As the retirement age increases across the globe, some of you may still be considering the possibility of early retirement. Early retirement can mean a little longer being able to enjoy yourself and do the things you want, while you still can. But there can be pitfalls in reaching this goal. Here are a few tips to help you save!
What does early retirement mean?
Generally, we’re considering that retirement is around 65. With early retirement, though, this can mean a couple of things. However, we’re going to take early retirement to mean financial independence. If you’re retiring early, we don’t expect that this is so you can sit around all day, we assume you still want to be doing and seeing things, hence financial independence.
This doesn’t mean being rich; it means that you’re able to manage your funds so that you can do all the things that you want to be able to do. To achieve this, you may need to reconsider some of your lifestyle choices, leave your home and move to an assisted living space such as Belmont Village, or reduce eating out.
Achieving financial independence
Once you’ve got this in mind, the trick here is to break down what your goals are with your retirement. With these in place, you’re able to move forward towards this goal. There are many things to do to reach financial independence. For instance, look at any debts owed and start paying them off or change utility providers.
You will also need to have a close look at your pension and see if it will meet your daily expenditure needs. If it doesn’t consider what aspects of your life you can do without – essentially learn to live within your means. You should also be able to save some funds so you can do fun things like travel when you retire.
Think about investing
Once you’ve considered all of the above points, you can then move onto figuring out the best way to bring in more money so that you can maintain your financial independence. For instance, you can consider investing any extra savings you have. In this way, you will be adding to your income. Doing this before using your pension is so much better.
You should also have carefully calculated all that your pension will be giving you when you do retire. Consider both your workplace pension and any private pensions you may have when making these calculations.
If you do choose to make additional investments, there are plenty of options to consider. Some people make a substantial profit by investing in the stock market, for example. From stock mutual funds and exchange-traded funds (ETFs) to individual stocks and bonds, there are numerous investment routes to choose from.
Alternatively, you may choose to pay into an investment account and have someone manage your investment for you. This means you won’t have to choose exactly what to invest in or how to invest, but you can still increase your capital if your account performs well.
If you want to maximize your capital in order to fund your early retirement living expenses, investing funds can be an effective way to achieve your goals. However, no investment opportunity is guaranteed, which means you could lose the capital you started off with if things don’t go well.
To try and prevent this from happening, it’s important to balance risk with potential returns when you’re choosing which investment options are right for you. High-risk investments, like FOREX, typically offer high rewards but there’s a greater chance that you’ll lose some or all of your capital. Conversely, low-risk investments, such as savings bonds, offer more modest rewards but better security and lower risk.
One way to manage risk when investing is to create a diverse portfolio. This essentially means that you’re investing in a variety of different products, markets, or commodities. If one investment performs badly, the rest of your portfolio should make up for any loss.
If you’re new to investing or unsure how to make the most of your capital, it’s well worth getting professional advice. By doing so, you can ensure that your investment options match the level of risk you’re willing to take. This will give you a greater chance of making savvy investments and being able to fund your retirement even earlier than you expected!
Downsize to a new home
If you own your own home, you could consider downsizing in order to finance your early retirement. If you’re raising a family, for example, you may need a large home with multiple bedrooms. As your kids get older, you’re less likely to need this space. By selling your family home and buying somewhere smaller, you could potentially release some equity and use the proceeds to purchase a more modest home and fund your living expenses.
Property can be a great investment, so you might be surprised at how much the value of your home increases over time. Of course, there’s no guarantee that the value of your property will increase or even stay the same. If you’re able to wait until the property market in your area is booming, however, there’s a good chance you’ll be able to make a profit on your home.
Alternatively, you could decide to boost your income by renting out a room to a lodger or even renting out your garage for storage space. There are many ways you can use your home to generate a second revenue stream, even while you’re living in the property. As well as doing this during your retirement, you could increase your income now to boost your savings ahead of your early retirement.
Will you still have money?
Finally, you will need to step back and think realistically about whether all these options allow you to retire early. Does your pension, savings and life choices will enable you to take this earlier retirement or not? You may not have to wait until full retirement age though, so beginning the planning stages now is the best way not to be disappointed.