Wednesday, 14 February 2018

Retiring at 55 - How to reach your goals financially

I was reading an interesting article on about a millennial who wanted to retire at 35. I thought to myself, how is this guy going to do it when he's hardly been working long enough to get a decent super fund going?

However, when I read it, it made heaps of sense.

Home ownership seems to be the goal for many young people, or young families. They save up for a deposit then work their asses off to be able to make the mortgage repayments, and at the end of 30 years, they should own their own home.

But the interest you pay is not an insignificant amount! Let's take this $500,000 home for example, with a 20% deposit of $100,000.

After 30 years, you would have paid over $752k for your $500k house. You HOPE that your house is worth more than that so that when it comes to selling time, you will make your money back.

In this article, Pat (the millenial) said:

My colleague Matt nearly choked on his coffee when I told him I had $250,000 in the share market. "That's crazy," he said. But I'll tell you what I think is crazy: spending 30 years of servitude paying off a mortgage, just to own a very expensive material possession, when I could be doing other things like spending time with my friends and family.

His aim was to have 1 million put into shares by the time he was 35 and then live off the earnings of that for the rest of his life, which was a modest 40k a year.

It sounds like very little, but it really depends on the lifestyle you want to lead.

For that 500k house, 2k rent a month is probably not unreasonable. That approximates the interest repayments. But throw in a person to share it with and suddenly you only have to pay 1k a month. And that 1k you can put aside for investment.

Pat was going to avoid big city living and live in more affordable areas, like country towns. Watching his budget is what impresses me. Most young people these days want to keep up with the Jones' and have the latest tech, clothes and go out and live the city lifestyle, which is expensive!

Pat blogs at Long Life Shuffle about how he goes about getting to his financial goal. Check it out if you want to see if you want to retire early!

Obviously, my situation is different. My goal is to retire at 55, and I think I would need about 60k a year to feel comfortable. If I live to 90 then that's 35x60k = 2.1 million. I need to have 2.1 million saved up to be able to retire at 55. I am a high income professional married to another high income professional and we have 2 children.

So how I distribute my money for savings go:
1) kids saving funds
2) Superannuation
3) Property
3) Managed funds/Bonds/Shares

I'll go into each of these in a later post. But I think everyone should stop and think about how they would like to live their lives - do they want to work till they die? Or do you want to retire early? If you decide the latter, then you need to be organised and start a saving plan NOW.

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