Retirement refers to the period of life where an individual decides to permanently leave the workforce. Traditionally, the retirement age is between 60 to 65 years old in most parts of the world. This is because it’s mostly during this age that they are now eligible for retirement benefits and are able to enjoy all their hard work after some decades.
However, there’s this idea going around recently that people can retire in their 20s. Many questions whether this is indeed true or not. If you are interested in answering this question, then you have come to the right page. In this article, we will be discussing whether it’s possible to retire during your 20s and whether it’s a good idea to do so.
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Retiring in Your 20s
The straight answer is yes. It’s possible for people to retire in their 20s. However, this might be a one and a million opportunity that not many can get their hands on.
If you are lucky enough to make it big and be financially stable by the time that you are in your 20s, then going into retirement is something that you can consider.
Here are some of the pros and cons of retiring during your 20s:
Pros:
- You Can Enjoy Your Youth
One of the biggest advantages of retiring during your 20s is that your body is still healthy and able. This means that you can do whatever you want. Whether it’s to go hiking or do extreme sports, you can do it.
However, this idea is slightly bleak compared to when you retire during your 60s. As you already know, aging involves the deterioration of your body. Even if you are able to still do the things you wanted to do during your youth, you have to do it in moderation because you might put your body in jeopardy.
- You Can Travel the World
With no work obligation tying you down in one place when you retire during your 20s, you can travel anywhere, anytime. This means that if you find a place that you want to stay for a longer period, then you don’t have to worry about your vacation leaves running out.
In addition, being retired at 20 can let you travel at your own pace. No need to stuff everything you want to visit and do in one single day.
- You Can Pursue Your Passion
One of the best things that retiring during your 20s will offer you is that you can pursue your passion. This is a luxury that not many people experience because most people are forced to choose practicality over doing what they love.
Cons:
Just like with other things, retiring early during your 20s may also come with several disadvantages. This include the following
- You Have a Long Way Ahead
The average human lifespan is 79 years. When you retire early, there are still a lot of things that may happen. You may start a family and have children. When this happens, the money that you have saved up to fund your retirement lifestyle may run out.
Contrary to when you retire during your 60s, your children may already have their own family of their own and can support themselves financially. During this time, thinking about your own personal well-being is understandable.
- The Uncertainty of Times
Life is full of uncertainty and you never know what will happen. You might get sick and need plenty of money for treatment or if not you, your close family member. However, if you are already retired in your 20s, your stream of income might already be fixed.
Suppose you may need to work again. But, when you decide to go back to the workforce, you’d have a difficult time because the competition in the job market is quite competitive.
When Can You Say that You Can Retire in Your 20s?
Are you wondering whether it’s right for you to retire while you are in your 20s? Here are some signs that will help you decide:
- You Don’t Have Any Existing Debt
One sign that will tell you that you can retire during your 20s is that you don’t have any existing debt. Whether it’s student loan or credit card debt, make sure that it’s already settled before you even consider retiring.
- You Don’t Have Dependents
Dependents refer to individuals who are financially reliant on you. They may be your parents or your children. If you have dependents, it’s not a smart idea to retire early because childcare and healthcare can be quite costly.
- You Have a Retirement Budget
Another important sign that you should take a look at is your bank account. Do you have enough money to put a roof over your head and food on the table until your old age? Make sure to crunch the numbers ahead of time and be realistic about it.
- You Have Passive Income Streams
Since you will be retiring early, it’s less likely for you to get traditional retirement benefits such as pensions. This is why you should have multiple passive income streams that will help you sustain your retirement lifestyle.
There are several ways for you to set up passive incomes. You can set up a rental property or invest in stocks. There are also passive incomes that do not require plenty of capital such as affiliate marketing or writing an Ebook.
If possible, make sure to have several passive income streams so that you mitigate your financial risks. The nice thing about passive incomes is that they only require effort during the set-up phase. However, once you get it up and running, it can be almost effortless.
Tips on How to Retire Early
Suppose you feel like retiring in your 20s is not a smart move for you but you want to retire when you are in your 40s and 50s. In that case, there are a lot of preparations that you need to do. Here are some tips that will help you retire early:
- Decide on What Retirement Lifestyle You Want
The first thing that you have to do if you want to retire early is to decide on what kind of retirement lifestyle you want. Do you want to travel around the world? Do you want to buy something or pursue an interest? Answering these questions will help you get a better picture of your potential retirement lifestyle.
Make sure to be as detailed as possible. If you can, also include what kind of lifestyle you want on an ordinary basis when you retire. Do you want to live in luxury or do you want a simple life?
- Evaluate Your Current Financial Situation
Once you have a better idea of what kind of retirement lifestyle that you want, the next step is for you to evaluate your current financial status. Take a close look at the gap between your savings now and how much you will need to sustain the retirement lifestyle that you want.
When you evaluate your financial situation, make sure to be as honest as possible. List down all of your expenses and liabilities then after that, calculate how much you can set aside for your retirement fund.
You can calculate whether your savings will be able to grow big enough to fund the retirement lifestyle that you want. If it does not, don’t be disheartened. You can look for several ways for you to be able to maximize your savings so that you can achieve your goal. The earlier that you do this in life, the better because you have more time to earn money.
