I Will Retire Before Age 65: Here’s Why Age Is Not the Most Important Number When it Comes to Retirement
Written by
Vance Cariaga
Edited by
Nicholas Morine
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Age might only be a number, but it’s an important one when it comes to retirement. Studies show that the average retirement age in the U.S. is about 61 or 62 — which also happens to be when you first qualify for Social Security retirement benefits (age 62). Many workers still look at 65 as the right retirement age. But the most important number when it comes to retirement has less to do with age than finances.
The key to retiring before age 65 is developing a plan to reach certain financial milestones long before that – something that requires the right combination of discipline, frugality, financial savvy and luck. You’ll need to commit to the plan, which requires doing without certain luxuries. You’ll also need to make the right decisions in terms of investments — and hope that the breaks go your way.
One popular path to an early retirement is the FIRE strategy, a decades-old retirement movement that stands for “Financial Independence, Retire Early.” The idea behind FIRE is to put an intense focus on saving money, investing and depending on compounding growth to build your nest egg in a hurry.
According to an Equifax blog, the FIRE method suggests that once you save and invest a certain amount of money — roughly 25 times your annual expenses — you’ll be “ready to leave the workplace behind.”
How FIRE Works In a Real-Life Scenario
One person who adopted the FIRE strategy is financial writer Jennifer Sisson. In a column last year for Business Insider, Sisson related her experience building up enough financial independence so she could retire before age 65. She and her husband established a tentative goal of saving $1.2 million. For guidance, they used a rule that you can withdraw 4% of a stock portfolio each year and not eat into the principal.
“This rule helped us reverse-engineer how big our nest egg needed to be,” Sisson wrote. “We’re pretty frugal folks, so we figured we could live on around $48,000 [a year] in retirement, which is 4% of $1.2 million.”
The challenge was finding income beyond their 9-to-5 jobs — and their answer was to pursue real estate investments rather than stocks.
“With rental properties, we realized we didn’t need the whole $1.2 million sitting in a retirement account; we just needed $48,000 a year (or $4,000 per month) in cash flow,” Sisson wrote. “If we could make $200 in monthly profit per rental unit, we were 20 doors away from retiring.”
One big benefit of real estate is that certain elements are under your direct control, such as renovations that can increase a property’s value. Sisson and her husband could also take out mortgages to help purchase properties, “whereas we had to solely rely on our own money for saving in our 401(k).”
If you have the budget and a strong credit score, real estate investments can provide a steady source of income along with assets that appreciate in value over time. That’s a good combination for accelerating your retirement savings so you can retire early.
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