Most people believe that those who retire by age 40 must have either won the lotto or were born with a silver spoon in their mouth. However, there is an increasing number of young retirees who are not lottery winners or born into wealth families instead, they come from all walks of life. A recent article from Entrepreneur identified 5 common traits of young retirees.
- They understand the math of financial independence. More important than how much money you earn is how much you spend. Specifically, how much of your take-home pay are you saving – 10%, 25%, 50% or more??? Obviously the more you save, the sooner you can retire. Maximizing savings is key to retirement.
- They spend less. If you want to retire early, you will likely have to live well below your means. Most early retirees however don’t view spending less money as a sacrifice. They are content with spending less because they are focused on their goal of being able to retire early. .
- They invest over the long term. Instead of trying to “beat” the market, early retirees keep it simple. Those who retire early start investing much earlier than others, and allow the magic of compound-interest to make them money.
- They avoid high investment fees. Those who do not know how to start investing may look to their bank for advice however, banks charge higher fees often with lower results. Index mutual funds or other low cost options can make a huge difference over time.
- They buy cash-flowing assets. Alternative investments can be a smart way to diversify an investing portfolio. Real estate investing is most popular with early-retirees. However, real estate investing is not as simple as purchasing a property. It requires significant research and due diligence.
Retiring at 40 is not easy and may not be practical or desirable for most people. Whatever your goal is for retiring, it is critical that you have a plan and build your lifestyle around it.