It sometimes seems as if everyone wants to retire early. In fact, if you spend enough time on personal finance blogs, you may even come to think that retiring early in the rule, rather than the exception. The reality however is that relatively few people will retire much before age 62 or 65. They may want to, but not many people are willing to do what’s necessary in order to make it happen.
Early retirement requires that you make serious lifestyle choices – the kind that are likely put you out of sync with your family, friends, neighbors, and coworkers. It can be a high price to pay, and not everyone is willing to pay it.
Seriously consider the lifestyle choices that are necessary if you want to retire early. There are at least six of them.
Living On the Low(er) End of Societal Norms
This could be the most painful lifestyle choice you have to make, since it means that you’ll be stepping outside of the social and economic mainstream. For example, when everyone else is looking to buy their first home, you may need to sit tight and stay in your small apartment. When everyone else is looking to trade up to a McMansion, you may need to banish such thoughts from your head, and plan to spend a very long time in your tiny first home.
It will likely also mean that you continue to drive a clunker, when most of the people in your social orbit are trading up to brand-new cars.
All of those things are very easy to say, but very difficult to carry out. But if you want to retire early, they’re also absolutely necessary.
Not Running – Or Spending – With the Herd
Friendships often involves spending a certain amount of money – some friendships more than others. But if you really want to retire early, you’ll almost certainly need to pass up on regular restaurant meals, high-priced entertainment, and changing your wardrobe out a couple of times a year.
While everyone else is doing all of those things, you’ll be cooking your meals at home, renting videos for entertainment, and maybe even buying your clothing at thrift stores.
Though it can be a lot of fun running with herd, it can also be a financial drain. And the more money than you spend keeping up with others, the less you will have available for savings and investments.
Saving Most of Your Disposable Income
The whole purpose of all of that self-denial is about saving money. The less of that you spend on basics and on having fun, the more you will have available to save for the future. And that will make your early retirement happen even sooner.
When we talk about early retirement, it probably will not be possible if you are saving 10%, 15% or even 20% of your income. That may be fine for retirement at 65, but if you want to retire at age 50 or sooner, a more realistic savings target will be 30%, 40% or even 50% or more of your disposable income.
Most people consider that to be impossible, which is also why most people are never able to retire early. But this is a financial commitment that you cannot afford to drop the ball on if you are serious about retiring early. Amassing a large nest egg is the most fundamental component of early retirement. If you can’t become a committed saver – saving an unusually large percentage of your income – then early retirement will never be anything more than a wish.
Staying Out of Debt
Debt is an early retirement counterforce. If you’re saving money to retire early, but also accumulating large amounts of debt, then you are undoing all that your savings are accomplishing.
Staying out of debt not only increases your net worth, but it also means that you will have more money out of your paycheck to put into savings. Staying out of debt is also an excellent habit to get into in preparation for the day when you will retire early. After all, the lower your expenses are, the easier it will be to retire.
Avoiding Major Purchases
It will be very difficult to retire early if you don’t avoid major purchases. Buying a new car, trading up to a new house, or buying a vacation home will not only take a chunk out of your savings, but it will also create a series of regular expenses that will represent a drain on your income. That drain will ultimately mean less money going into savings.
Like debt, major purchases are an early retirement counterforce. That’s even more likely to be the case if you must use debt to acquire them.
Increasing Your Income Consistently
It’s almost a cruel irony that order to retire early you usually have to work a lot harder before it happens. That means dedicating more time and effort into earning more money than the average person might. This could be through raises at work, or by earning more income on the side. It’s not just a matter of maintaining a high income level either. Even more important is that your income rises consistently as you move closer to retirement, that way you’ll always have a greater amount of money to save and invest.
There’s also the inflation factor to consider. As the years pass, the basic cost of living tends to increase. In order for you to keep up, and maintain a high level of savings, your income must increase at a rate that’s higher than the level of inflation. That will require more effort on your part. While others are coasting on the job, you’ll need to step up your game so that you’ll get the next promotion or earn the bigger bonus.
Early retirement is very doable. But it won’t happen without extraordinary effort, and a large helping of self-denial.
People often speak almost casually about early retirement. Have you ever seriously considered what you need to do to achieve it?