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How to Retire Early; Everything you need to know

At Retirement Planning / Pensions

How to Retire Early – Checklist

Everyone wants to retire early, but not everyone is willing to do the work necessary to save for retirement. That’s the gist of the problem people face with early retirement dreams.

It takes work, not extreme amounts of work. However, it requires changes in lifestyle and mindset, which most people aren’t willing to make.

Sacrifices will need to happen as well, which may cause you to feel like early retirement isn’t worth the effort. But if you can overcome all these obstacles and hurdles, you could be well on your way to retiring at 55 (or earlier).

Keep reading for some of our tips on pre-retirement planning, which can help you reach your goal of early retirement faster and more efficiently.

Figure Out How Much Money Is Needed for Retirement

Calculate your living expenses for retirement and figure out exactly how much money you will need annually to live how you want. This will inform you of how much money you need in your retirement plans at 55 (or whatever age you wish to retire).

Be careful when making this prediction. Don’t be overly conservative or liberal. It might be worth using a pension calculator; however, these have their drawbacks.

If you know you can’t live a minimalist lifestyle because you are a bit extravagant, don’t pretend you can change once you retire. Or, if you travel quite a bit now, don’t assume you will stop doing that once you retire (in fact, you will probably travel more as you will have more free time).

The more honest you can be with your budget, the more accurate your retirement plans will be.

Start Where You Are

Begin by evaluating your financial situation right now. Retirement is a long-term strategy that has to be right. You can’t begin a long journey towards retirement if you don’t know your starting point.

Calculate your net worth and determine how much further you must go toward your retirement goals. How much money do you save each year and then each month? What investments do you already have, and what more do you want to build?

Also, build the baby steps of retirement: an emergency fund, paying off all your debt, paying off your home, and saving for your children’s education.

Don’t get cocky and believe that you don’t have to worry about the basics if you are focused on such a huge goal of retiring early. If your foundation isn’t proper, your house of cards will fall soon.

What Kind of Lifestyle Do You Want Post-retirement?

You will also want to consider this while creating your budget. There are so many aspects to a retired lifestyle that people don’t think about until it’s too late.

For example, suppose your family has a history of ill health or some other chronic disease. In that case, considering your life expectancy and whether you need to account for a higher cost of living in late retirement might be a good idea.

Make sure you build a budget according to your lifestyle goals rather than what you believe would be easier or what others would prescribe.

You don’t want to live a retired life devoid of happiness, joy, and peace. Most people want to live comfortably in retirement. Having the right advice will allow you to live the life you want during retirement, on your terms, whatever they might be.

Build Several Different Sources of Income

You are most likely aware that the last three years have been difficult for investment markets. Even in retirement, investment markets will fall and rise. Withdrawing money at a time when markets are depressed is called sequence risk. This should be avoided if possible due to its long-term impact on your financial plan. In some cases, it might be preferable to increase your debt rather than take money from undervalued investments.

Most people will have income from more than one source, which is good. Having income from more than one source gives you flexibility and diversifies risk.

That’s why you will want to prepare for all eventualities by not relying on one source of income for your retirement. Think about diversifying as much as possible.

These are some sources of income to consider:

  • Property and Real estate income
  • Use your tax-free allowances such as ISA’s
  • Consider part-time work. This is good from an income and mental well-being perspective.
  • Factor in your state pension when you reach state pension age
  • Use savings that are subject to income tax first.
  • If you could receive any lump sums, gifts or inheritances in the future, you might want to factor these in
  • Reduce any debt, including mortgages, thus having more disposable income.

The possibilities are endless nowadays, and as long as you don’t overindulge in one investment over another, your retirement goals should be reachable without issues.

Push as Much Money Into Retirement as Possible

The retire-early crowd knows that time is limited, so they start early and invest often. Many people start investing in their teens or twenties, and many invest a large proportion of their income into investments.

