Many people view retirement as the day they’ll be able to kiss their job goodbye and live life at a more relaxed pace. However, if you don’t take steps to ensure that your retirement savings and investments are on track with your goals annually, leaving your job behind might come a lot later than you’d like.
Find out what money advice people on the verge of retirement wish someone had given them when they were younger, and see if it makes sense for your situation.
Get Life and Health Insurance Early in Life
Wayne Bechtol is a certified finance professional and board advisor at Fiona who is planning to retire in a few years. He said, “I did not know the benefits of insuring life and health early in life. By the time I realized its importance, I was past 30. Therefore, I lost out on the best years of life when the premiums would have been considerably lower if I had insurance during my 20s.”
Plan For the Unexpected
“Now that I’m about to retire, I realize how illness can become a major expense in later life,” said Karen Hoyt, author of “The Liver Loving Diet.”
She continued, “I certainly didn’t realize how a catastrophic diagnosis could hinder my retirement plans. While battling cancer, I lived on the edge financially for a few years. Thankfully, I was able to transition back into a career that I enjoy. Now, I plan on teaching for a few more years. I hear from many liver disease patients who get caught in a health crisis. Their retirement may get put on hold, or they are unable to pay for even the most basic medical needs. I wish someone had told me how to plan for a catastrophic illness.”
Understand the Benefits of Compounding Interest
Bechtol also admitted that he did not know the advantages of compounding earlier in life and only realized it later when he started advising people on tax management issues. “If I had known the benefits of compounding earlier, my outflow toward retirement savings would have been lower,” he said. “Alternatively, my retirement corpus could have been heavier if I had started investing early.
“Therefore, the best advice I give future generations is to start investing in life as early as possible because it is easy to save when you are younger with fewer social responsibilities. It helps build the savings habit that comfortably takes you through your retirement phase of life peacefully and comfortably.”
Supplement Your Paycheck With Passive Income
“That very concept of gradual retirement, and of supplementing your paycheck with passive income so you can transition to work you’re passionate about, is something I wish I understood earlier in my career,” said Brian Davis, a real estate investor and founder at SparkRental who is planning to reach financial independence and retire within the next few years in his mid-40s.
“Like most of us, I thought of financial independence and retirement as either/or, assuming that you need enough passive income to cover your living expenses. But after interviewing dozens of people who have retired early, I found that all of them went back to work in some capacity and ended up earning money doing work they’re passionate about, even if it pays less than their former high-stress job.”
He concluded, “So, you don’t need enough passive income to cover all your bills — you just need enough to cover the shortfall between what your dream work pays and your target budget.”
Invest In Private Equity Real Estate Syndications
“I also wish I’d discovered private equity real estate syndications earlier in my career,” said Davis. “They typically pay high returns, often 15%-30%, and come with all the benefits of direct real estate investing without the headaches of becoming a landlord. In fact, I use them to complement my stock investments in place of bonds.”
Make as Much Active Income as You Can While You’re Young
“When you pursue financial independence young, it frees you up to leave your money invested in higher risk investments that pay much higher returns,” said Davis. “Since you’re still young, you have the flexibility to add more active income (such as picking up a side gig) in a disaster scenario if all your investments crashed at the same time.”
David added, “But retired 70-year-olds have a much harder time adding income streams. In other words, you protect against sequence of returns risk with the flexibility of going back to work or adding another active income stream, which means you don’t need to move your money into low-risk, low-return investments like Treasury bonds, so your investments can keep compounding.”
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