How Do You Get Financial Independence And Retire Early?
If you dream about retiring early and spending more time on either the golf course or with your grandchildren, you need to save up your money and invest them.
There are several theories on how much you need to save up in order to retire at an early age and have financial independence. Bottom line is that you need to have enough money saved and invested in order to maintain your lifestyle.
How to get financial independence and retire early
One of the most popular methods when working towards early retirement is FIRE. FIRE stands for financial independence, retire early.
When using the FIRE method you have to work on increasing your income while at the same time decreasing your expenses.
The objective of the FIRE method is to accumulate your assets until you have enough passive income to cover your living costs throughout your retirement years.
Here you will withdraw about 4% of your annual income from your passive income in order to live. The 4% should then be equal to your annual living expenses when retired.
If you need 50.000$ in order to cover all your annual living expenses while retired, then the 4% should be equal to 50.000$.
Based on the theory of the FIRE method, aggressive saving is the standard. Here you will save up at least 10-15% of your income every year.
By saving 10% you need to do so for 9 years in order to cover one year of your living expenses while retired.
If your savings ratio should be 1:1, then you need to save 75% of your annual income.
Other approaches are more flat rate, where you look at your living expenses and estimate your life time.
If you want to retire at the age of 60 and expect to live until you are 80, then you need to save up 20 x your living expenses in order to have the financial independence to do so.
Though in some countries, your pension plan can have an influence on how much you need to save.
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