Rather than waiting to turn 65 many people are planning for early retirement by making smart financial decisions early in life. The key to early retirement is knowing that you have enough money to live on, and set aside for emergencies once you retire.
How to Plan for an Early Retirement
Save, save, save! That might sound simple but it’s truly the first step. Not only do you need to save money, you need to make sure that your savings are in high interest accounts, or GICs, and RRSPs. Stashing cash in your mattress only gives you the money that you stash. But placing every extra penny into interest bearing accounts increases your deposits over time.
Find someone you trust to help you build your savings now. Find a financial planner and work with them. Or go to your bank and work with an adviser at whichever institution you typically deal with on a weekly basis. Be honest and tell them your goals. You can’t get there without proper advice and support.
In order to successfully plan for an early retirement, it’s best to develop a financial strategy early. This includes planning your savings, but also choosing to avoid credit cards so that you can live within your means and still save money for the future. The sooner you pay off credit debt and start investing your money, the better your chances of being able to retire early and live comfortably.
Even if you are in your 30s or 40s it’s not too late to begin planning for an early retirement. However, you will have to put more effort into it than those who start in their 20s. If you are in your 20s and you know you want to travel or take up a hobby after you retire then give that some consideration quickly. If you start investing now and saving you can reach your goal. If you wait you will need to save more aggressively when you are in your 30s and 40s.
Determine quickly with your financial adviser or planner what type of investor you are. I know that my profile has changed a bit over time. When I started working with a financial planner I was extremely cautious. I had zero interest in stocks and wanted stable investments only. I chose mostly RRSPs (registered retirement savings plans) because they are obviously intended for retirement and they are stable and the tax benefits are important for me as a self employed person. A few years ago a couple of members of this household graduated to stocks. I feel okay with that now. As long as I don’t obsess over daily fluctuations I am happy to dabble in higher risk investments.
You need to take a hard look at whether you have a pension from your employer, or any income from other pension plans you might be eligible for eventually. How much will that be? Will you need to top it up? Will you be able to downsize your home? When will you have that mortgage paid off?
Finally you also need an exit strategy. This is crucial for many, but extremely important for couples. Time and again I hear from older relatives who indicate they had no desire to be underfoot while the other spouse was still working. Coordinate your early retirement together and think about the plan for post retirement. Will you travel? Will you have a small part time job doing something different than is a passion project? Will you take up a hobby or volunteer? Everyone needs a reason to get out of bed in the morning. What will work for you if you choose early retirement?
Early retirement is a wonderful goal to have. Now how can you make it happen?