While the standard retirement age is 65, there is a significant number of people who successfully retire earlier than that. Some even retire at 40, giving them more than half of their life to spend living out their dreams. Retiring early is a wonderful thing to do if you can manage it. But it does require a lot of planning and dedication. Here are a few tricks to make sure you can actually achieve your early retirement goals.
#1 Understand Your Reasons to Retire at 40.
People who retire at 40 don’t usually do it so that they can spend an extra two decades idling and lounging about. While that’s a perfectly fine way to spend retirement if you can afford it, it’s usually not laziness that motivates people.
In most cases, it’s because you want to break free of the grind and achieve a level of financial security that will allow you to pursue your real passions.
Without the constant stress of money or the need to work full time at a job that isn’t your true passion, you will have the time and energy to do what you want. Spend your life travelling. Dedicate yourself to painting, music, or other creative passions without feeling the pressure to monetize that passion.
It doesn’t matter what your particular reason for retiring early is. What matters is that you know it and keep that motivation in mind consistently. Because retiring at 40 is an ambitious goal and ambition is fueled by your dreams and passions.
So what you can do is create a retirement plan that includes more than the pragmatic steps to achieve the financial goal. Create a plan that also includes the ways you want to spend your time, the hobbies you’ll develop, the places you’ll visit, the home you’ll live in, and so on.
#2 Prepare to Be Extremely Disciplined & Frugal
Retiring at 40 means making a few sacrifices now. You will most likely need to make some pretty serious cuts to your living expenses in order to free up cash to put toward retirement. It requires an immense amount of discipline and planning to achieve that goal.
However, that determination and dedication will pay off the day you turn 40 and can start living out your dream. It’s definitely worth. Just keep that end goal in sight. Each time you find yourself struggling with the sacrifices you’ve made or aching from the long hours and hard work you’re putting in, take a moment to visualize your 40-year-old self, living a life of financial freedom and spending your days doing only what you want to do.
#3 Cultivate Passive Income
Retiring early on savings alone may be difficult. That’s even truer when you’re not currently in a position to throw massive amounts of money into savings every month. Instead, you should be focused on investing that money in smart ways that will allow you to collect a regular passive income when you retire.
So that means investing in things like real estate that you can rent out or stocks that pay out dividends. Alternatively, you can consider some creative but less passive income sources for your retirement.
These income sources can help provide you with a base level of financial security and ease the pressure of needing to save your entire retirement needs in cold, hard cash.
#4 Get Completely Out of Debt
You absolutely should not retire in debt. That means getting rid of student loans, mortgages, and car payments. If you are going to use a credit card after 40, pay off the balance before the end of the month so you don’t blow your retirement money on interest payments.
Financial security means knowing that everything you have, you own. It means knowing that the lifestyle you lead is one you can actually afford, not one that needs to be supported by debt.
If you currently have any debt of any kind at all, your retirement plan needs to start with you getting rid of it.
#5 Create a Real, Concrete Retirement Plan
You need a concrete plan for your retirement. That includes:
- An estimate of how many years you’ll spend in retirement. If you expect to live to 100, for example, that means you need to save up for 60 years of retirement if you retire at 40.
- A plan for how much you will spend each year (accounting for inflation). Create sample monthly budgets for a full year of retirement. And then remember to adjust for factors like social security kicking in at 65 as well as increased medical costs as you grow older.
- A total amount of how much you need to save between now and the day you retire at 40 in order to fund the full retirement.
Don’t be afraid to dream big here. When creating a sample budget, don’t be afraid to start by including everything you would want to be part of your lifestyle. Then, if that seems unrealistic, you can trim away some of the things you can do without to make it a workable retirement plan.
The important thing is that you are thorough and detailed enough that your plan is actually a realistic reflection of what you need.
#6 Create a Budget & Savings Strategy Based on that Plan
With that plan, you now know the total amount of money you are working toward. If you really do plan to retire right at 40, you also know how many years you have to get there. So now it’s time to crunch some numbers and explore your options.
Figure out how much you need to save each month. Then, develop a retirement savings plan around that. Consider opening an IRA, investing in a hedge fund, bonds, or even creating your own investment portfolio if you’ve got the know-how. Create a budget that allows you to set aside the necessary amount from your income.
That may mean downsizing your home, giving up your car, getting rid of cable, and other sacrifices. But as mentioned earlier, it will all be worth it when you’re actually able to retire at 40!
