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Question:


What does it take to retire early – besides the goose that laid the golden egg?
-WishfulThinker


Answer:


What it takes to retire early is a commitment to begin saving early. Because of the compounding of investment returns, dollars that are saved earlier in your life will produce more wealth than dollars that are put away later. Say your retirement assets earn 7 percent a year, a reasonable assumption based on historical averages for the financial markets. If you save $10,000 at age 60 and don’t save any more, you’ll have $14,176 when you’re 65. If you do the same at age 25, your $10,000 will grow to 163,114 at 65. It’s not quite that simple, in that inflation probably will erode far more of your savings over 40 years than five, but the difference in what you have and what you can buy with it is still likely to be substantial.

On the other hand, you’re not likely to save $10,000 one day and nothing more for the rest of your life. Saving the same amount every year from age 25 to 65 and earning the same 7 percent will leave you with a little over $2 million. If you save regularly from an early age, live a life of thrift – saving as much as you can and spending as little as you must – and take advantage of tax-favored retirement saving vehicles like individual retirement accounts and 401(k) plans, it will go a long way to giving you the freedom to retire on your own terms and at a date of your choosing.

-Conrad de Aenlle



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