How to Plan for Early Retirement

Early retirement requires a lot more than just having a good job and a good salary. It entails skillful planning, efficient execution, probably some deep knowledge, and good resources and channels about investing. Many people dream about retiring early but only a few achieve it. Worse, some are still stuck striving to make ends meet even when they’re old.

Retirement has a lot (or probably everything) to do with financial independence. If you become financially independent, you can retire, make money continue to grow and work for you, and enjoy life. Let us first discuss some pitfalls that most people experience that keeps them from preparing for an early retirement or even retiring at all and put in solutions and the things that must be done in effectively coming up with a good retirement plan, early retirement plan that is.

What do most people fail to see that successful retirees did? Why do most people fail to retire early or even retire at all? First, most people are too concerned about the present that they forget to see past it and prepare for the future. Most people are too attached to their jobs that they think that it can support them forever. There is nothing wrong with having a job but relying solely on it makes it all wrong. If you lose your job, how can you support yourself and your family? If you quit your job, how can you retire successfully? Second, most people fail to see and understand what does it really take to achieve financial success which in the long run results to early retirement. Financial planning is simple yet because of the lack of knowledge, most people fail to establish their financial foundation well.

So what does it really take in order to successfully retire early? The answer is fairly simple: Start learning, act now, and build your financial foundation the right way. Building your financial foundation is a process. It doesn’t happen by luck or by chance. If you have a a high paying job, well and good, but keep in mind that your job can’t support you forever. While you still have it (or even a business), start doing these steps gradually.

1.) Invest in health care. Getting sick is very costly and it could really hurt you and your family financially. Many people fail to see the importance of health care. They end up redeeming their investments just to pay the bills and go back to scratch. If you have a health care, you can have peace of mind that at least once you get sick, somebody (the health care company) is going to pay your bills on your behalf. Premiums are very reasonable and are way, way lesser than hospital bills. Health care can protect your investments and savings once you or somebody gets sick.

2.) Life insurance. Life insurance will protect your income generating capacity. Just in case something happens to you such as permanent or serious disability, or worse, death, the insurance company will provide your loved ones a hefty amount of sum. It may not compensate the emotional loss that they may experience but at least it can ease off some financial burden. Term insurance is ideal because these policies won’t cover you for the rest of your life thus you won’t pay the premiums for the rest of your life.

Health care and insurance are important for people who are starting to build their financial foundation. Time will come that you may no longer need an insurance because you’ve already accumulated a good amount of wealth that you can pass on to your children or loved ones.

3.) Debt elimination. Debt elimination comes in third because just in case something happens to you, your family may not resort to debt, health care and insurance companies will take care of your financial needs. However, once you have an existing debt, at least the health care and insurance companies can still help in paying it off. You will not leave any serious financial woes to your family such as debt. If you have debt, settle it quick once you have started to get health care and insurance and if you don’t have one, forget having one. Or you may educate yourself further more because there are some debts that are called good debts.

4.) Create an emergency fund. Just like what the name suggests, emergency funds are for emergencies. The purpose of emergency funds is for you to have a source of funds and not to resort to debt. Emergency funds must be kept in banks because of their high liquidity. A suggested amount of emergency fund is at least ten times of your annual income or ten times of your current lifestyle. If you live life by $1000 a month, you must have at least $120,000 as your emergency fund.

5.) Invest. Investments come in last because they are intended for long term. Investments come in different forms such as stocks, bonds, businesses, and tangible assets such as real estate. The risk in investing is quite high and is being offset by time. The longer the time frame, the lesser the risk. This is where you start building your retirement plan. You can put money in stocks, mutual funds, and other assets and let it grow. In time, such as at least 5 years, it will grow significantly and it can provide you a quality life.

6.) Protect your investments. It is very important to protect your assets because those are the things that are going to provide you income during your retirement years. Just like life insurance that protects your income generating capacity, these general insurances will protect the income generating capacity of your assets. Just in case something happens to them causing them to lose their income generating capacity, you will be provided with a good amount of sum either to support you or to start over again.

The earlier you intend to retire, the earlier you should start and the more relentless you should be in building your financial foundation. If done right, you can retire in 5 years time. For example, assuming that you have a decent salary every month. You can start shopping around for health care and insurance. It is advisable to have a health care policy of your own outside the company just for security’s sake. Probably after a month or two, you can start to pay off your debt gradually and start saving for your emergency fund. It will really entail tremendous amount of discipline and sacrifice in doing these things but it will all pay off in time. Last is to invest consistently every month on mutual funds, stocks, or even acquire properties. If lucky, you can get in while the market is down which yields great returns.

Retirement doesn’t mean that you have to completely take yourself off from working. You must still strive in order to make your investments grow but the good thing is, you’re doing it on your own without somebody telling you what to do or without you worrying about finances because whether you continue working or not, you can live comfortably and worry free.