Early Re­tire­ment Lessons Of­fered

Riverbank News - - PERSPECTIVE - Hugh Nor­ton di­rects Visa’s fi­nan­cial ed­u­ca­tion pro­grams. To fol­low Prac­ti­cal Money Skills on Twit­ter: www.twit­ter.com/Prac­ti­calMoney. Hugh Nor­ton

How do you en­vi­sion your re­tire­ment? For some, there’s an ide­al­is­tic im­age that many share of days spent walk­ing along a warm beach, end­less travel and a leisurely life­style. On the other end of the spec­trum, some peo­ple haven’t had the op­por­tu­ni­ties that would af­ford them the abil­ity to stop work­ing when they want, never get to re­tire in the tra­di­tional sense and strug­gle to live on a fixed in­come once they’re no longer able to work.

There’s also a mid­dle ground, those who can af­ford to stop work­ing and live a mod­est life­style. But the fi­nan­cial re­quire­ments for se­niors have changed and grown over the years, and so this mid­dle op­tion may be less com­mon as a re­sult. Em­ployer pen­sions and other re­tire­ment ben­e­fits aren’t as preva­lent or plen­ti­ful as they once were. Longer life ex­pectancy and a ris­ing cost of liv­ing can make it more dif­fi­cult to live purely on So­cial Se­cu­rity ben­e­fits and re­tire­ment sav­ings alone.

How­ever, there are in­di­vid­u­als and fam­i­lies who have been lucky enough to be in the po­si­tion to re­tire decades be­fore their 60s. They’re part of a so­cial move­ment known as FIRE – fi­nan­cial in­de­pen­dence and early re­tire­ment – that has its own val­ues, rules, sub­groups and lingo.

The idea of be­com­ing fi­nan­cially in­de­pen­dent, when you can live off the in­come from your sav­ings and in­vest­ments, and re­tir­ing early, a no­tion that can seem too good to be true. Even if the end goal is de­sir­able, it may not be pos­si­ble for many, and in cases where it is pos­si­ble, some may not be up for the jour­ney. Early re­tirees may live in small homes, drive old cars and avoid eat­ing out prior to re­tire­ment – all with the goal of ac­cu­mu­lat­ing enough sav­ings to live on after re­tire­ment.

There is more than one way in which peo­ple have achieved FIRE. How­ever, there are a few ba­sic rules to live by that could help you get there. Live a mod­est and fru­gal life­style and put most of your earn­ings (of­ten over 50 per­cent) into sav­ings and in­vest­ments. Try to find ways to in­crease your sav­ings rate by cut­ting ex­penses and in­creas­ing your in­come. Cre­at­ing and closely mon­i­tor­ing a bud­get can help. Look for op­por­tu­ni­ties to in­crease your in­vest­ment re­turns and grow your money faster.

Reach­ing fi­nan­cial in­de­pen­dence doesn’t nec­es­sar­ily mean you have to quit your job. How­ever, you now have that op­tion and the free­dom that comes with it.

Re­al­is­ti­cally, reach­ing FIRE may not be an op­tion for every­one. But in­creas­ing the gap be­tween your in­come and ex­penses such that you have more money com­ing in than go­ing out could help your fi­nan­cial sit­u­a­tion even if you don’t think you can re­tire early (or event want to).

Here are a cou­ple of ways to in­cor­po­rate the guid­ing prin­ci­ples of the FIRE move­ment into your life with­out go­ing to ex­tremes.

Eval­u­ate your pri­or­i­ties. If you take the time to eval­u­ate what you want and what’s im­por­tant to you, it can help you set clear goals to strive for and a bench­mark by which to mea­sure the de­ci­sions that shape your fi­nan­cial fu­ture.

De­crease ex­penses. No mat­ter your ap­ti­tude for a fru­gal life­style, look for ways to cut costs in dif­fer­ent ar­eas of your life. Hous­ing, trans­porta­tion and food are of­ten ma­jor monthly ex­penses, so it could help to fo­cus on th­ese ar­eas.

Even if early re­tire­ment is not in your game plan, there are still valu­able lessons and take­aways from the ex­am­ples of those who have been able achieve this goal.

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