Believe it or not, it is actually possible to retire at 55. The Australian Bureau of Statistics reports the average retirement age for men and women in the last five years was 62 and 60 respectively. Which means early retirement at 55 is often seen as the holy grail – a fast-track to work-free fun.
In order to assess whether retiring at 55 is a realistic goal for you, consider these points:
1. Plan ahead carefully
It’s fine to fantasise about retirement days blissfully filled with café lunches, exotic travel and hobbies – but you need the funds to back it up in the first place.
Latest figures from The Association of Superannuation Funds of Australia estimate to live comfortably in retirement a couple needs $58,784 a year, and a single requires $42,861. To determine the amount you need over 30 years or so, be honest about the lifestyle you’re envisaging.
Do you really want to retire at 55 if it means eating baked beans and travelling no further than the local caravan park for decades? Probably not! If your finances look grim, you may be better off working for longer to ensure more quality of life when you do retire.
Write a plan containing your goals, savings capabilities, timelines, and cash flow streams such as superannuation and investments. Read extensively on the subject and consider consulting a financial planner.
2. Clean up bad debts
If you’ve got bad credit card debt, you could end up working longer than the Queen. “Relying upon credit to prop up your lifestyle is not the way to go,” says Deborah Southon, director of debt consolidation group Fox Symes and Associates. “If you do, it’s one thing I guarantee will prevent you retiring at 55.
“If you have multiple cards, cut up the ones with the highest interest rate and pay them down asap,” she advises. “Live strictly with one credit card or none at all. Get a low interest rate card and whatever you do, don’t just pay off the minimum.”
If you’re royally in the red, consolidate all debts into a personal loan which generally offers better interest rates than credit cards or sign up for a debt agreement.
3. Pay off good debt
Financially it’s a good idea to get rid of your mortgage – your “good debt” before retirement. Plus no-one wants to be stressed out at the bowling club, still thinking about a mortgage. If possible, pay your mortgage fortnightly. “If you pay 26 payments per annum rather than 12, you’re getting ahead because you’re making more payments, chipping away at the interest,” says Deborah.
“People also reduce payments in line with lowering interest rates but that’s crazy,” she says. “The smarter thing is to keep payments in line with higher interest rates because you never know when they’ll come back up again. Throw as much spare cash as you can at your mortgage.”
4. Save as much as you can – now
If you’re serious about retiring at 55, then there’s no easy way of saying this – stop spending money now. Save furiously then invest the extra savings to create future wealth.
Cut back on everything. Spend less on groceries, shop at cheaper stores, find economical service providers and eat at less expensive restaurants. It may hurt, but it’s worth it! Switch your spending to a “needs” rather than a “wants” basis. You might even be pleasantly surprised at how much lighter your life feels with less stuff and simpler choices.
5. Invest wisely
You’ll never retire at 55 simply by stashing cash under the bed. Consider these investment strategies:
Super: Make sure your fund is a good performer. Firstly check how much money you have. “It’s amazing the number of people who have no idea how much super they have and how it’s performed,” says Deborah. Assess with an advisor whether you’re happy with your super class.
If your super’s barely risen, consider switching funds. Log onto ASIC’s Money Smart page which has a super calculator comparing funds.
Finally, contribute more than the standard 9.5 per cent employer contribution. “If people put in an additional $50 a week, the benefits by the time they’re 55 will be significant,” says Deborah. “And $50 a week isn’t a lot, it’s a couple of cups of coffee and a few lunches.”
Property: Buy an investment property – preferably positively geared in an area where prices have increased yearly. The longer you hold a property the better, so investigate this option well before 55.
Shares: Purchase shares through a trusted wealth management organisation. They can assess the level of risk you’re comfortable with and invest your money accordingly.
Retiring at 55 is certainly possible if you do your homework. But do it for the right reasons. Don’t retire early just because you don’t like your job. It’s better to retire into a life that inspires you, rather than retiring from a life you dislike!