Can Mere Mortals Retire By 40?

Retiring by 40 is usually something that is reserved for those “living the dream” - celebrities, Royals and people who win the lottery. But is it something that ordinary people can do?

Maybe.

The current generation’s attitude to work is very different from the previous. Those in the workforce right now see their jobs as a means to their other life goals, rather than what they actually want to do with their time, and this has changed the nature of work and people’s goals. Work was once something that was to be cherished and enjoyed, but now the focus is on making the working part of life as short as possible and taking early retirement in which other goals can be pursued.

So how do you get to that hallowed place and retire by the age of 40? Here are some insights from those who did it.

Those Who Retire Early Understand Math

Early retirement planning is more than just saving up money and putting it in the bank - it’s working out how much you’ll need as income in the future, taking into consideration the interest rate - for the remaining years you’re likely to live.

According to studies by financial firms, the average worker needs about 11 times their annual salary in savings to retire comfortably. But these firms use very conservative estimates for the spending requirements of people once they retire. For instance, many assume that people will continue to 85 percent of their final salary to maintain their lifestyle. To retire comfortably based on these statistics, you need to save up an enormous amount of money. And so no wonder it seems impossible to retire by age 40.

However, retirement isn’t just about saving, It’s about spending too. If you’re willing to cut your spending to practically nothing, you can retire in a much shorter period of time. It’s just a question of how many sacrifices you’re willing to make in the present.

Early Retirees Buy Income-Based Assets

What people want in retirement isn’t necessarily a big pot of money or financial instruments: they want assets which pay them money over time. The obvious example is rented accommodation. Buying an apartment and renting it out provides a long-term, stable income. In general, you should only buy a rental property if the monthly income generated is greater than 1 percent of the purchase price. If not, you’ll struggle to attain positive cash flow.

You can also invest in income-producing websites or anything else that pays royalties, setting you up for a higher income in the future.

Those Who Retire At 40 Understand The Long Game

Upstart investors like to think that the name of the game is to beat the market and take home a higher return than everybody else. But study after study has shown that investors can’t consistently beat the market - even those who do it for a living. A much better approach is to play the long game over the course of years and decades, riding the market as economic fundamentals push it higher and higher. This is how to win in the retirement game.