Being free to do anything is fun, right? You, unfortunately, have to work for your freedom unless you are born with a multi-million trust fund. There are many savings guides available online and at other sources, following which you can have excellent chances of retiring at 50 to 65 years of age. But what if you want to retire at 40, 45, or 50? There are simple and efficient plans that can help you out in this. Here we will discuss how you can retire early with no income tension.
How to retire early: learning from people’s examples
You have to work till the age of 60-65 to retire is a fallacy. Let us assume that you started working at 22 years of age after college. Work sincerely for 18 consecutive years and save 55% of tax profits. It will save you enough amounts up to the age of 40 to survive in the next 20 years. You can spend this full money if you wish to, every year till you turn 60. You will be eligible to receive Social Security benefits by 62 to 65 years of age. It will complement the other taxes deferred retirement savings. Let us now explore how some other people can achieve early retirement.
- Example one: Average Jane
Jane holds a degree in English from the University of Colorado. She got her first job in Denver as a telecom services provider’s sales representative and the job paid all her bills for the first three years. She earlier lived with her parents and then with her friends, saving money for the house all these years.
From ages 41 to 60, Jane saved $29,163 each year by sharing her accommodation. Until the age of 60, she saved $530,250. If she does not improve her lifestyle, she will be fine for the next 18 years. To save more money during the working years, Jane could move to a less expensive place, invest money, work part-time, and live with her spouse.
- Example two: Floyd
Floyd is a software engineer who graduated from Virginia Tech. He starts at a small company in San Francisco. He is not a brilliant software engineer and does not make as much money as his fellows from Google. But by 30 years, he is making a good six-figure income. Floyd has accumulated $902,605 over the past 20 years. So he can spend around $45,200 each year without doing a thing. With a risk-free interest rate of 2, he can earn $18,000 each year and spend $63,000.
It is possible to live in every rich city with savings of $63,200. Imagine if you have a working spouse, she will also save almost the same amount of money. Living on $126,400 per year is super comfortable.
- Example three: Felicity
Felicity is an intelligent student and passes in the top three percent of her class at UC Berkeley. She gets a job at the Boston Consulting Group, which is one of the leading consultancy firms. She gets a promotion every 3-5 years and has a good career. She is a senior executive at the age of 38. She has two kids and wants to retire when she turns 40.
She has retirement savings of $1.36 million, she can easily spend $68,000 after taxes in one year. At the same time, she can be at the house spending time with her kids as she wants. She can generate $27,000 more each year with a 2 percent risk-free return, thus boosting her annual expenditure to $88,000 after paying taxes.
All these examples and surveys conducted show that you have to work one year for one year of retirement savings if you save 50% of your after-tax income. So if you keep doing this for 15 years, you will have 15 years of retirement savings. On the other hand, if you save just 10% of your after-tax income, you will have to work for ten years to save one year of retirement savings. Therefore, the significant factor is after-tax income and what money you live on. You can live a comfortable life by spending 50% of your income.
How to retire early when you have children?
Having a family or children is a massive determining factor in whether you can retire early or not. But is raising children that expensive for earning couples? If you have children, you must work for roughly 22 years of your life. You have to provide for their living as well as education till college. If a family with working parents saves 55% of their after-tax income each year, they can accumulate a considerable amount. All you have to do is work on an aggressive saving plan.
Final Takeaway
Retiring early, at 40, 45, and 50 years is possible. You have to start saving for this as soon as you start earning. Investments can also help significantly. So plan carefully and retire early with no tension of income.