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3 Secrets to an Early Retirement

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I recently read a pretty alarming statistic that the number of Americans having to work past the standard retirement age is increasing at a steady rate.  The scariest part is that these people aren’t working because they want to; they’re still working because they can’t afford not to.  They have no chance at an early retirement.

With statistics like these out there, you’re probably looking at your own savings plan and wondering if you’ll be able to retire when the time comes. Most likely, early retirement planning seems like a far away dream, only to be attained by a select few. If many people can’t even retire on time, is it realistic to entertain the notion of doing so early? Believe it or not, the answer is yes.

Before I continue, let me give you a little insight into my own situation: I’m a single father in my mid-forties. I started saving for retirement long ago, but probably don’t save as much as I should or can. But even with those obstacles, I don’t believe for a second that I should throw in the towel and just accept that early retirement isn’t for me. You shouldn’t either.

Here are three things I’ve discovered that can lead you to not only retiring on time, but actually retiring early.

Steps to Early Retirement

1. Improve Current Cash Flow
Making extra cash is a pretty obvious way to bring about an early retirement. The question is, how do you do it? By no means am I referring to grinding out the day-to-day “rat race” at your current job, begging and pleading to get a raise that, many times, only marginally increase your income. I’m

talking about significantly increasing your income on your own terms. Here’s how:

  • Start Your Own Business. This doesn’t mean quitting your day job and taking major risks with your money. With the advent of the Internet, there are a multitude of avenues for starting a side business or two. Less than two years ago, all of my personal cash flow (excluding investments earmarked for retirement) came from one source: my day job. Since then, I did some research and came up with a plan. Today, I am an owner of two different income-generating side sustainable businesses. One generated me roughly $7,000 in additional income last year, and the other around $3,000.
  • Turn Talent into Cash. We all have God-given talents. The key is to find a way to transform your talent into something that can generate cash. For me, it was a strong business sense, a knowledge and passion for personal finance, and the ability to write. I turned my ability to write into a profitable relationship with a publisher, and my business sense allowed me to initiate a successful online reselling business. Look inside yourself, identify your key talents, and find a way to get them to make money for you.

2. Re-Think Your Early Retirement

The way I see my retirement, I have two choices:

  • Work like a dog all the way up until the standard retirement age to ensure I have enough stashed away to enjoy my retirement to its fullest.
  • Re-think my retirement and take more of a “get by on less” approach in order to retire early.

Which option would you choose? For me, the second option is a no-brainer. Re-defining your vision of early retirement now can lead to lower anticipated income needs during your retirement years. Scale back your grand vision of retirement (i.e. cruises around the world, beach vacations, and the like) and you just may be able to cut out of the work force early.

3. Save, Save, Save
How could you possibly retire if you don’t save like crazy? Two important points to think about when it comes to save for retirement are:

  • Start ASAP. If you have not seriously started saving for retirement yet, the time to start is now. In the beginning, it’s not terribly important how you start, just that you start right away. For example, enroll in your company 401k/TFSA and add contributions to a traditional or Roth IRA/RRSP into your budget. It’s best to start early, but no matter how old you are, you need to make saving part of your financial plan.
  • Consider Your Priorities. Are you worried about saving enough? You may have heard of the “save until it hurts” approach. Personally, I am not a big fan of that mindset. I see no reason why you should live like a pauper your entire life, just so you’ll have enough for a cushy retirement. Rather, I say, “save until it almost hurts.” Prioritize your non-essential expenses to figure out what you might be willing to part with. However, don’t sacrifice living comfortably just to bump up your retirement nest egg. Make the distinction between needs vs. wants, and spend your money prudently. If you can afford to nudge up that 401k/TFSA contribution or even contribute up to the limit on your IRA/RRSP, then go for it! Keep your ultimate goal in mind (early retirement), but also enjoy the life you live while working.

Final Thoughts

When perusing the Internet for “secrets” to an early retirement, you can find everything from concrete investment advice, to someone claiming that the key is to marry someone rich. In my estimation, both lack the stability (and in the case of marrying for money, the morality) needed to be the backbone of a secure retirement plan.

The three premises I discussed above have put me on the path toward retiring before the standard age. I run two successful side businesses , allowing me to contribute much more to my retirement portfolio than in previous years. I’ve scaled back my vision of what my retirement will be, and I’ve recently decided to pinch a little more out of my income to sock away for my “sunset years.” I know that taking these steps will ensure that the future I envision becomes a reality.

Is early retirement a goal of yours? If so, what are you doing now to make sure you’re ready when the time comes?

David Bakke lives in Atlanta and contributes financial articles on Money Crashers, a personal finance blog with advice on how to manage your money, find the best deals, and save and invest for the future.

25 thoughts on “3 Secrets to an Early Retirement

  1. I think this defines retirement planning at its core. Increase income, reduce spending and SAVE! Great post. I certainly can attest to knowing many people who are forced to work longer than they expected because of the economy.

  2. Starting a side business is a great idea. One of the biggest components of my retirement plan is income from a number of small ventures that require little to no work to maintain.

  3. I was financially independent at 38 years old. It gave me a lot of choices whether I wanted to do nothing or build my businesses further. Having the choice to dowhat I wanted is very liberating.

  4. I am still working on improving my cash flow. That is my main focus right now. In fact, my goal is to develop my internet assest that will continue to earn well into the future and retirement….which is hopefully less than 12 years away.

  5. Early retirement definitely is a goal of mine. Below are a few things we are doing in the YFS household

    Living off 1 income
    Maxing out retirement
    Paid off all debt
    Purchase 2-3 income properties per year
    Started several side businesses

  6. Save, save, save, this is the critical variable. All the asset allocation, risk tolerance, and tax strategies are not as important as the amount of cash you stash. Simple and powerful message, thanks Andrew.

  7. Getting as early a start as possible in designing a lifestyle that doesn’t require a lot of inputs is a very desirable strategy. I’m not a big fan of the save till it hurts strategy.

  8. The more I look at my true priorities in life, the more I realize that a semi-retirement at a really young age is really appealing to me. As a teacher, looking at half-time work, or even teaching English in another country, while collecting nice little dividend cheques sounds like a good long-term plan in my books (plus gotta love that teacher pension at 55).

  9. Cash flow is at the heart of good financial planning isn’t it? The best advice for someone just starting out in the work force is to generate as much positive cash flow as possible. That will allow you, with some good investment planning, to retire early.

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