4 WAYS TO FINANCIALLY PREPARE FOR AN EARLY RETIREMENT

4 ways to financially prepare for an early retirement

INTRO

Today I have a collaborative post with Olivia from Mozo, and she's sharing some great advice on a how to set yourself up for early retirement. Being prudent savers and keeping our spending under control has meant that I didn't need to wait until I was 67 to retire and today's tips tie in really well with what's worked for me to be enjoying life out of the workforce. So, I'll hand it over to Olivia....

EARLY RETIREMENT

Whether you work to live or live to work, an early retirement is an appealing prospect. You could use your Monday to Friday freedom to ditch your routine and hit the open road, or finally tick off those projects your 9-to-5 life ground to a halt. Whatever you explore during your golden years, you don’t want it hampered by financial stress. Becoming an at-home expert in managing budgets, savings and investments will help you safeguard your retirement options.

So, get motivated about your money and consider these tips to help kickstart your post-work life sooner.

MAKE A BUDGET FOR EACH LIFE STAGE

Reimagining your current budget will be a big part of preparing for an early retirement.

Before you get cracking, ensure you’re making the most out of your finances while you’re still in the workforce. For example, while placing savings in a high interest-earning account can be a great way to reach shorter-term goals, consider also making additional super contributions. Financial research group Chant West recorded super funds providing an average return of approximately 8% per annum over the past ten years. So your locked-away earnings could grow considerably by the time you dip into your super.

Now that you’ve got plans to make the most out of your current earnings, formulate and test out a monthly retirement budget. Will you see revenue streams from an investment property or be receiving interest from a term deposit? Will you be eligible for a pension or rely on your superannuation? Know your savings and any consistent income you’ll be able to access.

The next step is to identify what your discretionary, necessary and fixed costs will be. This covers fun extra spending money, changeable costs like power bills and groceries, and the fixed payments you’ll always need to consider like health insurance and rent or other housing costs.

Make sure these costs are balanced in your retirement budget by trialing it. This can be as simple as giving yourself an allowance reflecting your retirement income and trying to spend within those bounds to see if you come out in the black.

Four great ways to assess your finances and invest money as you roll towards early retirement and beyond.

CUT OUT DISCRETIONARY SPENDING WHICH DOESN’T BRING YOU JOY

As any good life declutterer knows, there’s no point filling up your home with purchases that don’t spark joy. Decide which social activities, hobbies, clothes and dining experiences you get the most out of. If you’re not loving your pilates classes, you probably won’t want to ramp up the habit just because you’re not working.

It’s also a good time to audit abandoned services which might be hemorrhaging cash. Are you really watching enough Netflix, Stan and Foxtel to justify paying for all these streaming services? Or you might venture into the world of haggling down costs on essential items. Could you be getting a better deal on your insurance policies or energy bills?

Next, think about the new needs that come along with your new lifestyle. If your leap into retirement means you’re driving less by not commuting, maybe it’s time to lose those wheels or share them with a partner or friend.

CONSIDER YOUR SAVINGS OPTIONS

While a portion of funds might be locked away as superannuation, you may also want more accessible savings in the lead up to your early retirement. It’s important to assess options like high interest savings accounts and term deposits to see how you can make your at-hand cash keep working for you.

Current interest rates will play a big role in how your savings can grow when held in these accounts. However, you should also investigate any conditions or fees which affect the value they provide and how they might fit in with your budget.

Many savings accounts will require you to make regular deposits or purchases via a linked transaction account or card to reach bonus interest rates. Meanwhile, term deposits will generally need to be locked away for a set number of months or years, and there are often fees associated with early withdrawals. Decide what might work best for you by comparing the features of term deposits vs savings accounts.

Four great ways to assess your finances and invest money as you roll towards early retirement and beyond.

LOOK AT OTHER INVESTMENTS

While you may not want to become an amateur share trader or cryptocurrency queen, there are a myriad other ways to invest money so you can pocket returns as you roll towards early retirement and beyond.

If you own property, that’s a great place to start. You can grow the value of your home by renovating. Whether it’s simple DIY projects like repainting the walls and giving the bathroom tiles a refresh, or bigger landscaping and structural work, home renos can make your property’s value soar.

You could consider buying an investment property to rent out. Having rental income flowing into your retired pocket does sound good, but be sure you can adequately finance and manage this project. You’ll have to think about the initial deposit, your credit rating for new home loan applications, tax implications of an investment purchase and mortgage repayments.

Four great ways to assess your finances and invest money as you roll towards early retirement and beyond.

AT THE END OF THE DAY…

Unless fortune is written in your stars, a comfortable retirement will come down to wise budgeting and spending across your lifetime. But hopefully by following these tips you’ll be able to steer towards early retirement with financial confidence and a grand plan to thoroughly enjoy life’s exciting second innings.


Olivia Gee

Mozo money writer Olivia Gee is dedicated to sharing her money-saving tips and personal finance knowledge so everyone can save big on the basics and splurge on whatever brings them joy.

RELATED POSTS


Four great ways to assess your finances and invest money as you roll towards early retirement and beyond.
Four great ways to assess your finances and invest money as you roll towards early retirement and beyond.

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24 comments

  1. Hi Leanne, Thank you for introducing Olivia to us.

    Nice to meet you, Olivia. It is always interesting to learn financial tactics and philosophies with budgeting for the present moment and for the future. Many good gems in this article. For me “wise budgeting and spending across your lifetime” reflects the concept of balance and staying flexible with a Plan B when life inevitably sends us curveballs. Like you say, Olivia, steering towards the future with financial confidence. Thank you for sharing your knowledge.

