5 things you can do to ensure you retire sooner
Don’t work longer than you have to! With these five steps, you could retire sooner and enjoy spending more time with the people and things that matter most.
We all dream about retiring young. Who wouldn’t want to see family and friends more often, do some sightseeing and spend more time out on or in the water rather than stuck behind a desk!
Well, it’s all possible – and these five steps can help make it your reality:
1. Establish an emergency fund
Having an emergency fund in place may not seem relevant to retirement savings at first glance. But hear me out.
Whether it’s redundancy, ill health or – as we’re now seeing – a global pandemic, unexpected hits to our income can and do happen. And when they do, we’re forced to seek out other means of paying the bills and putting food on the table.
Without having an established emergency fund, dipping into our savings or superannuation is often the only other option.
Taking out just $10,000 now can cost you $200,000 plus in lost earnings growth and interest over several decades. How long would it take you to earn that money back if you’re forced to continue working longer than you’d like?!
2. Tackle debts head-on
Debt can be crippling financially and force us to work longer to pay it off.
You should generally tackle the most expensive debt first (that is, the one with the highest interest rate). This tends to be credit cards, short-term loans and store cards.
Debt consolidation can also be a useful strategy, rolling multiple debts into one larger one that has a lower interest rate (such as your mortgage).
Don’t forget to consider how debts impact your credit rating – a bad credit rating will impact your ability to borrow later. Conversely, a history of on-time repayments and paying down debt can establish you as a desirable borrower for banks and lenders.
3. Learn more, earn more
Investing in your skillset may be an up-front cost, but upskilling and gaining additional qualifications can enhance your earnings potential.
That could be acquiring new skills or moving into a completely different field; becoming more highly specialised in a sought-after area; or gaining accreditation as a trainer to impart your skills and knowledge to others.
These higher earnings give you more money with which to boost your wealth, whether that be through paying off debts faster or making extra investments.
Plus, they also boost the size of your employer super contributions!
4. Invest to turbocharge your savings
You’d be surprised how many people don’t start investing until they start thinking about retiring. It’s such a lost opportunity!
Thanks to compound interest and values growth over time, the longer you invest, the more you’re likely to have for retirement.
There are many ways you can do this. Some options include:
- Using equity in your home to reinvest
- Taking advantage of catch-up rules to make extra contributions to your super
- Adopting beneficial tax incentives (putting more money in your pocket than in the taxman’s)
Also, consider your living situation in retirement. Paying off a mortgage during your working years will mean you have a debt-free roof over your head in your twilight years.
You could even invest in a property which you could downsize to later on and use the proceeds from selling the family home to fund your retirement.
5. Healthy is wealthy
Generally, when we talk about retirement, we’re thinking money: super, property values, shareholdings. But poor health habits now will cost you a fortune later in life.
Obesity, heart disease and diabetes are major problems in Australia, but lifestyle factors are major contributors to these – such as poor diet, smoking and lack of exercise.
By looking after our bodies (and our minds!) when we are younger, we can prevent or at least minimise our exposure to chronic health conditions – and the hefty medical costs involved with managing them.
Think how much sooner you could retire if you weren’t having to factor in ten – if not hundreds – of thousands of extra dollars into your retirement savings for medications, doctor’s bills, physiotherapy and private carers!
Helen Baker is a licenced Australian financial adviser and author of two books: On Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Proceeds from the books’ sales are donated to charities supporting disadvantaged women.
Note this is general advice only and you should seek advice specific to your circumstances.