How do I retire early?
If you are wondering how do I retire early, ‘It’s never too early to start thinking about how to maximise your income in retirement.’
But you need to take steps now to get the best chance at the lifestyle you want.
The sooner you start planning, the better off you’ll be.
As of December 2019, the Association of Superannuation Funds of Australia (AFSA) suggests a comfortable lifestyle for a couple, including entertainment, a car, clothes, private health insurance and holidays, can cost as much as $62,289 a year. Compare that to a modest lifestyle, which still requires about $40,560 a year per couple.
Given the average person will need about two-thirds of their current gross income each year to maintain a modest lifestyle in retirement, it is never too early, or late, to start building up assets, savings and super if you want to retire early.
Planning for retirement can be complex so it’s important to get advice from people with specialist knowledge. A Financial Adviser can provide strategies to boost income in retirement, which can come from a range of sources, including super, other investments and the age pension.
There are also government incentives that you could be missing out on.
So for some tips on ‘How do I retire early?’
Power of time
The compounding effect.
There are three key drivers behind the compound effect:
Rate of the return
Obviously, the higher the better to help you retire early.
Obviously, the bigger the better because it means there is more for returns to compound on.
Obviously, as mentioned previously, if you want to retire early, the longer the better because it means the longer the compounding process of earning returns on returns has to run. Time also helps to smooth out any year-to-year volatility in returns.
Understanding how compounding works will assist in making better decisions when choosing an account that pays interest. An online savings account that pays monthly interest is an example of an account that earns compound interest. A term deposit is an example of an account that earns simple interest. This is because interest is typically only paid at the end of a specified term.
Whether you’re in your mid-20s or mid-50s, if you can afford to put away even just $5 a day, starting now, compound interest will reward — even in today’s low interest rate environment.
Understanding compounding is just one area where a Financial Adviser can help you to improve your savings situation and make savvy financial decisions to reach your retirement goals. There are myriad other vehicles to grow your savings.
Still wondering how do I retire early?
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