Top 5 tips to retire early
The idea of retiring in your 50s or even your 40s sounds like a pipe-dream to most, with an increased cost of living, inflation, and other economic factors slowly eating away at your predicted earnings. This hasn’t stopped the rise of the FIRE (Financial Independence Retire Early) movement, though. FIRE is a new method of frugal living that aims for early retirement, escaping long working lives and living off the stock market or other supplementary income for good.
One of the most infamous experiments carried out by Stanford University is the marshmallow experiment, where a pair of psychologists gave children a choice: one reward now, or two rewards if they waited 15 minutes. Some of the children took the early reward of a marshmallow. Others struggled, but managed to wait longer, occupying themselves until it was time to receive a double reward.
Saving for retirement can be very similar to the lesson in delayed gratification, only more difficult. The children knew what reward awaited them should they be patient – most adults don’t have a clue if their savings will be enough for the future. When the reward is intangible or complicated, it’s even more difficult to set limits now in the hope of future benefits.
So, what does it take to retire early? Here are 5 tips to help you on your road to early retirement:
1. Keep your spending in-house
From small seeds of saving do sturdy trees of retirement grow. Simply put, it’s good to aim small when beginning your savings journey. That £2.65 coffee from your local coffee shop can instead be an instant coffee in the office. Instead of eating out for lunch, take homemade meals into work with you. Cutting out the small daily expenses can really help boost your long term savings and help usher in that desired early retirement. Let’s take our daily £2.65 coffee, for example. The average UK citizen works around 260 days a year – that’s £689 a year spent on coffee!
2. Utilise technology
There are a number of apps available that makes some basic assumptions about stock market returns and inflation rates which then inform you as to how much you’ll need to save. Having a handy app on your phone can help you make decisions on the fly and allow you to check what a potentially impulsive purchase may cost you in the future.
3. Shop around
Saving money where you can on bills, transport, and other outgoings can help to grow your retirement pot quickly and without too much skin off your nose. Ask yourself whether you really need that magazine subscription or streaming service. Can you find a better deal on your phone or energy contract? The answer is often yes.
4. Take advantage of saving opportunities
In 2017, the government introduced a Lifetime ISA (LISA) open to those aged between 18 and 40. LISA account holders can save up to £4,000 a year, with the government adding an annual 25% bonus up to a maximum of £1,000. There is a limit, however. You won’t be able to contribute to a LISA or receive the bonus when you turn 50, but the account will stay open and your savings will continue accruing interest or investment returns. For more information on the terms of withdrawal and eligibility, check out this government’s guide.
5. Decide what your goals are
By seriously saving towards your retirement, you shave years off your working life, depending on what your retirement goals are.
And there’s the big question. What are your retirement goals? Do you want to live a life of luxury, enjoying all the potential freedoms that your newfound free time will have to offer? Or would you rather have a comfortable yet frugal retirement? There’s a whole range of options available to you, and your retirement goals will help to inform you of how much you need to save and invest.
A financial adviser can be a great help in determining this factor as they can give you direction on what the ideal savings plan is for you. At the end of it all, the message is to save when and where you can. It’s about growing your savings and securing your finances.