Humphrey Yang: 4 Things You Must Do To Retire as Early as Possible
In his recent YouTube video on how to retire early, Humphrey Yang began with a salient point: The average American retires at the age of 64, yet their life expectancy is 77. So he asked the question: Why do we retire with so little time left to enjoy life?
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To address that quandry, Yang provided a functional definition of retirement, noting that it comes down one thing — money. “You can call it wealth, you can call it total assets, you can call it whatever you’d like, but the main point is, is that we need enough money or assets to basically fund the rest of our life while we’re not working.”
How much you spend per year is the primary metric that affects how much you need for retirement. In turn, that affects your retirement age.
Some experts recommend that you have a 4% “safe withdrawal rate.” This means that if you have a $500,000 investment portfolio, you could spend $20,000 (4% of the total) in the first year, and then adjust that amount for inflation in subsequent years. This strategy assumes your portfolio is made up of 50% stocks and 50% bonds, according to Charles Schwab, and it’s based on historical market returns.
To determine when you can retire, Yang suggested using a retirement calculator that factors current annual income, current annual savings and current annual expenses to give you an estimation of when you can retire if your expenses remain the same. To retire earlier, you need to increase your percentage savings rate per year. To increase your savings each year, you need to avoid expensive lifestyle choices. You’ll also need to invest wisely.
Yang offered four pieces of advice to help you retire as early as possible.
Define your retirement preferences while also being flexible with how they may change. You need to figure out how much you want to be able to spend each year. That could prompt you to want to work longer to ensure that you have enough money to participate in activities you enjoy and that give you a sense of purpose.
Avoid lifestyle creep — spending more as your income grows. As Yang illustrated, increasing your savings rate exponentially decreases how long it takes to save enough to retire. By using your growing income to save more rather than spend more, you don’t just wind up with a larger principal balance — you also reap the benefits of compounding gains on your savings.
Plan for as much as possible. Investment planning is important, and so is planning for relationship and family decisions. For example, if you have a Roth IRA you can’t touch until you’re 59.5 years of age, then it might not make sense to plan on retiring at 40. If you plan to be married and/or have children, you should also account for how adding additional people to your household might affect your spending and saving.
Invest wisely. Try to keep investment fees as low as possible, and don’t try to time the market. Just as important, avoid taking on bad debt.
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