12 Finance Pros’ Tips For Successfully Achieving Early Retirement
This article was produced by the Forbes Finance Council, a forum in which members of an expert panel discuss important financial topics and provide the general public invaluable financial guidance. This post features a piece of advice from TFT CEO Angelo Ciaramello,
In the age of the “Great Resignation,” some younger professionals aren’t only looking to switch careers but to leave the workforce early. Today, the average retirement age for men is 65 and for women 62. But many professionals who are seeking a better work-life balance or to start their own business ventures may aim to retire as early as their 40s, after just a couple of decades of working.
If your goal is to make an early exit from the workforce, you’ll need to do some careful planning and exercise significant financial discipline. Below, 12 members of Forbes Finance Council share their top tips for individuals wanting to retire well ahead of the typical retirement age.
1. Find And Monetize Your Passion
Does anyone really “retire”? When looking at retirement in your 40s or even 50s, you’ll need to fill the void. Keep your mind active and plan for success. Find your passion and push forward with that to generate a stream of income that will not deplete your savings. Financially, be aware of market fluctuations that impact passive earnings; prepare to budget wisely and stick to it. – Cynthia Hemingway, Fourlane, Inc.
2. Be Realistic About Your Desired Lifestyle
First, you must ensure that you have a solid financial plan in place. This entails putting aside as much money as possible and investing wisely. Second, you must be realistic about your way of life. Can you live on a low income? Are you willing to make sacrifices to retire sooner? Finally, have a backup strategy. By considering these factors, you’ll be well on your way to retiring at 40. – Angelo Ciaramello, The Funded Trader
3. Understand The Opportunity Cost
Make sure that you understand the opportunity cost of early retirement. Some people will just consider their current savings and anticipated future liquidity needs, but one should also consider the opportunity cost—the missed future retirement contributions and compounded returns—when making an informed decision. – Sean Frank, Cloud Equity Group
4. Focus On Financial Freedom
In general, retirement imposes the assumption of risks. The earlier one stops working, the longer the time horizon for one’s assumptions to be challenged. When retiring young, it is important to define retirement not as “stopping work” but rather as having the goal of achieving financial freedom and independence. The difference is that one is a decision, imposing risk, and one is a life goal that can be attained at any age. – Daniel Kachani, Aria Wealth Solutions
5. Make Sure You Have Passive Sources Of Income
Don’t do it unless you have significant investments and passive sources of income. Life is expensive. Raising children is expensive, too. Follow a passion to earn income if you want to ditch the professional path. This is a great time to start a company, too. You will need a source of income, and there are many paths to choose from—not just the traditional corporate or professional path. – David Samuels, DrFirst, Inc.
6. Put Your Discretionary Income To Work
Discipline will be critical for an individual who wants to retire at 40. Max out your IRA and 401(k) contributions every year, and put any discretionary income to work. Compounding interest is extremely valuable: The earlier you start investing, the more flexibility you will have upon retirement. – Robert Reeder, GlassView
7. Be Flexible
My top tip is to be flexible. The risk of change to the status quo is much larger the earlier you retire. Plan and project for significant variability in tax rates, inflation, investment returns, longevity and your spending expectations to understand what changes you can weather. – Sharon Bloodworth, White Oaks Wealth Advisors
8. Learn To Live With Less
Retirement means something different for everyone. Understanding what it means to you is the only way to retire early. If you retire at 40, what are your plans for the rest of your life? Will you be turning that hobby into a business? Traveling the world and living out of hotels? I retired at 30, and since then I have worked more hours a week than I did before I retired. Learn to live with less, and you can retire early. – Joseph Orseno, Tiltify
9. Keep The Possibility Of A Recession In Mind
Let’s talk about when the recession hits. Anyone 40 and under at this point doesn’t understand the ramifications of a true recession (that of 2020 was the shortest on record); they would have been 26 or younger during the Great Recession, an age with far fewer responsibilities than 40. Otherwise, if you’ve got the means, my top tip is to have fun, spend it with your family and make sure you have insurance. – Jaclyn Foroughi, Brazen Impact
10. Factor In Inflation And Long-Term Care
Retiring at any age just takes planning. A financial plan should take into account your post-retirement budget, the assets you have and your assumptions for how they will grow. Most important is to factor in inflation, long-term healthcare costs and longevity. If you retire at 40, you will need your assets to last 50 or more years. Passive income and/or post-retirement income could be required! – Aviva Pinto, Wealthspire Advisors
11. Figure Out Your F.I.R.E. Number
Figure out your F.I.R.E. number and style. F.I.R.E. is an acronym for the early retirement movement, “Financial Independence, Retire Early.” The styles are LeanFIRE and FatFIRE. LeanFIRE means you would live with less money in retirement, while FatFIRE means you have more money to live a more relaxing lifestyle in retirement. You can retire earlier with LeanFIRE because it requires less savings. – Jared Weitz, United Capital Source Inc.
12. Find A New Path Forward
Retire to something rewarding. A new path that will provide fulfillment, motivation, and both personal and professional challenge can transform “old” understandings and norms of retirement into a “new” view of retirement as an exceedingly exciting next phase of opportunity and contentment. – Greg Bassuk, AXS Investments