You may not have this ability. Maybe you are already in your 40s and have just started investing. Or maybe you have many expenses to consider.

Whatever your situation, you can retire early, but you must put as much of your income into investments as you can.

Did you get a tax refund from the government? Don’t spend it, invest it.

Got a bonus at work? Don’t spend it, invest it.

And so on.

Don’t Lose Hope, Stay Patient, and Steady

Stay patient with your retirement goals. You could make mistakes or poor decisions as soon as you start getting impatient and worried. That’s just the way it is.

Whilst making one mistake might not impact your retirement plans, mistakes often come in threes.

This is not how you will achieve your goal of retiring early. It is a surefire way to lose all your money and postpone your retirement indefinitely.

Get a Financial Adviser to Help You Through the Process

If you feel like you are not the most discerning of investors and could do with some objective expertise, get a financial adviser to help you in your journey towards retirement. Why go at it alone?

Even Tiger Woods had a coach by his side, although he is considered the greatest golfer ever. So, who are you to go without assistance?

The trouble with early retirement is that it’s a lonely path. Not many people are willing to spend their time thinking about early retirement strategies or willing to do what it takes to get there.

Most people are about instant gratification. And retiring at 55 is anything but that.

You will want to bring advisers into your circle who will assist and support you in this long journey towards retirement at 55 (or earlier).

A good financial advisor can also suggest various investment avenues that you might not have considered or had insight into.

Stay Flexible About Your Retirement Age

You might imagine retiring at 55, and that age is etched into your mind as THE age at which you want to retire.

But what if circumstances change? What if you can retire even earlier than 55? Or what if you could have a lot more money in your retirement if you worked for 2 – 3 years extra?

Don’t get married to the idea of retiring at a certain age, whatever it might be. Stay flexible on this early retirement journey. When you decide to retire, you never know the financial environment, so you can make any early assumptions.

Consider Property as part of your Retirement Plan.

No matter what other investments you are considering in your quest for early retirement, you might want to consider property as part of it. Many people in the UK have and are using property for retirement income.

So don’t let fear or doubt hold you back. You don’t have to build a property empire or anything like that.

However, having several single-family or multifamily properties that give you passive income is ideal. You can use that cash flow to put extra money into your retirement plans or use it as a source of income during your retirement. Or both.

It depends entirely on how you wish to spend your retirement. Maybe you aren’t interested in taking care of tenants when you retire. If so, you can sell these properties and use that cash to supplement your retirement. However, you need to be aware of the tax implications, as property, not your principal residence, will be subject to capital gains tax.

Everyone’s situation will differ, so you will want to make decisions suitable for your retirement dreams and hopes.

Avoid Risky Investments Like Crypto or Forex

When starting on your early retirement journey, you can be more of a risk-taker. This is because you have time before your retirement age comes into view, time to make mistakes and fix them.

But as you get closer to your goal, you will want to review your savings and investments, ensuring you do not take too much risk, such as investing in crypto, futures, or art and into something more solid and stable.

Don’t think that you are dull or stupid by doing this. Instead, you are being innovative and thinking forward.

Also, diversification will be key here, so you don’t want to put all your eggs into one basket. If all your retirement savings are in one cryptocurrency, you risk losing it when a crash occurs.

Many people who thought they would be on track to achieve their retirement goals were completely surprised by the crypto crash of 2022.

Bitcoin lost 60% of its value in 2022, so anyone who had focused entirely on this investment for their retirement plan would have had to rethink their strategy. They might also have to stave off retirement for another few years while Bitcoin returns again (slowly).

Retire Early by Staying Focused On Your Goal

When you decide to retire at 55, you will have to make many sacrifices and ensure your family is in the loop.

Everyone needs to be on board with your decision to retire early.

Don’t want to go at it alone? We are independent financial advisers who wish to help you reach your retirement goals, whatever they might be. Contact us to get the expertise that will propel you to financial freedom.

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