Early retirement is something everyone craves or at least they crave for the financial security that shows that you could retire anytime you want. However, planning your investments such that you may retire anytime you want certainly requires a lot more than just randomly investing in stocks or tracking today's gold rate in Hubli or Jaipur and waiting for the price to be right.
So to help you out we have prepared a list of some of how you can plan your investments to prepare yourself financially to retire anytime you want.
Use the bucket strategy
The Bucket Strategy is a way to divide your retirement savings into three buckets.
Bucket 1 is for the short term. It should have enough money in it to cover your needs for 3–5 years, and it should be invested in safe, liquid investments.
Bucket 2 is for the intermediate-term. It should have enough money in it to cover your needs for 10–15 years, and it should be invested in a combination of low-risk and medium-risk investments.
Bucket 3 is for the long term. It can be invested in any kind of investment that you want (perhaps a portfolio of mutual funds).
Use the 4% strategy
The 4% withdrawal rate is called the safe withdrawal rate. At a 4% withdrawal rate, you can withdraw 4% of the value of your portfolio during your first year of retirement. In your second year, you'll withdraw 4% again but adjusted for inflation. In your third year, you'll adjust your withdrawal by inflation again, and so on.
If you follow this rule of thumb (known as the 4% rule), there is an over 90% chance that your money will last at least 30 years. You can apply this rule to any form of investment. This rule could be particularly useful when you are impulse buying for instance if you find today's gold rate in Rajahmundry or for any other place to be favorable you can apply this rule to see if you should sell or not. Click here to learn more.
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Choose the right retirement plan early on
Your retirement plan is a long-term savings plan. The sooner you start saving, the better. The earlier you start saving, the more money you can accumulate because of the power of compounding.
Whatever retirement plan you choose, it is important to keep it simple and consistent so that you don't get overwhelmed and give up. Before investing make sure that you are debt-free. If there is any outstanding loan or credit card balance, take care of them first before you invest for your retirement.
It is always better to start early. Ideally, you should begin investing for your retirement in your twenties - even though this may be difficult for most people as they would have just begun their careers and might not have enough disposable income to invest regularly for their retirement.
Invest smart
Things like real estate and gold are always considered safe options for investment. There are two kinds of wealth you can accumulate in this world. The first is money. It's the simplest kind of wealth to understand because we all know what it's for: you trade it for things you want.
It is also the most perishable kind of wealth. Money today is worth less than money tomorrow. Inflation, or even just the interest rate on your savings account, will gradually erode its value unless you actively work to preserve it. You must therefore invest your money if you want to grow it and turn it into something lasting.
The second kind of wealth is everything else: property, cars, trinkets, real estate, gold, stocks, and so on. You can also invest in these things if you want to increase their value – but they are much harder to evaluate than money, so they're riskier investments.
The best way to acquire either kind of wealth is by creating value in the world. But since not everyone can be an inventor or entrepreneur, a good rule of thumb is that the best way to get rich from scratch is to get paid more than you need to live on and invest the difference wisely.
