Buyer’s Plan and the Lifelong Learning Plan. However, there are certain consequences that you need to know before doing so.
You should diversify your investment portfolio.
Invest in accounts that will give you higher returns than your savings accounts. You can invest in both foreign and domestic stocks.
It is better if you get help from a financial planner to plan your investments. A financial planner or an experienced person can help if you don’t have the required knowledge.
Cancel subscriptions you don’t need
Many people don’t even remember the subscriptions they have. So, examine all your subscriptions and cancel what you don’t need.
Cancel your gym membership if you rarely visit. You can very well exercise in the open air. Also, check your magazine subscriptions and cancel if you don’t need them. Try to bring down your cable cost if you think you’re paying more.
Manage your debts efficiently
Incurring debts is an absolute no-no when you’re trying to save and invest for early retirement. How will you save if you have to use your monthly savings to repay debts?
Therefore, pay back your credit card bills at every billing cycle. If you have any personal loans, pay them off or make required monthly payments to repay them within the stipulated time.
If required, consolidate utility bills by enrolling with bill consolidation companies and repay your debts through affordable monthly payments. Once you get rid of your unsecured bills, you can use your monthly saved amount to fund your early retirement.
Before ending this article, I would like to mention that these strategies can help you to improve your financial life even if you don’t want to achieve early retirement. When you have a good amount of money in your bank, you can work as per your own terms. You can have your desired lifestyle without having to think about the golden days after retirement.
So, go for it!
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Author’s Bio: Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance-related queries. She has also written for some other websites and blogs. You can follow her Twitter profile
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