Society has taught us to live below our means and scrimp and save for decades and decades in order to retire by the age of 65. By those standards, if we wished to retire early, we would have to save up even earlier or much more than we had originally planned. Unfortunately, there are a few kinks with this conventional plan and in the end it’s not in your best interest to put money away for your retirement at all.
The first problem that arises is the inflation. If you start saving up as a 20 year old and plan on retiring at the age of 65, that’s 45 years of saving money. Inflation can have quite an impact on 45 years’ worth of purchases. Experts say that the inflation rate is roughly 2% each year, but this doesn’t include many aspects of life including food, gas etc. Inflation is also rather unpredictable; one year it can increase by 2% and the next year you could be looking at 4% or even 5%. Even at 2% per year are you really prepared to pay twice as much for basic necessities when you retire? Can you save up enough to afford to lose half your purchasing power or more?
Another issue with this retirement mindset is in the math itself. If you can survive on $40,000 per year right now (which is pretty modest), when you factor in inflation, loss of income and possible increased medical bills, the compounding interest of a regular retirement account may not be enough for all the extras. This means that if you can survive on $40,000 a year now, you should shoot for $50,000 a year to have when you’re retired to be on the safe side (especially if an unexpected expense arises). If you plan to be retired for 20 years, that’s a total of $1,000,000 that you have to scrape together on a $40,000 salary. This means you should be setting aside over $20,000 per year for 45 years just to maintain your current lifestyle. And what happens if you have an unexpected expense come up, or a serious medical challenge to face? Are you comfortable taking that money out of your retirement account and cutting back the number of years that you can live in “peaceful bliss away from money issues?”
And what happens if you live longer than you had anticipated? Most people plan for 20 years of retirement, from age 65 to age 85, but what do you do if you happen to live until the age of 86? What about 96? Living the last few years of your life in poverty isn’t any fun and neither is burdening your children with your expenses, especially after you had planned and saved for the last 45 years.
So what is the best way to retire? The first thing you should do is put your money in something concrete that will never be worth nothing. Keeping all your money as currency is risky because if the economy crashes there is a chance that your money will be worth exactly what the paper it’s printed on is worth. This happened in Germany, Zimbabwe and many other countries; Germany recovered later on, Zimbabwe didn’t. Put your money into something that will always have value even if a crash were to occur. By putting your money into real estate, land, oil, precious metals etc, you will be more secure than by keeping hordes of cash in the bank; a house, for example, will never be worth $0.
The next step is to change your mind set to focus on creating a cashflow as opposed to a savings account. If you buy an apartment building with 20 units and rent each one out for $800, even after all the expenses are paid, you’ll still have money coming in. If you end up paying it off, you’ll have more coming in for the future. If prices start increasing (inflation), you can increase your rents by a bit (even just a $20 increase is over $400 extra with 20 units) and if an emergency arises you can always sell a property to help pay for the costs. The same can be also done with land; if you own a great section in a great part of town you can always lease it to businesses for a decent amount each month. Plus this way the money will continue coming in month after month for years of retirement and you won’t have to worry about your savings suddenly running out.