It is possible to retire at 40! Millennials are constantly raising bars on how to acquire wealth early and also, retire early.
Retirement can happen at any age it just depends on how much you’ve saved and invested in retirement. Although life can happen at any moment, one still has to plan for the future to reduce the risk of uncertainties.
RETIRE AT 40 – BENEFITS
- You have enough time to settle down take care of your health. At your 40’s and beyond, your body is already reaching it’s prime time. There are specific meals you can’t have, needing enough rest and taking supplements. Late retirement may not give you time to focus on your health.
- You’ll have enough time to explore and travel to new places you never got the chance to do.
- It is also an exciting chance to start something new. Taking a new course, hobby, career or learning a new skill.
Early retirement is everybody’s dream, but not everybody knows how to go about it. Here’s how to do it.
1. Run an Estimate on the Numbers
You have to know how much you need for retirement to start a retirement plan. That means calculating the cost of everything you will spend while in retirement.
Two things are needed to retire early: your projected annual retirement expenses and the percentage of your portfolio those expenses make up.
According to the Trinity Study, over 30 years, retirees can withdraw up to 4% every year in retirement without decreasing their portfolio. However, for early retirees, you would need to lower that percentage to 3% per year, since you’re going for a period longer than 30 years. A more conservative way can be to spend 2 to 1% per year and still survive the over 30 years.
To calculate how much you would need to retire, take your projected annual expense and divide it by your target withdrawal rate. For instance, you plan to spend $40,000 per year in retirement and want to withdraw 2 per cent you’d need $40,000 divided by 0.02, or $2 million to retire.
2. Start Saving
Usually saving 10 – 15% of your income isn’t an easy task. It requires dedication, strong-will to reach your desired goal and also, cut downs on your spending. If you don’t have savings, you must learn how to start saving.
Early retirees often experience the challenges of saving for retirement. At 40, college graduates reach the peak of their salaries. However, retiring at 40 would only leave your saving handicapped as you won’t be adding to your retirement account, just taking from it.
To start saving for retirement, you have to increase the percentage at which you save, i.e. from 15% to 48 or 50% of your income. You also have to start cutting down your spending on big things like lowering your rent, using a cheaper car, reducing cable expenses and so on. It may seem like a herculean task at the beginning, but if you look closely, you would realize that you don’t need most of the things we think we need.
The earlier you start saving, the faster you get to reaching your retirement savings goals.
3. Create Other Streams of Income
The world of today makes it easy to earn more just by having another means of income. It makes it easier for you to retire at 40 especially when you have more than enough to save. Having one source of income can be very tough if you want to retire at 40. Start looking into various ways to earn money.
The many ways to earn extra income are countless. You can develop a hobby that earns you money, learn a skill, monetize your social media or even check out the various ways millionaires increase their wealth, in case you’re stuck on how to go about it.
Another great idea is requesting a raise in your salary. If you have been very dedicated to your work, and doing your best ensure your boss notices all the extra effort you’re putting in. When the time is right, you can ask for that boost in your salary you deserve. But if your efforts are not appreciated, it’s time to start looking somewhere else for a company that pays more and appreciates your effort.
Although, if you’re self-employed this may not apply to you. To increase your income, you may need to start looking to add more products/services you have to offer to your customers, something that is in high demand but also within the niche of your company.
The more money comes in, the more you earn, the more you can save for retirement. Any little money you earn goes into retirement savings.
4. Start Investing
Investment is necessary to retire by 40. The money you have saved can be increased by doing the right investment. Most retirees depend on long-term investments that will eventually pay off when they retire. These long-term investments also help them reach their retirement savings goal and survive through retirement.
In essence, be aggressive with your investments as much as you can. If your company offers a 401(k), then think of putting your money in it. If not, you can put your money in a retirement savings account. You can also choose to invest in stocks, but you must be aware of the risks before deciding to open a brokerage account. However, if you don’t know so much about investing in The Stock Market, you should see [10 things to know before investing the stock market].
According to a recent NerdWallet analysis, avoiding the market could lead to $3.3 million lost in retirement savings over 40 years. In a shorter time, that number would be smaller but significant.
The best way to optimize your investment is to start early. The earlier you start, the more your investments grow, the closer you are to reaching your savings retirement goal.
5. Have a Plan B
Lastly, have a plan B. Uncertainty can happen in life that can ruin all the plans you have towards your retirement, the best thing to do, to avoid being cut off guard is to have a contingency plan.
You can decide to distribute your investments to reduce the level of risks that may occur. Another thing you could do is keeping your discretionary spending on your largest expense, making it easy to cut stuff back whenever you need to.
You cannot control risks that may occur in life, but you can control how you prepare for it. If you’re not sure how to go about it, contact your financial advisor to help you explain your options and have a solid plan B.
Final note
Early retirement has its perks you must be willing and dedicated to achieving that goal. 40 is a good enough age to retire maybe by 50 you would have visited 10 countries with good health and a happy life who knows?
“We seldom find that to be the case for three primary reasons. First, you simply have more time on your hands to enjoy, partake, and spend. Second, as individuals grow older, they tend to outsource more, layering on new expenses. Third, your health care expenses logically tend to increase as you age. It’s important to make sure your assets can sustain potential, and perhaps inevitable, growth in spending over your lifetime”.
