Best 10 Year Investment Plan to Enjoy Your Retirement
Financial independence is a dream that many have and many people are able to realize this dream. It however takes time, effort, dedication and strategy to manifest this dream. It is absolutely possible to achieve financial independence in a decade and retire early but it is not easy.
We can sugar coat it but will that help you? No, so let us call a spade a spade. Yes it is possible to achieve financial independence in ten years and retire early. BUT you will have to push yourself to the limits.
Before you start off with your 10 year retirement plan, first take time out to learn about the FIRE lifestyle. FIRE stands for Financial Independence, Retire Early. It is a lifestyle that is quite popular among millennials who are tired of the 9 to 5 routine. Most FIRE enthusiasts have made up blogs and vlogs detailing everything they did to achieve their early retirement goals. They share strategies and tips that can help other FIRE enthusiasts.
Another important thing to keep in mind is that early retirement does not mean that you stop earning once you retire. No early retirement simply means that you can now focus your attention on pursuits that you are passionate about. So if you always wanted to become an author, you can write a book and turn that into a source of income. So what early retirement really means is that you work till you become financially independent so that later on you can follow your dreams.
So make sure that you do your research before committing yourself. You will come across many strategies when you search the FIRE lifestyle, in this article we are going to discuss a general strategy that can apply to any plan be it a ten or twenty year retirement plan.
Your Strategy is Important!
Your strategy is going to be very important for your retirement plan. Do not assume that you can pull off such a feat without any strategy. So if you are not used to planning for the future, you should get started. A good starting point would be to start budgeting, if you want to retire in a decade then you cannot avoid budgeting, so why delay it?
You will need to not only formulate your strategy but you will also need to review it regularly to assess how good you are doing and whether your strategy needs any changes along the way. Early retirement requires a lot of financial discipline and this is something that you cannot learn or accomplish overnight. You have to build financial discipline gradually over time, this is why educating children about personal financial management is so important.
Step 1 – Self Assessment
The first step to making a 10 year retirement plan is to assess your financial position. Where do you stand right now? As stated above, this is not going to be easy. Most FIRE enthusiasts set 20 or 30 year retirement plans in their 20s. So if you are in your 20s, with a relatively low income because income increases with time, experience and skill set. Then it is going to be difficult for you. However if you are in your 30s or 40s then you have a better shot at a 10 year retirement plan.
- Assess your income level and your capacity to increase income through your main source.
- Determine how much time it will take to achieve financial independence if you rely simply on your main source of income.
- Get a rough estimate of how much you will need after you retire. For instance if you are 35 years old and you are aiming at 45 to retire, then going by average age you will still have good 40-45 years of life left. So you will need to have enough savings to last you this time.
This initial self assessment will give you a rough idea about your current income level and how much money you actually need in order to retire.
In Australia for instance the average annual household expenditure is roughly around $75000. So if you aim to retire at 45, you`ll need roughly 40 years of savings which come around $3 million.
The average annual wage in Australia varies by sector.
This table shows the distribution of average income by sectors in 2020. At an initial stage you can use this to roughly determine how much you will need to save.
For instance if your average annual income is $80,000 and your spending and savings rate (which you will know once you make your budget) are 80% and 20% respectively. Then at $80,000 annual income you will save around $16000 annually with 20% savings rate.
At this rate you will need over 300 years to save up over three million for retirement. This is where passive income and savings rate factor in.
Step 2: Passive Income
You are of course not going to take 300 years to save up enough for retirement. Now in order to speed up the rate of savings, there are mainly two things that can be done.
- Increase your income
- Increase your savings rate
Both of these things have to be done, there is no option to choose between them. It is better to start by thinking of ways to increase your sources of income because this required time and effort.
You do not need to leave your day job if it pays you well or if there is no other option. What you need to focus on is how to create passive income. Passive income is basically recurring income that does not require a lot of time or other resources. So for instance you can become a youtube and your videos will generate recurring income. If you write a book, the royalty income will create recurring income.
So take time to see how you can generate passive income.
Step 3: Portfolio income
In addition to multiple passive income streams you will need to create portfolio income as well. Portfolio income refers to the income generated by your investments. Investing your savings is going to play a crucial role in generating enough savings for your retirement. In fact investing the savings is the key to wealth generation.
For portfolio income, you will need to consult an investment advisor or someone you trust, who already has a portfolio income. There are some rules of success that you will need to adopt in order to speed up your savings rate. These rules can be briefly listed as
- Invest your savings
- Reinvest your savings at an exponential rate
- Do not follow the media when it comes to investment
- Use automatic savings on your bank accounts and personal finance apps
- Save and invest more than the rate of inflation
- Have a clear investment strategy
- Be patient and avoid major mistakes
Step 4: Work on Your Savings
Next, you need to adopt a frugal lifestyle. Now this will depend on your financial discipline. Some people can adapt to a frugal lifestyle easily while for others it takes time. Your key aim is going to be your savings rate. For instance, if at the beginning your savings rate is 10% then you will aim to increase it up to 35% to 40%.
You can go up to 20% without major lifestyle changes but beyond that you will need to make lifestyle changes. You can even go above 40% but that will depend on your passion and ability to adapt.
In the end, all of these steps come together, you will need to monitor your savings, spending and investment rate regularly. Look at your goals and adjust them accordingly. Once again this is all easier said than done but if you set your mind to it, then this can be achieved.
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