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Planning to retire early? Get your ducks in a row

By Ferdinand Mwongela | February 28th 2021

Many dream of retiring early, but few can, and fewer do. Your financial decisions from early on determine if you are able to. Before you set off on this journey, know that early retirement isn’t for everyone.

Some people can quickly find themselves bored without the purpose that comes with having a job, or isolated without the social connections that come with jobs. Also bear in mind that without the benefit of a group plan, health insurance can become more expensive for retirees; therefore plan accordingly. So, what do you need to do?

Do the math

First things first, you need to define what retirement means to you. If you ask five people what retirement means to them, you’ll get five different answers.

Some might desire to retire in their 40s while others are eyeing their 60s. Some people might want to retire and not ever work again, while others want to retire so they can pursue their passions without worrying about money.

Some want to retire to a quiet and modest life, while others want to travel the world and have a luxurious lifestyle. Figure out exactly what you want and expect from retirement so you can plan accordingly. Financial experts recommend you think of how much you expect to spend per year, and accounting for about 30 years post-retirement.

Remember to account for inflation- even modest inflation can significantly erode your purchasing power over time. Having a number in mind will help you know how much you need to put away every month, and motivate you towards achieving your goal.

Retirement master plan

Are you saving enough to retire comfortably? Or are you saving just for the sake of it? Are you even saving at all? Sometimes the job title that comes with “permanent and pensionable” tag can make you a bit too comfortable. However, you need to ask yourself, will the pension be enough to maintain the lifestyle you want?

The best way to start planning for retirement is to determine what you will need to retire. Estimate what you will have at hand by evaluating your current income sources and retirement revenues and calculate what you need to annually put aside to meet your goal.  Put this plan in writing. Your master plan will shed light into your overall financial status and it is directly linked to the retirement preparedness.

One advantage of having a plan is to keep you on track and avoid emotional decisions that can easily take your focus away. If you feel like you lack the financial confidence to make an informed decision about your initial retirement investment options, run a basic retirement calculation to get a solid estimate of how much you need to save. If you can save 10 per cent of your income, that’s a good start.

However, planning for early retirement can be harder than it seems, so you should consider hiring a financial advisor to help steer you in the right direction.

Earn during retirement

In the past, retirement was seen as complete cessation of working life. But for most millennials and the proponents of the Financial Independence Retire Early (Fire) movement, retirement means not having to work full-time to afford a normal lifestyle.

Simply put, retirement doesn’t mean not working or not earning. You will find many retired Fire proponents still making decent money from blogging, vlogging, podcasting, hosting webinars, part-time jobs and other hobbies. Retirement for them is about leaving their corporate jobs and not having to work the regular 9 to 5 day.

The truth is that few people have the wherewithal to entirely stop working in their 30s and 40s. You can start by creating your own business on the side or working at a side gig before you quit your 9-5 job.

The idea of working till old age, or till the grim reaper comes to collect, doesn’t appeal to many people nowadays. However, studies show that most millennials might not be able to retire till the age of 70 and upwards.

Millennials are building wealth at a much slower rate than previous generations. They entered the labour market during a tough economic time, and they have more difficulty finding quality jobs which offer stability and benefits such as retirement plans and health insurance.

Not having access to retirement plans at work is particularly disadvantageous as many people have trouble saving for retirement on their own. Many young adults also don’t own houses, a valuable asset in retirement, and they spent a significant portion of their income paying off student loans.

 What’s your dream?

If your dream is to retire early and live frugally, you can afford to do so when your passive incomes are paying off well and you can live off them comfortably. You should also have a handsome retirement nest egg. When you reach this point, it’s reassuring to know that you can retire. It, however, doesn’t mean that you should retire.

To get here, you need to strengthen your passive sources of income so they can be almost like active ones. Focus on non-financial goals which give you fulfilment such as philanthropy, spending time with your loved ones, and taking care of your health.

However, if your dream is to retire into luxury, you can only do this if you have accumulated assets, passive sources of income, and savings which can allow you to retire and continue living luxuriously for the rest of your life.

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