How do we retire young? Why do we have to wait until we’re 60+? Why not retire from now?
But what is retirement? How do we define it? Well, there are many definitions for retirement.
Personally, I like the definition of Naval Ravikant (American entrepreneur/investor) who says:
“Retirement is when you stop sacrificing today for an imaginary tomorrow.
When today is complete, in and of itself, you are retired.
You retire by saving enough money, becoming a monk, or finding work that feels like play.”
Naval Ravikant
This is one very simplistic definition of retirement, but it’s straight to the point.
However, it’s just a definition; it doesn’t talk about the mechanics involved to make it a reality.
I want to dive deeper into the concept of ‘retirement’, and why we want to retire young.
More importantly, I’ll talk about the practical steps that we can take to help us get there.
Retirement and Retirement Age
Back to basics: what is ‘retirement’ and what does it mean?
Retirement is the idea of ‘leaving your job’ or ‘stopping to work’ after reaching a ‘certain age’.
This concept is not new, it has been around for a long time, since the 18th century in fact.
However, it only began to be adopted as policy in countries during the late 19th/20th centuries.
So what is this ‘certain age’ that you’re supposed to retire from?
Well, to make things complicated, it varies from country to country.
For example, in the UK, retirement age is currently 65 years, whereas in France it is 62 years.
However, this age is not fixed. For some reason, retirement age increases every few years.
So I have a question for you: What is stopping you from ‘retiring’ now?
In other words, what is stopping you from ‘leaving your job’ at the age of 30, 40, or even 50?
What is Stopping you from Retiring Now?
There are probably so many reasons that are stopping you from retiring from now.
Family pressure, career ambitions, social status are less obvious reasons that come to mind.
However, what is the most obvious reason why we can’t retire young? That’s right, money.
How would we live, travel, or just enjoy life without money? Unfortunately, we can’t.
It’s quite ironic: We work so that we can make money so that we can enjoy life.
However, after a while, we just want to stop working so that we can enjoy life!
So how come retirement age is set so high to the age of 60 years and over? Why not sooner?
Well, the main point is that you would have saved enough money by then to life off of.
So the idea is that over 30-40 years of working, you would have saved enough money by then.
By that logic, if we save enough money sooner, we can retire younger. So let’s do it then!
Why do you want to Retire Young?
Let’s say that you’ve done it: you have managed to retire young by the age of 40. Congrats!
No more working for money; you are free to do whatever you want, whenever you want.
However, do you know what you would do with all that free time? I suggest you think hard.
Because, If you don’t have anything in mind, you may be tempted to just go back to work!
Before being committed to retiring young, think long about what you’d do during retirement.
A great technique that I like to use is called the ‘ideal week’ method.
The idea is to ask yourself: what does my ideal week look like?
How would you spend Monday – Sunday? What would you doing? Where would you be?
If you find yourself drawing a blank, that’s ok, but really make sure that this is what you want.
If you know exactly what you would be doing instead, use this to drive you to retire young.
Have a Goal, Have a Plan
So you have a goal: I want to retire young. But you need to be really specific with your goal.
As well as the goal, you also need to have a timeline: what is the deadline for this ‘project’?
“I want to retire young within the next 10 years”.
You can be as aggressive or as conservative as you want, it’s your retirement plan!
Once you have goal and a timeline, you then need to create a detailed plan.
You need to breakdown this comprehensive plan by year, quarter, month, and even week.
You need to know how much or how little you need to work in order to make it a reality.
Once you have a goal, a timeline, and a plan in place, the most important step is to take action.
Only by taking action will you actually achieve the ultimate goal of retiring young.
The good news is, there are steps you can take right now to start retiring young immediately.
Work Part Time
If you want to get a taste of retirement, instead of full time, try working part time instead.
By working four, three, two, or even a day a week, you’re actually considered ‘semi-retired’.
A lot of people once they reach a certain age go for this option before they retire completely.
It gives them a chance to prepare for retirement before they retire from working entirely.
However, there is nothing stopping you from working 4 days a week instead of 5 from now!
All you need to do is to talk to your employer and ask to work part time, and hope they agree.
However, this will mean less pay and less holidays as a result, so you need to be ok with that.
If you are happy with that and your employer agrees, then congrats, you’re now semi-retired!
See how it feels like to work a day less; Do you love it? Do you hate it? Is it what you imagined?
The good thing about trying this young is that you can always go back to full time if you want.
However, if you are really enjoying it, you can gradually continue asking to work less and less.