- Stick to a Budget
Living on a budget is an excellent financial strategy that will take you a step closer to your financial goal. This will help you eliminate debt and maximize your savings.
However, living on a budget does not mean that you should deprive yourself of all of your wants. You can always adjust your budget and give yourself a little something once in a while to serve as a reward. This will help you keep motivated and prevent you from feeling too drained from working.
To make a budget, list down all of your expenses and income and try to compare those figures and see whether they align. This will help you identify which bills should be prioritized and which ones can be scaled back to divert the funds into your early retirement savings.
- Create an Emergency Fund
You never know what will happen in the future and you might encounter some unplanned bills or even worse, unemployment that can significantly affect your finances. In this case, having an emergency savings is a good idea. It will provide you with a safety need in case something bad happens.
As a general rule, an emergency fund must be at least 3 months worth of all your living expenses. But, if you can, try and allocate at least 6 months worth of living expenses as an emergency fund. It must be saved in a bank and can be accessible at any given time.
You can build an emergency fund by incorporating it into your budget. You can allocate a small amount of your savings to it monthly. You will eventually reach your goal after some time but the sooner, the better.
- Get Out of Debt
Having debt is one of the biggest obstacles that will prevent you from saving enough money for your early retirement. This is why you should eliminate them as soon as possible. There are two common strategies on how to do this; the snowball and avalanche method.
With the snowball method, you concentrate your extra funds in paying off smaller debts. However, the avalanche method is the opposite because it states that you should first pay off your larger debts. Regardless of what debt repayment strategy you use, the faster you pay off your debt, the quicker you can build your retirement fund.
- Create a Nest Egg
A nest egg is a term used to describe assets and money that a person saved for a specific purpose. In this case, the nest egg that you will be building is your retirement fund. If you are starting to build in your 20s, then you have more time to collect wealth. You just have to consistently save and invest for maximum financial growth.
- Invest, Invest, and Invest
Accumulating enough wealth to have enough money to retire early can be quite difficult if you are an ordinary employee who is relying on their monthly paycheck. This is why you should consider both short-term and long-term investments.
Here are some investment ideas that you might want to consider:
- Bonds
Bonds are types of loans offered by an investor to corporations and the government. In return, the borrower will pay interest on a schedule which can either be semi-annual or annual.
Stocks refers to the units of ownership in a corporation. When you buy company stocks you become a shareholder. Shareholders earn money from stocks through the dividends issued by the corporations.
- Bank Products
Bank products are some of the most common investments because they are highly accessible and there are various options for different needs and preferences. For example, certificates of deposit, savings account, and UITFs.
- Annuities
An annuity is a promise to pay you a fixed interval or regular income in the future or immediately. However, you first need to pay for it in one go or by premiums.
- Insurance
The primary purpose of insurance is to protect you from possible financial damage, loss, or harm. The policyholders will pay a monthly premium to purchase a policy that states the conditions that the insurer is required to pay. This might not sound like a form of investment but there are some insurances that also have investment features.
- Get Help from Professionals
Navigating personal finance can be difficult especially when you are young and only starting out in life. This is why you should consider getting professional help. They can help you plan out your finances and advise you on what is the best way to grow your wealth.
When it comes to building your retirement fund, the best professionals that you should turn to are financial advisors. These are knowledgeable experts that can help you create and execute a financial plan so that you achieve your financial goals in your desired timeline.
- Think of Passive Income Streams
It might sound sad but sometimes, paychecks are not enough to cover debts and expenses which is why many people take a while for them to retire. However, in this day and age, there are now plenty of passive income opportunities that will help grow your retirement fund quickly.
Here are some passive income ideas that can help your grow your early retirement fund:
- Rental Properties (Related: How to invest in Real Estate ?)
Rental properties as a stream of passive income can be quite lucrative. Plus, it does not require a lot of maintenance on your part, especially if you employ the help of a property management company. However, the downside is that it can require a significant amount of capital to get started with it.
If you want to have passive income from rental properties but don’t have enough capital for you to buy a new house or apartment, there are other options for you. For example, you can rent out the spare room in your house or you can renovate and make a separate suite that is according to the standards of your local government.
- Affiliate Marketing (Related: How does Affiliate Marketing Work ?)
In this day and age, everybody turns to the internet when they need to buy something and it’s a good opportunity for you to earn through affiliate marketing. This passive income method allows you to get a commission for every successful purchase of a product that you advertise in your blog or website.
It’s pretty easy to do, just post it on the internet and encourage customers to buy the product. However, this might not give you a lot of income because it’s highly dependent on sales but the more reach you have, the more chances of earning more.
- Flip Retail Products
Are you somebody who enjoys fixing things and making them better than before? If yes, then you can make a passive income out of your passion and skill. For example, you can buy old and worn out furniture, fix it, then sell it online for a higher price so that you earn a profit.
Final Words
The idea of retiring during your 20s is very attractive. However, it comes with its own benefits and pitfalls so make sure to carefully consider your decision. You can refer to the signs mentioned above when deciding whether it’s the right move for you.
If you think that retiring during your 20s is not a good idea, you don’t have to wait until you are in your 60s because you can retire a decade or two earlier. Make sure to follow the tips mentioned above because you need a lot of early preparations so that you can do this.
Related: Why You Need Passive Income Streams FIRST before living a luxurious lifestyle!
