Early Retirement is Possible

Though the golden years may be far away, most of us start dreaming of retirement in our early years. It may seem impossible to achieve early retirement, but it’s not as hard as you think. Contrary to popular belief you do not need a million dollars to retire early (we’re talking about age 55) unless your standards of living are extremely lavish.

If you expect to maintain a modest to “normal” standard of living, with a little planning you should be able to reach your dream of early retirement. Although many financial planning books and retirement references state that you must put away 70% of your current salary in order to live comfortably in retirement, this is simply not accurate. An extremely small percentage of people can afford to put away 70% of their retirement and retire at the average age of 65, let alone retire ten years earlier.

A fair amount of people overestimate the amount of money they need for retirement because they underestimate the amount of money which is taken away by taxes and other expenses. Many expenses that you incur during your working years will tide you over for a lifetime. By retirement you should have your house, cars, and other loans paid off so your bills will be minimal. As long as your child’s education is saved for and other major bills paid you should not need 70% of your income to live after retirement.

So how much do you need to retire around age 55? First calculate your disposable income. Start with your salary before tax and then deduct what you pay in mortgage payments, taxes, RRSPs, savings for your child’s education, and any other bills. What you are left with is your disposable income which is what you should be able to survive on in retirement.

Don’t forget that you can also rely on government payments once you turn 65. Usually the hardest part of retiring early is surviving solely on your saved money to before you start receiving your government cheques.