When you think of retirement, you often think of it in the traditional way: 65+, your golden years so to speak. Lots of people are now starting to challenge that assumption and looking to become financially independent in the their 50s, 40s and 30s, in some cases. Sure, there are many who don't want to retire but there are just as many and likely more who hate what they are doing, dislike their boss and would give anything to walk out the door and never come back.
If you are in the camp that believes retiring sooner is better, you need to have a really good handle of the numbers and know exactly what it will cost you to live in retirement, and then ensure you have really saved enough to last you the rest of your long life.
The traditional savings strategy of tucking 10-15 per cent each year away for 40 years clearly this isn't going to work for the early retiree. An online movement suggests the ticket to early retirement is to save 25-35 times one's annual expenses. Once the goal is achieved you are considered to be financially independent and working then becomes a choice.
The early retirement rule is straightforward - but not necessarily easy. For every $1,000 you spend a year, you need to invest $25,000 to $35,000. The more you save the more you have to spend. How do you come up with the savings? Don't sweat the small stuff. Focus in on the big-ticket items like housing, driving and eating out and cut back accordingly.
The challenge then becomes making the money saved last for decades. Often talked about is the four-per-cent rule that takes your spending and multiplies it by 25 to give you an idea of how much you need to say. Let's assume you need $40,000 per year, multiply it by 25 a year, and you get the often quoted number of $1M needed to retire. Of course this assumes you can make four per cent each year on your investments. In periods of market turmoil up or down you clearly need to adjust according or run the risk of outliving your money.
Early retirement isn't for everyone, but I don't know many who wouldn't embrace financial freedom.
Interested in joining the movement, you can check out madfientist.com.