Financial Investments To Retire Early For Financial Freedom Seekers

“Retirement is wonderful if you have two essentials: much to live on and much to live for.”

— Anonymous

I didn't see much of my dad growing up because he went to work early and came home late. His job demanded so much that family time was a precious commodity.

Mom used to tell me about his dream of having a small farm, where he could raise animals and grow fresh fruits and vegetables. However, his demanding job and the weight of responsibilities never gave him the time and financial freedom to pursue his passion.

By the time he finally retired, his body was too weak to build something like that.

Witnessing this unfulfilled dream sparked a fire within me. I wouldn't let the same thing happen to me. Life shouldn't be just about work. There's more to it than just juggling bills and spreadsheets.

I wanted a life where I could pursue my passions, not just dream about them while stuck in rush-hour traffic. That's when I realized I needed to explore financial investment to retire early.

It was the only way to break free from the traditional work cycle, untethered by the shackles of a conventional retirement age.

A. The Myth Of Retirement Age

Many of us grow up with the idea that retirement is a magical age, usually around 60-65, where we finally hang up our work hats and kick back on the beach.

But what if that timeline doesn't quite fit your picture? The truth is that the traditional retirement age might not be the ideal goal for everyone.

There's a revolutionary concept called Financial Independence, Retire Early (FIRE) that's gaining momentum. It opposes the concept of waiting decades for a predetermined retirement age.

Instead, the FIRE movement advocates that you get to be the boss of your own time. You decide your ideal retirement age based on your own financial goals and the lifestyle you envision after leaving the workforce.

But what is the best age to retire financially? The FIRE movement says there isn’t one. Just like there’s no standard answer to how much you need to invest each month to retire early, there's no magic number for the "best" age to retire. It depends on a few key factors:

Best Age To Retire Ealy Financially.jpg — Best Age To Retire Early Financially

Your Current Savings: The more you've saved already, the closer you are to achieving financial independence.

Earning Potential: A higher income allows for faster saving and reaching your retirement goals sooner.
Desired Lifestyle in Retirement: Do you envision a luxurious retirement or a more frugal one? Knowing your desired lifestyle helps determine how much you need to save.
Risk Tolerance: Are you comfortable with some investment risks for potentially higher returns, or do you prefer a more conservative approach?

The beauty of this concept is that it's adaptable. You can adjust your savings goals and make an investment plan for early retirement that best suits your lifestyle aspirations.

B. Why Invest Early For Retirement?

The traditional path to retirement involves working for decades, diligently climbing the corporate ladder, all for the glorious prize of... well, finally being able to stop working.

Depressing, isn't it?

But what if there was a better way? A way that lets you accelerate your journey to financial freedom, so you can retire early and pursue your passions sooner. The key lies in investing early for your retirement.

“The best way to predict your future is to create it.”

— Abraham Lincoln

While saving a decent amount of money is essential for early retirement, relying solely on savings has limitations. Here's why you need financial investment to retire early:

I. Leverage Your Savings

Adam is a dedicated father, diligently saving for his son's college education. He sets aside a fixed amount every month, determined to give his child the best possible future.

Ten years later, Adam checks his savings account. But a wave of disappointment washes over him. The amount he's saved, which seemed substantial a decade ago, no longer covers the ever-increasing cost of higher education. That's the power of inflation!

Inflation is the gradual rise in prices over time. What $100 buys you today might only buy you $80 in a decade, or even less!
Savings accounts typically offer low interest rates that often struggle to keep pace with inflation. This means your saved money loses its purchasing power over time.

II. Benefit From Compounding

We established that inflation eats away at the purchasing power of your savings. So, how do you combat this enemy of early retirement? Investing is your weapon of choice!

Unlike savings accounts with their meager interest rates, investments have the potential for significantly higher returns.

This growth can outpace inflation, allowing your nest egg to not just maintain its value but increase in purchasing power over time.

The magic of investing lies in compound interest. This is when your investment earnings not only generate returns on the initial investment but also on the accumulated earnings themselves. It is like a snowball rolling downhill which gathers momentum and grows bigger the further it goes.

Let’s say you start saving $1000 every year in a traditional savings account with a 1% interest rate. After 20 years, you'll have $22,239. However, if you invested that same amount annually with an average return of 7% (a realistic long-term average for the stock market), you could have over $43,865 after 20 years!

That's a huge difference that can make early retirement a much more attainable goal, especially when factoring in inflation.

