Do you have a dream of retiring at 55?
It is hard to think about early retirement when you are finding it difficult to get by, but it can be done! Our Canadian financial system is relatively fair and allows for social mobility, so you don’t have to start with a lot of money. You don’t have to come from a rich family, and you can even start when you have student debt!
No matter where you start, you can apply these five tips and enjoy the rewards of early retirement:
1. Start as Early as You Can
The sooner you begin, the less effort it will take.
Here’s a look at the numbers:
To keep everything in round amounts, imagine you need $1 million dollars in order to retire at 55, and your average income between when you start to save and retirement is $100,000 per year.
Then you invest your money in a portfolio of stocks and bonds that produce an average annual rate of return of 7%.
If you begin saving at:
Age 25: you will need to save 11% of your pay to reach your goal.
Age 30: you will need to save 16%
Age 35: you will need to save 25%
Age 40: you will need to save 40%
It is easy to see how it becomes more difficult to save as you have fewer years to work with.
2. Cut Expenses and Live on as Little as You Can
The less you can live on, the more you will be able to save. Determine what isn’t absolutely necessary in your budget. Consider cutting back on, or eliminating vacations or restaurant meals. Maybe a second-hand car is fine instead of a new car. Once you make cuts, they can become a habit and you won’t feel you are giving up too much.
3. Avoid Debt
Debt means you are borrowing to make a purchase, and you have to pay it back, with interest. If you must borrow, make a plan to pay it back, and stick to that plan. Most cannot avoid the debt of homeownership, so do whatever is necessary to get the best rate on a mortgage. In the long run, it can make the difference of tens of thousands of dollars and allow you to pay off your home early.
4. Become a Homeowner
Homeownership is the best long-term investment on a risk/return basis. This investment is stable. The average Canadian residential property appreciated by over five percent annually over the past 30 years.
5. Hire a Professional Advisor
An investment advisor will help you develop a diversification strategy over the long term. It costs money in fees, but that is because knowing how to strategize and determine when to sell and when to invest requires skill and research.
Ask people you trust about their financial advisors but be sure to check the advisor’s qualifications and background.
Retiring at 55 takes some planning, but these tips will help with that planning, so start today!