Who Wants To Retire Early?

by James on 03/15/2010

Image of early retirement

Everyone would like to retire at some point in their life and not have to adjust their lifestyle too drastically. And, for most people that means consistently putting away at least 10% of their earned income into retirement accounts their entire working career, while paying off their mortgage in hopes that they have enough money to retire at age 65. The question is, “Wouldn’t you like to retire earlier if you had enough money?” How much money would you need to have in order to retire at age 50… or how about age 40?

In order to find out when a person can retire, we first need to answer a few questions.

1. What plan do most people follow in order to retire?

Most people try to save up enough earned income during their working career that will last them during their retirement years. Generally, this money is invested into a 401k or other retirement accounts which will hopefully generate portfolio income. Unfortunately, budgeting the use of this nest egg during retirement is imperative to prevent it from running out. This is because each month, a portion of the principal investment is being consumed. As a result, the nest egg gets smaller and smaller.

Another important step is paying off a house note which helps lower monthly bills. I’m sure you have heard that your home will be the biggest investment of your life, right? So many financial planners will tell their clients this and I know I have heard this and read this many times. Many families will also send additional money toward their mortgage each month to try and pay it off early. In general, the majority of a person’s net worth ends up being invested in their house.

The key here is that most people have to work until the age of 60 or more in order to retire. In addition, many have to lower their standard of living because all their bills haven’t gone away like their paycheck. And, even though the house may be paid off, there are still taxes and insurance to pay each month.

2. What allows a person to retire early?

Let us say that you had 10K a month in passive income. Could you retire today? I know I could! But, why would this allow you to retire now? My point is that it is income (that exceeds expenses) that allows a person to retire early… passive income. Sure, you could also make a very large salary from your job and amass a small fortune, but for most of us, this simply isn’t going to happen. Heck, the median household income in the United States in 2007 was only $50,233.00 according to the Census Bureau.

The problem is that most people choose to invest their hard earned dollars into assets which do not produce passive income. And, this is mainly due to a lack of education or fear. If the majority of your assets are inaccessible until you retire (age 59 1/2 or later), are tied up in your house, and they don’t produce any passive income, how are you planning on retiring early? The fact is that you’re not planning on retiring early!

3. How can we plan on retiring early?

We can all plan to retire early by allocating our money into passive income producing assets. For example, if you have a lot of equity in your home, it may be time for you to reallocate this money into rental properties. I know this is a hard one to swallow! You’ve been working so hard to pay off your mortgage and now I am suggesting that you do the opposite! Look, if you have enough passive income to cover all of your expenses, does it matter that you have a mortgage payment? I am willing to bet that some of you reading this article could retire right now by simply reallocating your poorly invested assets!

Do you see how this is different?! How much money you have saved up is no longer the most important factor when deciding whether you can retire. By investing in passive income producing assets, your nest egg doesn’t need to be used up to pay your bills. Therefore, it will never decrease! The passive income it produces will pay all of your expenses and you won’t need to lower your standard of living!

Why then do so few people actually achieve early retirement? The reason is because very few people have the mindset to accomplish it. And, this isn’t a genetic trait! Anyone can learn to do it if they desire to. What will you plan to do? Join me on a journey of a lifetime by taking action today! Start planning for early retirement!

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