Does retiring by the age of 40 sound like an impossible dream? It doesn’t have to be. Of course, planning well ahead of time is crucial; if you’re over 35, for example, you may want to push that goal ahead by a few years. However, retirement does not have to be something that is worked toward for a lifetime to be enjoyed only past the age of 65. There are a number of steps you can take to prepare yourself to retire at 40.
Figure Out the Income You’ll Need
Advance planning is essential. You’ll need to make a good estimate of the type of income you will need. It’s easy to underestimate this, so here are a few things to keep in mind. You’ll need to think about funding health care including possibly expensive long-term care when you are elderly. On the other hand, your mortgage may be paid off, so housing could be less of an expense. Remember to account for inflation.
If you don’t already have a budget and track your present-day spending, you’ll need to do that in order to start working out what kind of spending you’ll be doing over the next 50 years or so. As you plan, keep in mind that your expenses will change based on what things you’d like to do during your long retirement.
Work in a Lucrative Field
You are unlikely to save enough money to retire at 40 while working as a barista. You need to maximize your income and work as hard as you can now with an eye to the leisure time you’ll spend the rest of your life enjoying. Just how much money you need to make will depend upon your lifestyle now and in the future, but if you’re truly dedicated to retiring at 40, this is the time to choose a high paycheck over considerations like work/life balance. Keep in mind that you’re still doing a good job at work/life balance. You’re just splitting it into two different life phases rather than combining the two all at once.
Learn About Investing
A savings account isn’t going to do the trick for the long-term investing you’ll need to secure your future, and traditional retirement accounts are unlikely to be sufficient either. You need to look into investment portfolios that will continue to provide income once you’ve retired. A good financial adviser help you assemble a mixed portfolio of investments with different risk and reward factors based on your needs and tolerance for uncertainty.
Even with a high income and careful investments, learning to live frugally will help you save more now as well as teaching you how to be careful with your retirement savings and income in the future. It’s said that often millionaires are not extravagant with their cash; many take buses instead of cabs, purchase reasonably-priced and durable clothing and regularly eat at mid-range restaurants. These are good habits to cultivate. Doing so doesn’t mean you need never spend money on things that are important to you. Instead, you learn to pick and choose when you want to splurge.
Retiring at 40 is not just a possibility for those born with a silver spoon. With enough planning ahead of time and hard work, anyone can fulfill this dream.
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Amy Jackson is a financial adviser and guest author at How Do I Become A … ?, a site with guides to nearly any career path you can imagine.