For most people, planning for early retirement seems way ahead given most working adults have more than 30 years to work before retiring. For many busy working people, saving money and thinking about setting up a plan is the last thing they want to consider. They are pulling in a decent paycheck every week, spending it on bills and pleasure, and because they are young and energetic, they are confident they can keep that train running for as long as necessary. Hopefully, something kicks in, let’s call it “maturity”. And they realize what a dead-end merry-go-round they are on. Now, investing a portion of your salary toward a fruitful future becomes a top priority. Better late than never, right? With people with such thinking, there is no need to talk about retirement planning. In this blog, you will find out why planning an early retirement is crucial, why 95% of retirees age 65 never could actually financially retire and how should you plan for early retirement.
Do you plan to work until you are 65?
Many people spend a good deal of time planning the profitability of the companies they work for yet do nothing to create the same kind of security for their own families. Often it is not until they get the boot because of company cutbacks that they realized it is too late. Or, worst yet, they do not wake up until after they get a gold watch or x amount of years working in the company achievements.
Ask yourself this question. ” are you okay with working for the current company forever” or “am I happy working here?” Chances are, if there are better opportunities out there, you would jump on board the other ship. In global statistic research, 85% of working adults hate what they are working on. But if you fall under the other 15%, you are lucky! Unfortunately, for the majority, planning and creating financial security is critical to ease the need for work.
Why I don’t Recommend People to work to 65
It seems crazy to me that people are not calculating the amount of time they are able to work and how much holiday they are entitled to. The average life expectancy for human life in Singapore is 83.5 while the global life expectancy is 73.2 years. Using the formula below to calculate working life assuming a person works until 65.
Subtract your current age from 65 = A
Lets assume you are 25
A = 65 – 25 = 40
Working Days Left = 40 x 275 = 11,000 days
Vacation Days = 40 x 14 = 560 days
Having to work 11,000 days for 560 days of freedom is no way to live life. Not only that, to live your remaining year (8.2 years globally and 18.5 years for Singapore) is no way to live an enjoyable life. By the time your 65, chances are medical conditions and physical fitness prohibits you from truly enjoying life.
Why is there then a need to start investing early
For the 85%, having financial security is important to retire early. And the only way to get there is by investing. Investing early to let compound interest carry the heavy lifting is the best strategy for financial success.
If you apply this concept to grown-up money and you put in $100,000 at 3% for 10 years, you would end up with $138,429. Your profit is $38,419. Seeing the growth of what compound interest can do for your money. Imagine investing in higher growth for 10 years such as the US index fund or great real estate properties. Your $100,000 investment of 10% compounded annually for 10 years would end up with $259,374.25. The total profit would be $159,374.25! Click on the link if you would like to know or try out a compound interest calculator to find how much you need. As you can see, investing early does help carry the heavy lifting when compound interest takes over.
Financial independence requires a lot of planning. Knowing how much needed to retire is one thing. Finding the right investment is another. Reaching financial independence is tough. However, if you do your homework, it will be rewarding financially. Equally important, it may give you a new interest in life and something to do when you’ve got the gold watch and the boot from your day job.
Reason people can’t quit their job
Sadly, many working adults are trapped in this rat race of chasing more wealth and work tirelessly to increase their contribution to their day job. We have seen insane work-life culture in China where working 12hour or more is considered a norm. And people who don’t work that amount are disrespected or even fired from their job. It has gotten to a point where the culture of 9-9-6 came about which stands for 9 am to 9 pm for 6 days a week.
At HustleVentureSG, we believed that work should be enjoyable and stress-free. We believe that having to think about work after work hours is still considered work and should be condemned. Work-life balance is critical in maintaining a healthy relationship with work.
Having a secondary income is important in an event that you are booted or left with an income in unforeseen circumstances. This is why here is HustleVentureSG we provide information on different side hustles to empower individuals to pursue a side hustle they are passionate about. Side hustles are a great way of starting a business as it doesn’t need much time or commitment to earn additional income. Ultimately, when side hustle income takes over a full-time job income, that is when you know you can leave your full-time job.
How normal conventional retirement is and why it won’t work
Conventional retirement is putting money into savings plans or government funds. Which would not work when planning for early retirement because these funds do not provide high growth that combats inflation. Not only that, government funds have an age requirement to allow withdrawal or face high tax on investment.
That is why investing part of your income into an income-generating asset to offset some income is important. Every individual aiming to retire early should know the types of investment assets to build for financial freedom.
No one should depend on the government to plan their retirement. Know that governments around the world dislike the idea of individuals being able to retire early as it lowers the number of people in the workforce. To truly be financially independent and retire early, having to rely less on government support is important.
Are you able to Retire by 65?
For most people, planning for early retirement means leaving the job you dislike working early. Having the financial capability to leave a full-time job can be daunting and exciting. Contrary to people’s beliefs, retiring early actually cut down a lot on monthly spending. This is because people who are financially free tend to spend more time at home working on their side projects. This allows them to prepare meals at home which are relatively cheaper. Not only that, these people do not need to spend on transportation costs daily for their commute.
How much you will need
A rule in the financial world to gauge whether you have the means to retire is calculating the amount of free cash flow your investment is able to provide. This free cash flow is derived from the 4% rule. The rule shows that investors would be able to withdraw part of the investment cash without lowering the principal value needed to retire as an investment is able to grow more than the percentage withdrawn and the value affected by inflation.
Monthly Expenses = M
M = $2,000 (example)
Amount needed to be investment for retirement = M x 12 (months) x 25 years
= $2000 x 12 x 25
= $600,000
Using the 4% rule, the investment will grow
Monthly income = $600,000 x 4% x 12 monthly
= $2,000
Have a checklist prepared. List out things you may consider expenses, likely future expenses, and worst-case scenario expenses. Next, check what level are you at to reach financial freedom. Having a financial checklist helps better prepare for any event to make retiring by 65 a smoother transition.
What are expenses you would need to consider?
Retiring early does need to have prepared in case of an unexpected event. The medical issue starts to rise once an adult reaches 30, having the insurance to be prepared for any worst-case scenario helps lift some financial burden off loved ones. Chances are, retiring early means you would be spending a lot of the time venturing into a different activity. That is why it is vital to also have a travel, accident, and hospital plan to better protect yourself.
Secondly, retiring early means spending more time with loved ones. This can mean spending more money on adventure junky people who love traveling or trying out different activities. If you retire based on the number of your normal expenses, it may not be enough for all your activities. So do keep within the budget of your 4% rule.
Lastly, chances are your purpose of early retirement is to do something you like. Whether it is building a business or supporting charity. Early retirees may need to consider their adventure funds if they wish to commit to an activity that requires money.
Step-by-Step Plan to Retire Early
Have you heard of the FIRE movement? The FIRE movement is a group of activists that aims to financially retire at an early age in life to focus on things that truly matter. The word FIRE actually stands for financial independence retire early. The FIRE movement has been getting more and more popular in recent news as the young generation is finding ways that they can leave their normal 9-5 to pursue their passion.
To know more about how to achieve financial independence, do click on my other page on “how to achieve financial independence early” which goes in-depth on the mindset and steps required to reach financial freedom. If you would also like to know more on how to retire early, you can click on the category “retire early” to learn more about early retirement.
