Do you want to retire at 50? To be able to retire at 50, you need to be financially independent. It simply means that your money makes enough money on its own for you to ever have to work again. And it brings in a host of other flexibility. For starters, you can focus on passion projects or things that you always wanted to do.
If you wanted to travel the world or sit quietly and work on a novel, retirement lets you do all of that. However, you need to have enough money to be able to retire at 50. Here is a simple guideline that will aid you to plan for early retirement.
- Expenses Post Retirement:
The first and foremost step is to calculate how much money you would need to post your retirement. Saving money based on goals will help you plan better and achieve them more efficiently. A good starting point would be your current expenses. Factor in your expenses today and deduct any work-related expenses. You can use some online calculators to factor in inflation as well. Thus, arriving at the amount that you would need post-retirement.
- Health Care:
As you grow old, expenses related to healthcare are only going to increase. Thus, you need to have additional planning regarding healthcare. You can opt for a health insurance plan that offers lifetime renewal options at an early age. It would allow you to renew the plans without paying a huge chunk as premiums.
- Withdrawal Rate:
On average, retirees usually withdraw 4% of their retirement funds without essentially depleting their portfolios. If you wish to retire at 50, you can set the withdrawal rate at 2 to 3%. Once you calculate your annual expenses, you can use this 2-3% withdrawal rate to calculate the total corpus needed to retire at 50.
- Savings Max:
To be able to retire at 50, you would need to save frugally. Now that you have arrived at the retirement corpus amount needed, you need to break into down into smaller goals. You must save aggressively and invest in your retirement portfolio. Conventionally a 10-15% savings would help you achieve your retirement requirements. However, early retirement would require more aggressive savings, even greater than 50% at times.
- Lower Your Expenses:
You must pay attention to your lifestyle and make some hard choices. Keeping a close eye on your expenses will help you discover places where you can cut down and save money. It might seem a bit harsh at first, but given your retirement goal of 50 years, it is prudent.
Just saving might not be enough for you to seek retirement. Thus, it is essential that your park your funds at the necessary tools for maximizing your returns. Your end goal is to reach a point where your investments act as a source of income.
The above are some steps that you would need to follow, to be able to afford early retirement.