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Hi Taylor
- What's the secret to retiring early? I hear people talk about saving
all their money so they can stop working at 40, but that seems too
good to be true. - Jake
Hi Jake - There's not just one secret to early retirement, but
there are concrete steps you can take to make it happen. I promise
it's not too good to be true, you just need the right mindset and
a can-do attitude.
The FIRE (financial independence, retire early) movement has really
taken off, and you can get a more detailed run down at GoFarWithKovar.com.
For now, here are the three main points of focus for early retirees..
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1. Save.
If a normal worker puts aside 20% of their earnings for retirement,
that should be applauded. If you want to have enough savings to
live off for 40 or 50 years, you need to stash away closer to
50% of what you're making. While it depends on how much you earn
and when you hope to retire, the fact remains that you have to
cut your spending drastically in order to bank enough cash to
live off.
2. Calculate. There are two schools of thought within the
FIRE movement - fat and lean. On one side you have a more luxurious
retirement (fat), and on the other you keep your expenses low
so you can get by without having to go back to work (lean). This
comes down to personal preference as much as it does the amount
you're able to save. Some people enjoy living frugally, traveling
to inexpensive countries where the dollar goes further. Others
need a retirement full of ski trips and lobster dinners, which
will require a bigger investment upfront. A common rule used by
early retirees is the 4% rule, with 4% being the amount you can
withdraw from your investment account each year without touching
the principal. If you start with $1 million, 4% yields $40,000
each year. So… how much do you need to live comfortably?
3. Invest. I disagree with a lot of advisors who recommend
using index funds for FIRE accounts, as those passively managed
accounts can actually stifle growth. You take on risk whenever
you invest in the stock market, and by investing in strong companies
that offer dividends, you bring extra cash into your account while
oftentimes outpacing the rest of the market. You don't want to
put every dime you've got into one business, but a collection
of quality stocks will deliver better results than the average
index fund.
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If you have
debt and no savings, it'll take a while before you can consider early
retirement. However, if you save now, invest wisely and calculate
your retirement needs, you'll be surprised at how realistic this whole
FIRE thing is. Good luck!
© Taylor Kovar
February 25, 2020
More "Go Far With Kovar" |
| Legal Disclaimer:
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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