Investing your money allows you to:

Bridge the Gap Between Savings and Retirement Needs: Even with aggressive saving, reaching your early retirement goals might be difficult solely with savings. Investing helps bridge that gap and accumulate a larger nest egg to support your desired lifestyle in retirement.
Create a Stream of Passive Income: Certain investments like dividend-paying stocks or rental properties can provide a steady stream of income in retirement, reducing your reliance on depleting your savings.

Remember, investing is not a gamble, but a powerful tool to grow your wealth and achieve your early retirement goals. While saving is a necessary first step, it's the investment that truly fuels your path to financial freedom.

C. Simple Investments For Early Retirement

Tired of watching your savings dwindle to inflation and wondering, “What should I invest in to retire early?” Let’s explore different investment options to help fuel your early retirement dreams. Research and talk to your investment advisor as you put the plan into action.

1. Stocks

Imagine your favorite sports clothing brand. By buying shares (or stocks) in that company, you become a tiny owner. If the company does well and sells more clothes, the stock price (and potentially your investment) can increase over time! This growth can be a powerful tool for early retirement.

2. Bonds

A bond is like a loan you give to a company or government. They promise to pay you back the money you loaned them (the principal) plus a bit extra (interest) over a certain period. Bonds offer regular income payments and are generally considered less risky than stocks. They provide stability for your portfolio giving fixed income returns.

3. Index Funds

Don't have the time to research individual companies? Index funds are like buying a basket full of different stocks from various companies, all rolled into one investment.

They track a specific market segment (like technology or large companies), so your investment reflects the overall performance of that group. This is a simpler approach with lower risk compared to picking individual stocks.

Many successful investors, including John Bogle, the founder of Vanguard, recommend index funds for their low fees and long-term growth potential.

4. Real Estate

Ever thought about renting out a spare room for extra cash? Real estate investing can be similar but on a larger scale. You can buy property like a house or apartment and rent it out for income, potentially increasing in value over time. This can be a great way to diversify your investments, but it also involves more responsibility (like repairs) compared to stocks and bonds.

Many celebrities, like actress Sandra Bullock, have invested in real estate to build wealth and generate rental income. However, real estate requires ongoing management, so it's not a completely passive investment. This has also shaped up as a big income opportunity with short-term rental options and holiday homes.

5. REITs (Real Estate Investment Trusts)

REITs are like owning a tiny share of a collection of real estate properties, often managed by professionals. They trade on the stock market like any other stock, offering a more passive way to invest in real estate.

You can benefit from rental income and potential property value appreciation without the hassle of directly managing properties.

No matter what investment route you take to achieve your goal of financial freedom and early retirement, never put all your eggs in one basket. Spreading your money across different types of investments helps manage risk.

This way, if one investment dips, others might hold steady or even grow, protecting your overall portfolio. This diversification is a vital aspect of navigating the pros and cons of financial investment for early retirement.

D. Using 25X Rule For Early Retirement

The 25X rule is a popular guideline used to estimate the amount of savings you'll need for a comfortable early retirement.

I. What Is The 25X Rule

The rule is simple: multiply your desired annual retirement expenses by 25. This gives you a rough estimate of the total amount you'll need to save to comfortably cover your living costs throughout retirement.

II. Assumptions Of The Rule

4% Withdrawal Rate: This rule assumes a safe withdrawal rate of 4% from your retirement savings each year.
This concept, known as the "4% rule," suggests that by withdrawing only 4% and letting your remaining balance grow through investment returns, your savings can theoretically last for 30 years.
However, this withdrawal rate might not be sustainable over longer retirements or in periods of low market returns.
Constant Cost Of Living: The rule assumes your expenses will remain constant throughout retirement. However, inflation will likely cause your cost of living to rise over time, potentially requiring adjustments to your withdrawal rate.
No Additional Income Sources: The rule doesn't factor in potential income sources you might have in retirement, such as Social Security benefits, a pension, or part-time work.

The 25X rule offers a simplified starting point for early retirement planning. However, it's essential to recognize its limitations and personalize your approach based on your specific circumstances.

E. Decyz POV On Financial Investments To Retire Early

Do you dream of a future filled with flexibility and purpose? Perhaps the traditional work cycle doesn't quite align with your long-term goals. Then, exploring financial investment strategies for early retirement may be a path worth considering.

At Decyz, we believe there’s no magic trick pulled from a dusty top hat. What you do have is the power to invest timely and become the architect of your future, not a character stuck in someone else's script.

While financial investment might not lead you to a buried chest of gold, with careful planning and a diversified approach, it can unlock the riches of an extraordinary and enriching life.

So, explore your options and start investing now. The applause of a life well-lived awaits!