There is certainly no shortage of opinions on the steps to early retirement. In this post I’m going to outline the steps that I will be following and feel are necessary to successfully retire early.
Realizing that you Actually Need a Retirement Plan – this sounds simple but it’s amazing how many people don’t have a real retirement strategy. Many people save for retirement but have no idea how they are doing or how close they are to retirement. I’ve talked to people who’s “retirement strategy” is to work until 60 and then retire…but they have no idea of how much money they’ll need at 60, how much they’ll be receiving or how much they should be saving or investing. I think “Realizing that you Actually Need a Retirement Plan” is the most important but often overlooked step in many people's retirement journey.
Now that you know you need a real retirement plan you need to determine exactly how much money you’ll need each month and then add 10% to that number as a safety cushion. Probably the easiest way to do this is to keep track of your current monthly expenditures and then add and subtract any expenses/expenditures that you think you’d have in retirement ie- increased travel costs, decreased commuting cost etc...
Determine how you’re going to generate the required income you calculated in step 2. This isn’t an easy task and if you have no interest in investing or finance may require the help of a retirement planner or investment advisor. I’m not going to go over all of the available strategies as your retirement strategy should be tailored to your specific needs and risk tolerance. Personally, I am pursuing a dividend growth strategy, the rational for my decision can be found here.
ELIMINATE ALL DEBT – I personally believe that it’s crucial to ensure that when your retirement date arrives you have no debt of any kind (this certainly includes your mortgage). After you retire your employment income will be 0 so to protect yourself from unforeseen events (ie- rapid rise in interest rates) I am going to make sure that I am debt free when I retire. Some people will argue that it’s OK to retire with a small amount of manageable debt…but I disagree.
Here is a link to my personal retirement philosophy. It will probably be different than yours but it works for me. As always comments are welcome.