Early retirement is not just a daydream

Imagine living a life in which your suit is one for swimming, your only appointment is walking the dog and the most important report of the day is on the Weather Channel.

Actually, this life isn't that hard to picture because this is how many view their retirement.

Now imagine living this life before turning 50.

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It may sound fantastical, but there are ways to retire young without winning the lottery or having valuable options to cash out. Savvy investing, smart spending and very strict saving can pave the road to finding a way to live out the dream of early retirement.

When planning for early retirement, you must first understand just how much money you are going to need. If you retire at age 50, you could very well have another 35 years or more left to live.

"Your portfolio will have to finance everything," emphasizes Alyce Zollman, a financial adviser with Charles Schwab (nasdaq: SCHW).

To understand how much money you'll need after you say goodbye to your nine-to-five, take your pre-retirement income and multiple it by 35 (assuming you'll live to age 85). For example, if you are living off US$100,000 now, you'll need about US$3,500,000 when you retire. Not a small sum.

Saving is essential for most people who want to retire early. Max out your 401(k) and consider an IRA. Put money into safe, long-term investments, and don't gamble on the stock market.

To retire in your younger years, you'll have to work for it in your much younger years. In order to retire young without an income of hundreds of thousands of dollars, you'll have to live below your means, not within your means—and it's not going to be fun.

Don't buy a new car—or even own a car—or designer brands. Skip eating out, smoking cigarettes and traveling. Even consider lifestyle decisions like not having children or only marrying someone with your same financial goals.

If being painfully frugal isn't your ideal way of life during your youth, you could start your own business, which is one way to manage early retirement. Hire someone else to run the company while you kick back and relax—still bringing in cash. Even if it's a small sum, if you're able to continue "earning" your spending money even after you're done working, your savings will stretch farther. However, there are never any guarantees in business. It may be difficult to predict how successful your idea will be and, if it is, how long that success will last.

Not everyone has entrepreneurial instincts. Instead, live out that childhood dream of becoming a firefighter. Many government jobs still offer pensions that usually continue to pay a percent of your wages after retirement and, in many cases, kick in after just 10 to 20 years of service.

Unfortunately, as you grow older, your body does too, which greatly increases your chances of incurring health expenses. If you're not working, it's up to you to pay for poor health. Zollman explains that an American couple looking to retire at age 65 would need to spend about US$200,000 during their retirement on health care costs. Even this estimate is considered conservative. "It's vital to make sure you understand all of the potential challenges that could occur over a 40 or 50 year retirement," she says.

Your chances of pulling a Mark Zuckerberg, the 24-year-old who created the networking Web site Facebook and is now worth US$1.5 billion, are slim. And many of us are not ready to join the police force for a pension plan.

So, if you want security after the checks stop coming, emulate oilman John D. Rockefeller and start being prudent. Albeit a billionaire, Rockefeller carried around a little red book and wrote down every single thing he spent his money on. You may have a lot to save before you can say goodbye to the working world, but at least it's a start.

 

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In Pictures: 15 Ways To Retire Early