The 5 Step Guide to Early Retirement
Ah, financial independence. For most it looms in the distance and feels out of reach. How badly do you want to quit your job, bosses, meetings, paperwork, and commute? Enough to start taking action today? I've shared the philosophy of financial independence in other posts. Now here's your step-by-step guide.
Assess: What are your goals of financial independence? Why do you want to retire early? Be clear with yourself and loved ones about expectations and future plans. Do you want to travel around the world on a budget or stay home and spend time with your kids? Once you examine what matters most to you, the incentive to get there as fast as possible can kick you into high gear. Like a broken-down VW bus, the initial push is the hardest, but once you gain momentum it just gets more fun.
Calculate: what is your annual spending? If you anticipate similar spending once you reach financial independence, simply multiply the amount by 25. That's how much you'll need to retire. To find out how many years it will take, use this nifty calculator from Networthify.
Commit: Early retirement is a lifestyle choice and therefore it takes lifestyle changes to happen. Get rid of debt as fast as you can. Set a monthly budget and stop making excuses. Don’t waste money and time on things that don't matter.
Adjust: Now that you know how many years out you are from reaching freedom, contact your employer and increase your retirement plan contribution up to $19,000. Set up monthly auto-transfers to your IRAs or taxable accounts (index funds). If you don't yet have these, set up a traditional IRA and then covert it to a ROTH before retirement. This will save you on taxation and is a legal way to keep more money growing for your retirement. Next, set up an Index Fund. Vanguard index funds have been the leader in inexpensive and convenient investing for close to 50 years, but to remain competitive and attract young investors, Fidelity now offers an attractive zero-fee index fund. Robo-trading companies like Betterment and Wealthfront offers tax-advantaged and Socially Responsible Investing accounts for around a .25% fee. Yes, the market is down right now - think of it as a sale!
Simplify: Get rid of stuff. It doesn't have to be painful. Downsizing your life does the opposite of what you may expect - it opens opportunity to connect with your family, friends, and the outdoors. Reduce your spending on superfluous crap. Move into a reasonable, human-scaled home, preferably within biking distance (5 miles) of town. Go for a hike and a picnic - skip dining out and going to the movies. Consider selling your car(s) and replacing with a bike or less expensive, more practical vehicle. This is not radical extremism. It's common sense and practical efficiency. The rest of America is crazy living beyond their means, surrounded by crap that takes away from human connection and adventure. In the words of John Prine, “Blow up your TV, throw away the paper.” Focus on what really matters.