Mini Retirements
This concept was first introduced to me in the book “The 4 Hour Work Week” by Tim Ferriss.
In the book, Tim talks about how every few months, he takes a month off from working.
In these “mini-retirements”, he does whatever he wants, mainly travel around the world.
This is largely made possible due to his automated business that works with or without him.
His idea is why wait till we are 60 to enjoy retirement when we can enjoy it now in our prime!
You too can enjoy this same type of ‘mini-retirement’ as an employee, known as a ‘sabbatical’.
A sabbatical is a period of time away from work where you’re still employed and may be paid.
These can last from a couple of weeks, months or even up to a year, depends on the employer.
Best of all, you can use this time as you like whether for upskilling, starting a business, or rest.
However, usually you have to have worked a certain amount of time before you can take it.
Ask your HR if they have a sabbatical policy; you may be surprised to find out that they do!
Now What?
We talked about working part time and taking mini retirements in the form of sabbaticals.
These are great options for people that want a taste of retirement, without being full retired.
However while they’re great options in my opinion, unfortunately they have their draw backs.
Obviously when working part time, you’re working less hours and therefore on reduced pay.
For example, if you wanted to work 4 days instead of 5, you’d get 20% of your salary reduced.
The same goes for holidays, working 4 days a week, you’d get 80% of your yearly allowance.
As for sabbaticals, they are not offered at a lot of companies, more known within universities.
Personally, I have only heard of one company that offers sabbaticals, and that was Accenture.
You’re only other option would be to group your holidays, but your employer may not agree.
Relying on these methods alone aren’t enough, you need to have other sources of income.
Pensions
If you are an employee, then you probably contribute a portion of your salary into a ‘pension’.
This is be a fixed percentage of your salary taken from your gross pay monthly before any tax.
As well as that it’s common for employers to contribute to your pension as they get tax breaks.
They can give you a set amount, match your contribution, or even double your contribution.
While private pensions are great, as predicted, they unfortunately have a major drawback.
In the UK, pension age is 55, which means you can’t actually access your pension until then.
There is also a state pension that the government provides as well, but only once you are 66.
This is usually the age that people convert their private pension into an income.
That way, they can get regular payments from both their state and private pensions.
While these are great, obviously they don’t work for those of us that want to retire young!
Investments
Similar to pensions, you can invest in an Individual Savings Account, also known as an ISA.
This is something that I recommend everyone does, as well as adding into their pensions.
ISAs are great because they allow you to invest in the stocks and shares market worldwide.
Best of all, you can withdraw as much of your profits at any time, without paying any tax!
One of the best items to invest in are Index Funds, a collection of stocks that have low fees.
With the S&P500 for example (top 500 companies in the US) you can expect a good return.
The idea is that if you reach a certain amount, you can withdraw from it and it will still grow.
This is the primary investment vehicle behind FIRE (Financial Independence Retire Early).
Investing in the stock market relies on 2 variables: your contribution and the rate of return.
By investing every month, you’ll slowly grow your account, and be able to withdraw from it.
Passive Income
Investing is just one piece of the ‘retiring young’ puzzle, but unfortunately it will take a while.
If you really want to retire young, you need to start generating what we call ‘passive income’.
Active Income is where you get paid depending on the amount of hours worked e.g. any job.
Passive Income on the contrary, is where you get paid regardless of whether you work or not.
An example of passive income can be if you create some product, be it digital or physical.
You create it once, then sell it as many times as possible, regardless of the hours worked.
Examples of passive income businesses are online businesses that monetise their audiences.
As your audience grows, your income grows, regardless of the amount of hours worked.
These are just some examples of how to generate passive income compared to active income.
The sooner you replace active income with passive income, the sooner you can retire young.
My Thoughts
As you can see, you do not have to wait to retire when you are in your 60s and above.
Traditionally, that is when people retire as that is when they gain access to their pensions.
As this is their only source of ‘investments’ and ‘passive income’, they have no other choice.
Had they focused on other investments and passive incomes, they could retire much sooner.
For example, by generating passive income, you’d make money not depending on your time.
You could then invest this money into you investment accounts and grow it every month.
Eventually, your account would be large enough to start withdrawing from them comfortably.
In the meantime, don’t forget that you can start by ‘semi’ retiring to see what it would be like.
From part time working to sabbaticals, you can experience retirement life in your prime years.
Retirement is what you want it to be. As for retiring young, it may be closer than you think!
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