Retiring early is a dream that many people hope to someday achieve, and with the right plan in place, it is possible to reach it.
But the path to retiring early isn’t easy. It takes time and an incredible amount of discipline to earn, save, and invest as much as you possibly can. You also need to ensure you can live off other sources of income if you’re not eligible to access your super initially.
To support you on this journey, we’ve developed a six-step course of action that will help determine if an early retirement is possible and what you can do to make it happen.
Step 1: Define what early retirement means to you
Many people who retire early define it as not having to work to live, essentially achieving complete financial independence.
But this may not be how you define it—you may want to continue working but at reduced hours in a less stressful role. Or perhaps you’d like to focus on a hobby that doesn’t generate an income.
How you define an early retirement will then guide you in how to plan for it.
Step 2: Understand your living costs
It’s hard to predict what your expenses will be later in your life but knowing what your lifestyle costs are now is essential to help determine whether you’re financially ready to retire early.
Put simply, what you’re going to spend, drives how much you’ll need saved so you don’t run out of money.
You’ll also need to factor in the amount of sustainable income you can create from your savings, investments and other retirement income sources like government subsidies. Our retirement calculator can help you with this.
The Association of Superannuation Funds of Australia (ASFA) has provided a guide for how much Australians need to retire. Assuming you own your home outright and are relatively healthy, it estimates that single Australians will need $44,818 a year, while couples will need a combined $63,352 a year for a comfortable retirement.1
Step 3: Calculate your total retirement savings goal
In this step, you’ll need to determine the total amount of income you’ll need to live off based on what you’ve calculated in step two.
You’ll then need to decide how much you can safely withdraw from your super, other savings and investment earnings over your retirement timeframe. The earlier you retire, the longer it will need to last.
This part may be difficult to calculate on your own, especially when there are multiple scenarios to consider, like how a possible recession would affect your investments. There are retirement calculators available to help you but if you want even more support, a financial adviser can crunch the numbers, and send you home with an actionable plan to achieve your goal.
Step 4: Make a financial plan
Putting everything together in a comprehensive financial plan is often the best way to figure out if you can retire early.
Running the numbers will help you understand what trade-offs need to be made and the options available to achieve your goals.
It’s also important to review your investment portfolio. You want to be sure you’re investing in the right mix of assets and level of risk to achieve your long-term investment goals. This is where an experienced financial adviser can really add value.
A financial adviser can help you determine how much you should save and invest each month to reach your goal and whether your investment strategy is too risky or too conservative. They can also tell you if your current income will be enough to last you through an early retirement or if you need to make changes.
Step 5: Grow your super
Even if you can’t access your super straight away, it will most likely make up a major part of your retirement savings—providing a safety net for your future.
If you’ve got capacity, you may want to consider making extra contributions to your super while you’re still working. This could be in the form of sacrificing some of your salary each month towards it or contributing a lump sum when you receive a bonus for instance.
Step 6: Stick to the plan
If you’re hoping to retire early, it’s important to not only develop goals and a course of action, but to stick with your plan.
One way you could approach this is to make your savings and investment plan automatic. For example, if deciding to invest $500 per month to an investment portfolio, setting up an automatic transfer could be a consideration to make sure it actually happens.
Bottom line: Retiring early is certainly an ambitious financial goal, but it can be achieved with proper planning. These steps may help you in your pursuit for financial freedom, and create a plan for guiding you to retirement, whenever that may be.
Speak to us on 1300 765 811 if you’d like to talk about the future of your retirement.
1 Association of Superannuation Funds of Australia (ASFA) Retirement Standard June quarter 2021
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of is part of the group of companies comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate (‘IOOF Group’). The information in this article is current as at October 2021 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the IOOF Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.