There is a new movement out there called FIRE. This stands for Financial Independence Retire Early. Some millennials are working towards saving for Financial Independence by the age of 40. My guess is that most people searching this question are not quite in that age bracket but individuals in their 50’s and 60’s who are getting closer to retirement age.
Funding years of not working gets expensive. If you want to stop working and will have many years that you need to support yourself, you need to be very realistic about your future spending needs. Here are some thoughts.
Know how much you will need to spend.
- Be very clear about a budget and spending needs.
- Add in Insurance costs as well as future medical costs. While we might hope that medical costs get under control, we have to plan based on what has historically happened.
- Don’t forget costs that don’t occur monthly. When people create a budget, the one item I see them forgetting is non-monthly costs. Home improvement/repair, vacations, gifts – these are all items that always occur but many forget to plan for.
Know your future income?
- Will you have a pension? Have you gotten your social security statement so you know your future income.
- Are you willing to work part-time to supplement your income? The longer you can hold off on using your assets, the better.
Since you primarily have two triggers for money – Income and Spending- the less you spend while you work and the more you save will determine how quickly you can become financially independent and stop working.