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    1. Hi Erica - I thought Olivia had some really practical tips - you don't just fall into retirement successfully, you have to have a plan in place that's set you up enough to be able to afford to leave work. I think if you're wise and careful with your funds it becomes a lot less stressful managing with less income.

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  2. Good tip on the 'habitual' spending - make sure you're really using it. Or cancel and then resign...

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    1. Hi Lydia - we've certainly checked out what we pay for and what we actually use - even the cost of a regular coffee or newspaper adds up over time - great if you enjoy them, a waste if it's just a habit.

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  3. Some really good practical tips here - and an interesting comparison on term deposits vs savings accounts too. It's the habitual spending that really adds up - I'd be ashamed to tell you how much I spend on subscriptions I don't get full value from.

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    1. Hi Jo - I've given a lot of thought to the things we buy and how much I need to live comfortably. My biggest saving has been on clothes - not needing a work wardrobe has meant a lot less shopping - also spending a lot less on petrol with no commuting is another bonus. Meanwhile the savings stay steady rather than dwindling.

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  4. It's always good to get a refresher on these issues, so thanks Olivia for sharing your expertise. I found the comparison between term deposits and savings accounts interesting and could be useful for those looking at making those decisions. It's amazing how many people don't know how much they actually spend on things!

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    1. Hi Deb - it's great knowing you've made sensible decisions to get you to a place where you can stop working and not worry about making ends meet. I found the comparison between term deposits and savings interesting too - I think interest rates are fairly dismal atm so we need to be keeping an eye on what our savings are earning.

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  5. Hi, Leanne - Thank you for introducing to Olivia. Her tips and comparisons were very useful. I like her practical approach.

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    1. Hi Donna - I liked her practicality too - it lined up with the approach we've taken to our funds over the years and that set us up nicely for me to leave work last year. To have been in a position of too much spending and not enough saving would have been quite scary when leaving work became non-negotiable.

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  6. Hi Leanne, this is so useful for people like me who are looking ahead at retirement, wondering if we will have enough cash to fall back on.
    Budgeting and keeping an eye on spending are as important as income. Even if income is high, if the spending is equally high then there will be nothing left.

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    1. Hi Pradeep - yes, it's definitely worth giving a bit of time and thought to how your savings and investments are going to add up when there's not a regular salary coming in anymore. I had been quite worried about it when I left work, and was very relieved to see that a lot of Olivia's suggestions were in place for us and we were better off than I'd expected.

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  7. Leanne, your guest touched on very important aspects of early retirement. Of the three, budgeting, spending and investing, I think spending serves as the best indicator of a successful retirement. Developing the mindset to be frugal early on enables savings, and savings is essential. We've advised our daughter to have both a term deposit(401K with company match) and a savings account. She is young enough to build substantial savings long term, and the savings account allows access without penalties, should she need.

    The other point that Olivia made that I really liked is to make sure that incidental purchases are only for things that bring joy. That's huge. We all have habitual purchases that bleed income which could be diverted to savings.

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    1. Hi Suzanne - I loved that her tips were so sensible - they're things that we've done by instinct over the years, and I'm so grateful for it now - and I can see both our adult children doing similar smart things with their money and that makes me very proud. I'm loving that I have options now that I wouldn't have had if I'd splurged it all away in the earlier years.

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  8. Great tips. I am a frugal person who sometimes buys things that are "expensive" and this confuses some people. But it all comes down to your point above about cutting out all non-essential spending that doesn't bring me joy. There is a lot I can do without - happily - and I do. That way you have extra money for those things that are really important to you, whether that's travel, your home, early retirement, etc.

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    1. You are so right - every now and then we need to loosen the purse strings a little and enjoy the fruits of our labour - but it's the consistent saving and careful spending that we do for the remainder of the time that makes all the difference in the long run. I'm glad you enjoyed Olivia's tips x

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  9. Great post!! Both my husband and I retired at 62 years old and prepared for several years in order to do so!! It was the best thing that we did!! Thanks for sharing!!
    Hugs,
    Deb

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    1. Hi Debbie - we lived with sensible spending and saving where we could throughout our working life, and that is paying off now. I see jobs pop up and just can't find the motivation to go back onto the work hamster wheel - and I love that I don't have to because we prepared well too.

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  10. Great practical tips, I love the idea of preparing for retirement by cutting out the spending that doesn't bring joy!

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    1. I think it's easy to let old spending habits keep rolling on Sam - but when you stop and work out if you need a lot of the stuff that you used to find important, you notice you've changed and it's easy to let it go and keep the dollars in the bank.

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  11. Very helpful advice here, thank you for sharing.

    Thank you for sharing your post for the link up #lifethisweek Next Week, the optional prompt is #selfcare. Come on over and join in with a post old or new. Warm wishes, Denyse.

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    1. Hi Denyse - Olivia had some really useful tips didn't she? I felt quite proud of the fact that we'd put a lot of them into place in the years leading up to me leaving work - and it's such a relief now!

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  12. Thanks Olivia and Leanne!
    Very helpful tips.
    Thanks for visiting #lovinlifelinky
    I look forward to you joining us again this week https://www.deepfriedfruit.com.au/2020/07/the-inside-edition.html

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    1. Hi Leanne - thanks for stopping by and yes, Olivia hit the nail on the head with her suggestions - I feel like living proof for each of them!

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