Wealth planning for an early retirement
Take control and start now to achieve financial success, writes Thie Convery
Q I graduated from McMaster University two years ago and managed to land a good job in my career of choice, with lots of opportunities for advancement to increase my income further. I’ve got a long time ahead of me before I can even think of retiring, but I’d like to start planning now. I’m careful about controlling my monthly expenses and I’ve made some recent changes to boost the rate of return on my investments. Where else should I direct my financial energy to set me up for an early retirement? A There are many factors in building wealth for your retirement; some you can have a tremendous amount of influence over, and others you can affect very little, if at all. I strongly recommend developing and implementing a retirement planning strategy rather than relying on luck or some external factor over which you have little, or no, control.
Some people plan to build wealth in less-than-optimal ways, including marrying into money, receiving an inheritance, lottery winnings or other forms of gambling. These are all highly unpredictable and gambling brings the downside of potentially squandering a lot of money.
Wealth planning is a much more predictable way to ensure you’ll have enough now and in the future, and the initial step is having income in the first place. With income, you can be financially self-sufficient, without relying on someone else. Notably, you can advance on the wealth spectrum by keeping your costs low for food and housing, especially in your early years. Nutritious, home-prepared meals and a packed lunch will save you money daily. Likewise, a bachelor pad will be cheaper than a two- or threebedroom apartment. Later, as your wealth grows, you can splurge on eating out more and upgrade your housing options.
Don’t incur debt, unless it’s in the form of a mortgage on your home. Pay your expenditures with cash on hand from your earnings, not using credit. If you ain’t got the cash, then consider that expense outside the realm of your current lifestyle. Early in your career, commit to no or low debt.
The more strict you are with this strategy, the greater your opportunity for retirement success.
Increasing the rate of return on your investments will always enhance your wealth over time. But if you haven’t saved enough to begin with, then no amount of increase in your rate of return will be sufficient to ensure an early retirement, or even a comfortable retirement lifestyle.
Career advancement — and the increase in income that likely accompanies it — can also contribute to wealth creation. If your income increases and you make the decision to maintain your same standard of living, then you can redirect the additional income toward your savings and investments. Your dayto-day lifestyle will feel the same but you will have advanced your opportunity for wealth success.
Another critically important factor is the time frame in which you save for your future. The longer, the better. The adage says that the best time to plant an oak tree was 25 years ago; the next best time is today. Of course, we can’t go back in time; but if you take immediate control over building your wealth, you will strongly tilt the odds of financial success in your favour. You are still young, with lots of years to benefit from the incredible compounding effects of early investment. Ultimately, you’ll be in a position where your retirement investments are creating a source of income and effectively doing the “work” that you once had to do.
You seem to be making a marvellous start with these strategies. Implementing them immediately and sticking with them will improve your chance at early retirement. But hold tight! My next Money for Life column will offer the most critical factor in creating wealth success.
THIE CONVERY, R.F.P., CFP, CIM, FMA, FCSI, IS A WEALTH ADVISER IN DUNDAS, AND HAS NO PLANS TO MARRY INTO MONEY OR BET HER RETIREMENT ON LOTTERY WINNINGS. HER COLUMN APPEARS BIWEEKLY IN THE HAMILTON SPECTATOR. THIE INVITES YOUR QUESTIONS AT THESPECMONEY@GMAIL.COM OR BY VISITING CONVERYWEALTH.COM.