Robert and Robin Charlton did what some people may think is impossible: They retired at the age of 43 back in 2006. They are now enjoying a life of traveling the world and blogging about their adventures. So, what’s their secret to success, and could it work for you?
The Charltons — who decided not to have children — left the workplace behind by following a few key steps. When they were in their early 30s, they set in place a 15-year plan that would guide them to retirement. First, they made a push to settle all their debts other than their home mortgage, paying off things like credit cards and auto loans. They also switched from a 30-year to a 15-year mortgage to better align with their time frame.
“Finally, we did two things that are easy to talk about but hard to do: We lived well below our means and we consistently invested every single month regardless of stock market performance,” says Robert Charlton, who co-authored “How to Retire Early: Your Guide to Getting Rich Slowly and Retiring on Less” with his wife, Robin.
“Having a clearly defined goal with a set date for early retirement kept us motivated,” he adds. “We loved watching our investments increase and our days to early retirement decrease.”
If you’re feeling inspired, here are some general guidelines learned from the Charltons’ story on how you may save for retirement even if you don’t have corporate benefits:
A 401(k) account with a company match may be a great perk, but Roth IRAs might be another terrific tool to consider, advises Charlton. They are available to every U.S. citizen who has earned income from a job. You can invest up to $5,500 per year—$6,500 if you’re age 50 or older. If you’re married and your spouse has a job, you can each invest to these limits.
“Begin socking away as much as you can each year,” says Charlton. “You invest already-taxed income but never pay taxes on the money you take out, including the earnings. It’s great for the long term.”
Charlton suggests to invest regularly regardless of market conditions. “Beginning investors worry more than they should about day-to-day volatility in the stock market,” says Charlton. “If you’re investing for the long term, then you should pay very little attention to swings in the market.”
In fact, your time horizon is so long that you should actually welcome bad financial news, says Charlton. It means you can buy more shares for less money.
“Bear markets are like extended sales at your favorite store: Scoop up as many deals as you can while the getting is good,” he says. “Too many investors dread bear markets instead of seeing them as opportunities to buy low and eventually sell high.”
For those who are trying to learn how to invest, the United States Securities and Exchange Commission (SEC) offers a number of resources and guides that may help you educate yourself about some of the facets of online trading.
Charlton advises do-it-yourself retirement planners should streamline their processes, which means working with one investment firm that charges low expense ratios — a term that, according to the SEC, refers to the yearly fees that funds charge their shareholders — and investing in a straightforward index fund that mirrors the total U.S. stock market. If it’s your first time hearing that term, the SEC describes an index fund as one that “buys all, or a representative sample, of the securities in a specific index, like the S&P 500 Index.”
“Once you have a solid position in the total U.S. stock market fund, you can optionally invest in other funds that invest in stocks of non-U.S. companies,” says Charlton. “As you near your retirement goal, I also recommend a bond market index fund to provide a safe haven during stock market downturns.” According to the SEC, bond market index funds largely invest in bonds and debt securities such as government bonds and corporate bonds.
Charlton recommends using an electronic spreadsheet to keep tabs on your investments. He had a simple document that listed his taxable, 401(k), and Roth IRA contributions, and a column with a grand total.
“Even if you’re employed at a great company, think of yourself as being self-employed when it comes to investing for your own retirement,” says Charlton. “You’re in charge, so take the reins and put together a game plan for how you’ll reach your retirement goal.”
Though it can be tempting to tap into your savings, it’s prudent to leave the money you’ve allocated for retirement untouched. Why? As the U.S. Department of Labor points out, withdrawing money from your retirement funds will cost you money in the long term in lost principal and interest. There are also federal regulations that levy hefty fees on these kinds of transactions, making them less appealing even in the short term.
Will you stop working when you hit 65, or are you planning on working part-time after you retire from your full-time position? It’s important to plan out the arc of your career — no matter how far in the future it might seem.
The Social Security Administration (SSA) also recommends calculating just how long your retirement will last. Life expectancy has risen significantly over the past century, and you’ll want to make sure that your retirement income will enable you to maintain your lifestyle.
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