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I was in a seminar where the speaker asked the audience “What is the retirement age?” Without hesitation, most people chimed in with 62 or some similar number depending on when they were born. It hit me like a ton of bricks…we are so brainwashed to believe the age at which we can retire is whatever the societal norm is. Or worse than that, whenever the government tells us we can. Who thinks such a huge life decision is one you should make for yourself rather than listening to what someone else tells you? I sure do! I decided long ago I didn’t want to have to work until I was in my 60’s…so I began planning ahead to be financially ready to retire when I chose.
When you have been taught your entire life that you have to work until you’re 62 years old, it’s difficult to shift that mentality and realize that you are capable of deciding how long in life you are going to work. Difficult, but 100% doable. It’s a mindset shift. And the sooner you do it, the better. The sooner you decide at what age you want to retire, and then make a plan to work towards that happening…the easier it is going to be. But it’s never too late. Here are four tips on how to decide for yourself when you can stop working.
1. Free Up Your Housing Expense
If you’re renting, you are going to have a housing expense for the rest of your life. If you purchase a home, the second you pay off that mortgage you no longer have a housing expense. Imagine how much easier it is to retire if you do not have a monthly rent or mortgage to pay. That’s why your first goal needs to be making a plan to buy a home and get it paid off ASAP…so that you can figure out Step #2.
2. Decide Your Monthly Income
You’ll need to do some calculating here to decide how much passive monthly income you’ll need in order to live the way you want while retiring. Add up how much spending money you’d like to allot yourself, and also an approximation of what your monthly bills will be…and that tells you the minimum amount you’ll need to bring in each month. Here’s an example:
Groceries: $200
Fun Money: $1200
Insurance: $600
Utilities: $500
TOTAL: $2500
3. Where Will That Money Come From
So you hypothetically need to bring in $2500/month in order to not have to work and still cover your expenses. There are several different ways to make that happen…but here are two.
a- Plan on building up a lump sum in a market that will garner you a percentage of return, and then live off of that dividend. For example…if you feel comfortable counting on a 3% rate of return, then in order to passively collect $2500/month you’ll need to have $1M sitting in investments which will garner you $30,000 per year. Stash away your cash, and the moment you hit $1,000,000 you can stop working!
b- Here’s an easier approach. Purchase one or more rental properties that total a rental income of at least $2500. Use the tenant’s monthly payment to pay off the mortgage…and when that’s done, you’ll have your passive income stream ready! If you put extra money towards the mortgage payment each month, you’ll get it paid off in no time and be retired well before the time it would take to save up $1M.
4. Make A Plan
Now that you know what needs to happen in order to retire when you choose…you need a plan. That plan is contingent upon you having a budget. If you need help setting one up, read this blog. Your budget will show you how much money you can spend in a month and also how much money you can put towards your retirement…whether in savings or in paying off income-producing properties. Your plan should include mini-goals and deadlines.
For example:
The principal on my primary residence will be $20,000 less by this time next year.
I will own another investment property by 6 months from now.
Hit each goal you set, and immediately set another one. Be intentional about your plan, and you’ll shock yourself at how easy it is to retire.
