Is Early Retirement in Australia Achievable?
Being able to retire early has become a highly sought-after goal, driven by wanting freedom, choice, and financial independence. Retiring early means leaving the workforce before the traditional age of 65, allowing extra free time to pursue passions, spend time with family, and explore hobbies. The concept of early retirement, which has grown worldwide through movements like FIRE (financial independence, retire early), is increasingly relevant and more people are creating financial plans to achieve this goal.
But what does it take to make early retirement a reality? How should we prepare for the potential challenges and risks that come with it? This blog will consider why many people aspire to retire early, the benefits and drawbacks and key considerations for building wealth to achieve early retirement.
Why Do People Want to Retire Early?
1) Freedom and Flexibility
One of the main drivers for early retirement is freedom. Many people find that a structured 9-5 lifestyle limits their ability to travel and pursue things they are passionate about. Early retirement provides flexibility to travel, volunteer, and take on hobbies that a work schedule would make difficult.
2) Better Health and Well-being
Retiring early can also improve mental and physical well-being. A reduced workload can mean less stress, more time to focus on self-care, and more opportunities to focus on healthy habits. We often see people citing health as a major reason for leaving the workforce.
3) Quality Time with Friends and Family
Many people choose to retire early to spend more time with loved ones. This can also include more time to pursue community involvement or engage in volunteer work.
4) Achieving Financial Independence
For some, the goal of early retirement is more about attaining financial independence. This freedom provides confidence and security, allowing them to make choices free from financial pressures and
Challenges of Early Retirement
1) Building a Large Asset Base
To retire early, there generally needs to be a substantial amount of wealth accumulated that can last for decades. Early retirees, typically need to plan for many decades of living expenses without a consistent income.
2) Limited Access to Super
Superannuation benefits are not accessible until a preservation age is met, which ranges from 55 to 60 years of age (depending on the birth year). This means early retirees need to rely on non-super investments, savings, and other sources of income to bridge the gap before accessing their super.
3) Longevity Risk
Retiring early requires planning for a much longer retirement, which increases the risk of outliving the savings or investments. Planning for longevity is crucial, whilst also keeping in mind the average life expectancy is increasing.
Advantages of Early Retirement
1) Healthier Work-Life Balance
By leaving the workforce early this allows for a healthier lifestyle, with more time for physical activity, mental health practices and balanced daily routines. This balance can help to reduce stress and improve overall quality of life.
2) Greater Control and Time
Early retirees can decide how to spend their days, free from the limitations of a job. This allows for more time to focus on personal projects, passions, and developing new skills. It provides the time and flexibility for personal growth.
Importance of Starting Early
To achieve an early retirement it requires a disciplined approach to saving and investing. Starting early can be a beneficial step, as it allows for greater time to compound investment returns and provides a buffer for unexpected challenges.
Compounding works best overtime, meaning that small amounts of investments can grow significantly over decades.
Setting Clear Financial Goals
Having clear, defined financial goals is important for early retirement. Setting goals early helps to provide focus and maintain motivation to stay on track.
One of the first steps is to identify the type of lifestyle desired in retirement. This would include considering anticipated expenses and retirement goals. This lifestyle target is very personalised and will vary for each individual, based on their habits, health needs, and lifestyle choices.
Financial goals should be reviewed and adjusted as circumstances change. Factors outside of our control may occur such as economic and market changes, inflation and life events. These events may impact on your desired timeline, so staying flexible with goals allows for necessary adjustments.
Other Considerations of Early Retirement
1) Opportunity Costs
Leaving the workforce early can mean missed career growth, income and other benefits such as employer super contributions.
2) Inflation and Rising Living Costs
Inflation can erode purchasing power over time, which can significantly impact savings and investments. It’s important to consider the effects of inflation when planning for longer term wealth creation and spending needs.
3) Developing a Spending Plan
Creating a realistic spending planner and sticking to it is an important step towards early retirement. This helps to control expenses, manage debt, maximise savings and investing. All of which are essential for achieving financial independence.
Retiring early is an achievable but challenging goal that requires strategic planning and a disciplined approach to saving and investing. Starting early is a significant step due to the benefits of compounding returns. Clear financial goals and flexibility allow individuals to adapt their plans as they work towards their lifestyle goals. Ultimately, early retirement isn’t just about leaving the workforce, it’s about achieving a life of independence, where time is directed by personal goals and passions rather than a job or financial constraints.
For those considering this path, consulting with a financial professional can make a significant difference and ensure you are on the right track to reaching your desired goals.
After working as an advisor for a decade, Joel founded Unified Wealth.
Unified Wealth specialises in helping clients who are facing life’s big decisions.
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