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The 3 easiest steps toward an early retirement
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The 3 easiest steps toward an early retirement

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Retiring early, plenty of people joke about it and most would jump at the opportunity in a heartbeat. But how do you know you’re ready to retire early? What does retiring early mean? Retiring early doesn’t mean retiring from life, it means retiring from work as you know it, and integrating into doing more of the things you want. According to the Australian Seniors Insurance Agency though, 69% of Australians experience anxiousness when they think about their retirement years. A 2017 report by Super provider MLC found that more than half of Australians don’t think they’ll have enough money to retire on. Retiring early doesn’t have to be a pipe dream. With thorough planning, expert guidance and dedication, you can start planning your early retirement today.

Understand how much you need

This is the first and most important step, make no mistake about it. You might be able to get away with not planning that European holiday, but failing to plan for what could be decades of retirement is only asking for trouble. If you are retiring before 60, chances are that you will be unable to access your superannuation and pension payment benefits. This means you need to have full awareness of your expenses and an effective source of income until you can access your superannuation. How much you require for your early retirement is going to depend on a number of different factors.
  1. Your age
The earlier you plan to retire, the longer you are going to need to make your money stretch. If you’re under 60, you will need to make your money last longer than someone retiring at 65.
  1. Your style of living
Are you willing to sacrifice some luxuries in the pursuit of an early retirement? If you prefer a higher standard of living, obviously that is going to require more money to play with. You would be surprised at how much you can save by switching to a different supermarket, or putting off that new iPhone upgrade.
  1. Whether or not you own your own home
If you own your home outright (or have a minor mortgage) your options in retirement will be slightly broader. You will have the option of selling your house, receiving a lump sum of money to invest, or renting it out to receive a steady income.

Increase your savings

Now is the time to cut down on non-essential spending and cut up the credit card. Get rid of bad debt. Now, not all debt is bad. But any payments you would be making on a credit card of 18% interest or higher could be going into a high interest savings account. By redistributing money from consumption spending – that is voluntary expenses like cars, furniture, clothes and other recreational spending to a savings account, you will see a noticeable increase in retirement funds.

Invest smart

You’ve heard it a thousand times “make your money work for you”. Unfortunately a $50 note can’t grab a shovel and get to work, but a smart financial manager can help you to identify the right field to grow it in. Investing means a lot of different things to a lot of different people. For some, it means growing a property portfolio, whether to sell or to rent out. For others it will be in the stock market.

Historically, shares have provided higher returns over a longer period of time. This is enhanced by effective use of dividend reinvestment strategies where dividends are reinvested into buying back more shares. Compounding is a favourite strategy of Warren Buffett, helping him to amass a fortune of over $60 billion and was described by Einstein as “The Eighth Wonder of the World”. Your local financial planner will be able to sit down with you and discuss a strategy that suits your style. Using ASIC’s Compound Interest Calculator you can see the benefit of this strategy, investing $500 per month, for 20 years at a return of only 5.00% will see you gain $86,000 in interest on top of the $120,000 saved. The earlier you start, the more effective this strategy becomes.

You don’t need to be on a millionaire’s salary to retire early. Undergoing a financial health assessment with your local financial adviser is the first step to setting up a clear and achievable early retirement plan. It’s never too late to seek financial advice, and it’s certainly never too early. The sooner you action a plan to control and grow your finances, the sooner you can think of doing whatever you want to do.