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  • Writer's pictureDoctor Money

Early Retirement 101 How to Retire Early & Relax

Updated: Feb 20, 2022

Retirement doesn’t have to be defined by the number of candles on your birthday cake. It should rather be a milestone when you have accumulated enough savings to bid farewell to the drudgery of clock-punching.

Early retirement is becoming a popular trend of late with the emergence of the new movement “FIRE”, which stands for ‘financially independent, retire early’. It is no more a pipe dream, in fact, many people are living it to reality.

Keep reading to learn everything you need to know about early retirement and how to retire early!

What Is Early Retirement?

Often people define early retirement as retiring before the age of 65. This is the point of life when Medicare benefits kick in. The Social security Administration, on the other hand, trims a few more years from that number and defines early retirement as retiring before turning 62. This is again because you can have social security benefits around that age. Although full social security benefits do not kick in until you are 70, but officially, 62 is widely accepted as the right time to retire.

Contrary to this standard, there has been a new normal on the rise. Once considered a far-fetched idea, retiring in your 40s, 50s or even earlier, is now becoming very much possible. A lot of workers are taking a lead in this trend and retiring early to travel or to pursue passion projects.

Needless to say, FIRE has redefined early retirement in more ways than it was first expected to. It has made it less about quitting work and more about gaining your financial freedom. More than anything, it is about taking your career reins into your hands and deciding what, when, how and for whom you want to work.

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How to Retire Early

Much to our expectations and to the dread of many, early retirement can be a lot of work. And it is quite obvious, given that there is a reason people take the daily grind until their 60s. Not to mention so many more who often reach that age without as many savings as they had planned for. That said, with some smart planning, solid strategies and their keen implementation, there is nothing that could possibly keep you from retiring early.

Here’s how to nail it and live the life you have always dreamed of!

1.Adopt a New Money Philosophy

First things first, for a revolutionary step, you need a newfangled mindset. This means changing the way you think about money and retirement. As you learn more and more about the idea of early retirement, you realize that the phrase ‘early retirement’ is often defined or perceived inaccurately. Early retirement is not about quitting work for good; it is, in fact, about reclaiming your time to do things that you are passionate about.

To that extent, money only matters when it helps you live the life you want. Thus, early retirement is not about accumulating wealth for a lavish lifestyle. It is rather about having enough money to feel financially independent and pursue your passion. This amount is likely to be different from what your retirement calculators will tell you.

For example, your retirement calculator might tell you that you need to have $4 million for your retirement at 35. But in reality, you might need just a half of that number.

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Your early retirement and money philosophy will highly rely on your perspective. While retiring early might make you feel that yours savings have to support you for longer, it also means that they have more time to grow. As long as you withdraw less than the return on your investments in that year, your savings will continue to grow.

2.Determine the Lifestyle You Want

Before you start calculating how much you need to retire early, you need to figure out what kind of life you are looking forward to. Setting your expectations and goals straight is the first step on your path to early retirement.

Your dream and expected lifestyle will determine your budget. For instance, if you dream to travel the world, you will need a bigger budget than a person who wants to do social work. Depending on your dream, every type of lifestyle will need a different budget.

3.Create a Retirement Budget

The timing of your early retirement largely depends on the amount you will need to live comfortably every month. Using online tools like the Doctor Money app can allow you to get the big picture of your future budget and financial needs.

Once you have your monthly budget in front of you, divide that amount by your target withdrawal rate. For instance, if you are to spend $50,000 after taxes every year in retirement and decide to have a 4% withdrawal rate, you’d need $50,000 divided by 0.04, or $1.25 million to retire.

4.Ramp Up Savings and Investments

The final step on the path of early retirement is putting every extra dollar you save toward investing. It cannot be emphasized enough how important savings and investments are for your early retirement goals. Setting up your passive income streams will allow you to make money on your money to build up your savings for retirement. You can accomplish this goal by starting a side hustle or investing in the stock market or real estate.

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Borrowing some professional help from a financial advisor is also a good place to start with this step. A financial advisor will help you determine how much you need to save and invest every month to reach your goal.

Apart from investing, you will also need discipline and an overall change in your lifestyle. This aspect of financial planning has to do with savings. Adopting a minimalistic lifestyle and conserving your financial resources will help you achieve your retirement goals much faster.

Bottom Line

Your resolute to retire early not just gives you a dream but a meaningful purpose in life. But like every other good thing in life, it comes with a little too much work and planning. If you are up for some serious hard work and a few practical and responsible changes in life, you might be really cut out for early retirement.

To help you manage your finances and budgets better, here is an application, the Doctor Money app that can help you put your best foot forward. A little planning and effort today can help you bear the fruit for years to come!

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