How to Retire Early: The Shockingly Simple Math

This is a very short video by Phil Ebiner giving an example of how to save for retirement.

It does not go into detail but the concept is simple to understand.

Obviously the practicalities are more complicated and there are many things to consider.

This is the Script that goes with the video:

Hi, my name is Phil. I’m a video creator and online instructor. I’m also a personal finance nerd. Because of that, I want to create a series of videos that breaks down some of the most mystifying topics that plague our society. In a world where people’s finances are typically locked away and not-talked about, I believe opening up the gates of financial conversation will help everyone live a better and smarter life. In this first video, I want to explain the shockingly simple math behind early retirement - thanks to one of my biggest heroes, Mr Money Mustache. While the ability to retire may seem like a distant and unreachable goal for many, the premise comes down to one thing. You need to invest money so that it earns more money. This could be investing in stocks or bonds, real estate, or any other of investment vehicles. As soon as your investments earn enough money for you to live on each year, you are able to retire. Let’s break it down further to know when you can retire. The most important concept is knowing your savings rate, basically how much you make minus your expenses. If you spend 100% of your income, you will never retire… because you will never be able to invest any money that earns money for retirement. If you spend 0% of your income, you can retire right now… because somehow you are living without needing to make any more money. Between 0% and 100% are a number of savings rates that correlate with the years it will take to retire. For this, let’s assume your annual investment return is 5% (which is conservatively low) and your withdrawal rate is 4%… meaning you spend 4% of your net worth each year. For example, if you have a $1,000,000 net worth, and you live on $40,000. If your savings rate is 10%, you will be able to safely retire after 51.4 years. Safely, meaning you will never run out of money. If your savings rate is 25%, you can retire in 31.9 years. 50%, you can retire in 16.6 years. And if you can somehow save 75% of your income, you can retire in 7.1 years. Now getting to that savings rate might not be easy in our world of societal pressures, keeping up with the Joneses, and bad habits. But you can get closer by making smart decisions, avoiding debt, and living simply. The key take away is… Cutting your spending rate is way more powerful than increasing your income because no matter how much money you make, decreasing your spending will speed up the process. A note, The math behind early retirement works if you are working a minimum wage job or a 7-figure CEO salary. It’s all about the savings rate. So if you want to retire in 10 years, the math tells us that you need to save 66% of your income. Now there is a lot that I didn’t talk about - like how to invest, and how to cut expenses to get to a high savings rate. Those will come in a future video. For now, get excited about the honest truth about retirement (and early retirement at that!)! Let me know what you think in the comments below? Is this exciting or bogus? Until next time… start being money smart.

Here is a link to further information from Phil Video School Online: http://www.videoschoolonline.com

To Your Success!

Kate.

Planning Ahead for Your Retirement

Planning Ahead for Your Retirement
Well, after one year you’d have $6,000. That’s a great emergency fund – or enough to eliminate smaller debts entirely. You could also put those $500 into a Roth IRA. If you did that for ten years with an annualized 5 percent return, you’d have over $75,000 in tax-free money for retirement!
Is there anything else?

When you are young, retirement is the last thing that you think about!

Retirement is for old people and not something to plan for!

Children grow up thinking about getting a job, having fun, having relationships, having a family - all too soon, life passes by and people typically only start thinking about retirement when they are getting close to it.
 There is an expectancy that either the government welfare system will provide for you in old age, or any work related pensions will be sufficient to see you through. 

The reality is that things have changed and that is no longer the case.



People are living longer
In the Early centuries, Unhygienic living conditions and little access to effective medical care meant life expectancy was likely limited to about 35 years of age. That's life expectancy at birth, a figure dramatically influenced by infant mortality—pegged at the time as high as 30%

The current life expectancy for U.S. in 2020 is 78.93 years, a 0.08% increase from 2019. The life expectancy for U.S. in 2019 was 78.87 years, a 0.08% increase from 2018

Now some scientists believe the first human to survive to 200 or beyond may already be alive somewhere on the planet. ... Yet until recently, scientists thought there was a natural “ceiling” on human existence of about 120 years, beyond which the body could not cope

The time to plan for your retirement is NOW!
So as people are living longer, there is increasing pressure on the government, health and social care systems.

Over 53% of adults are at risk of not having enough money when they retire. 

The perfect time to start planning your future, is when you are young enough to start understanding the concept of money - older children and teenagers. Parents can have a central role in supporting their children to understand about the value of money and how to make money work for them. 

However, even if you are in your 50,s and 60,s, there is still time to put things in place. 

Without the right plan - you could end up in poverty

So what can you do?

Suze Orman is an American and in the Forbes Top 100 most powerful women list. 
in her book The Ultimate Retirement Guide for 50+ (2020), suze talks about changing spending habits such as Downsizing or buying a cheaper car and making it last for 10 years instead of buying a brand new car every 3 years, She goes on to explain about the importance of using those savings to invest in the retirement plans and the Stock Market 

She explains, that if you plan on working for another ten years when you take the plunge and downsize which reduces your housing costs by 25 percent, you may have $500 to spare each month. What could you do with that? 


In the UK, there is an opportunity to make the most of your ISA, which is tax free. This can be also be  turned into a Stocks and Shares Isa, and invested in the Stock Market for long term tax free investment. 

What Suze does not cover, is all the other strategies that can be put in place.
Utilising the stock market is a great strategy but not the whole picture.

The wealthy know that there are many other ways to make your money work for you - such as property investments, ecommerce, network marketing, royalties on writing books and music etc.

What about Mind Set?
Learning the right knowledge is one thing but you need to develop the right mindset too. 
Having the right mindset is essential and is another learnt skill.
Luckily - it is another skill which can be learnt at any age!

The Whole Picture
So, take the decision TODAY, to start planning for your financial future. Whether you are young or have life experience, the time to start is NOW!
Learn the skills of the wealthy - learn about money management, and mindset.
Consider the whole picture. 
It may feel daunting but just take one step at a time and commit today.

Contact me to discuss the right steps for you to take!

To Your Success!

Kate