What is the ultimate dream? Well it’s fair to say that it is the dream of many to retire early. Early retirement is never easily achieved, however before addressing the issue of how to build a stable financial future you need to ask yourself not only “how much do I need?”, but also “when would I like to retire?”. These are not easy questions to deal with, as the answer to both these entirely depends upon circumstances. Essentially however, you need to try and imagine the quality of life you expect in retirement. Do you plan on moving or downsizing? Will you still have children to support? How much do you wish to leave to children or family?
There are of course numerous ways to calculate how much you may need for a happy, contented retirement, however one particularly reliable one is Bill Bengen’s ‘4% rule’. The 4% rule works by deciding on how much you need to get through your first year of retirement, lets say CHF100’000 as an example, and assuming that this will be approximately 4% of the overall wealth that you will need to retire.
Having determined the when and the how much, the next stage is to actually start the process of raising the funds necessary to retire, to have sufficient money to comfortably see out your retirement. This can be achieved in two ways: the first is to be earning a sufficiently high income that even after allowing for costs and lifestyle costs with few constraints, sufficient money is able to be put aside as savings. The second option is to save the maximum percentage of your earnings even if your income is not what you wish it was. The latter may be the most likely for the majority of people and may involve tightening your belt when you are younger. Bear in mind however, that it is estimated that if you have the foresight put as little as 10% of your income aside from your 20s, you will be a millionaire by retirement! Albert Einstein is famously quoted as saying that “compound interest is the eighth wonder of the world. He who understand it, earns it … he who doesn’t… pays it!”
Both of the routes to early retirement rely on one key element – savings. No matter what percentage of income you are putting aside, it is important that you make your savings work for you. To do this, you must seek out opportunities with the best return while keeping risk to a minimum, which means individually tailored and sound investment advice is essential. Financial advisors will, or should, have the most up to date information about the market and plenty of investment and pension planning experience. We all have a different perception of risk of course, and this should be one of the first discussions you have with your financial planner. Even in retirement however you should never cease to invest, it only becomes more important to invest diversely.
“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” – Dave Ramsey.
Please note: This article should be seen as general guidance only and you should not act upon the information herein without first obtaining professional advice specific to your individual circumstances. Blackden Financial S.A. accepts no responsibility for any loss incurred by any person either taking action or refraining from taking action as a result of the information contained in this article. For further information please feel free to contact us for further information.