How to Retire Early

Strategies you can use to help you succeed:

Set your goal

If you are serious about retiring early, you need to decide when you want to retire, then determine how much money you'll need at that time. You can work backwards to establish the level of savings and investment returns you need to ensure you reach your goal.

Accept the early retirement trade-off

For most people to retire early, they have to make the decision to trade-off their lifestyle today for a lifestyle in retirement. In other words, you need to put more of today's income away for investment so that you can use it in retirement. This means that your lifestyle won't be the same now, but that may not be as important to you as retiring earlier.

Start now

The sooner you start saving, the sooner you can put your money to work. This will give your money more time to benefit from compound interest (ie when you earn interest on your interest).

Invest in growth assets

Over the long term, growth assets - like shares, property and managed funds - outperform bonds and cash. Having said that, investors need to prepare themselves for inevitable down periods, such as the stock market crash of 1987 and the past two to three years, both of which have seen equity values fall by around 40%. But as the 1987 experience demonstrates, hanging onto growth assets such as shares is definitely worth it in the long run.

Invest tax effectively

Plan to pay the least amount of tax possible on your investments. With this in mind, look closely at the benefits of superannuation, income splitting, a family trust, blue chip shares, which carry good franking credits, and managed funds.

Consider a gearing strategy

Gearing (or borrowing to invest) should help you to accelerate your plans to retire as long as you invest for at least seven years in high quality growth assets. However, you should be careful not to overcommit yourself financially by borrowing too much. Likewise, this strategy is not available to self-managed super funds, which aren't permitted to borrow money against the assets within the fund.

Insure your assets and income

Protect yourself by fully insuring your home, car and other assets, which include the ability of you and your spouse to earn an income (using life, trauma and disability insurance).

In addition, if you are in a position where you could be subject to legal action, you should consider housing your assets in your spouse?s name or in a family trust or company.

Consider downsizing your home in retirement

Once you retire, if you need additional capital, you could sell your family home and move to a smaller, less expensive home.

These are just some brief pointers to consider prior to retiring. At Advantage One this is what we do - develop and implement strategies tailored to your circumstances.

Geoff O'Neil, Director, Advantage One

Source: Zurich Financial Services Australia