2/27/2012 6:30 PM ET|
5 tips for retiring before you're 50
For one couple, retiring early so they could travel the world became possible after they followed a carefully laid-out plan. Here's how they did it.
At 31, Robert Charlton had grown disillusioned with his job as a technical writer.
"The idea of doing a desk job for another 30 years seemed painful to me, so I came up with this idea of trying to retire before 45," he says. He shared the idea with his wife, Robin, who was then 31 and working as a travel agent.
Robert read up on personal finance instead of hiring an adviser and looked at taxable accounts they could draw from before turning 60. During that period, Robin completed an accelerated nursing program to become a registered nurse. By age 43, they'd gone from $16.88 in their checkbook at age 28 to saving up enough money to leave both their jobs and live off the interest. (Are you saving enough for retirement? Find out with MSN Money's calculator.)
Now, years later, they travel the world, sky diving in New Zealand, hiking through India, sailing through the Chilean fjords and documenting their adventures on their website, wherewebe.com. Although many people struggle to retire in their 50s or 60s, Robert believes it's possible for others to retire early, as he and his wife did.
"Really, we're very average people," he says, admitting that it's harder, though not impossible, for those with kids. "We never had power jobs. We just both took intelligent steps."
Here are some of those steps:
1. Cut housing costs
The Charltons spent a year carefully tracking their spending to see where they could cut back. But, as Robert says, "the truth of the matter is, we really didn't have that much fat to cut out."
Still, they agreed to rent out half of the bilevel starter home they owned in Boulder, Colo., so they could pay off the mortgage and pad their savings. Switching from a 30-year to a 15-year mortgage also helped the couple reach their goal. "You save so much on interest that it does result in a higher monthly payment, but not as high as you would think," says Robert. They later sold their house and put the equity into a bond fund.
2. Agree on your priorities
Instead of buying new cars, the couple kept their old ones, and Robin stuck to grocery shopping lists instead of buying whatever caught her eye.
"That's how he shopped (without sticking to the list), so he was cut off from shopping," she says. Keeping their shared goal in mind kept their eyes on the prize. "We were both on the same page," adds Robin. "We both knew we wanted to put the money towards experiences."
However, because they value travel so much, the Charltons didn't completely deprive themselves while saving up for retirement. As Robert says, it's important to "balance living for tomorrow with living for today." If saving feels like too much of a chore, it's easy to fall off the bandwagon.
3. Live below your means
Now that they've left the workforce, the Charltons live modestly by staying in hostels and focusing on less expensive travel destinations. They estimated needing between $30,000 and $40,000 annually, and they've managed to stay in that range, though they're averaging closer to $40,000.
Last year, they splurged on a trip to Italy and Switzerland for their 25th wedding anniversary. However, Robert says, "we typically have tried to travel places where the dollar goes further, like Argentina and Chile, where the exchange rate was in our favor." Destinations like India and Nepal have higher airfare but low day-to-day expenses, so they stay for several months at a time to balance out the airfare costs.
4. Stay in the game
Although the Charltons' portfolio has had its ups and downs, they've resisted the urge to try to time the stock market or get out altogether. "We did some of our best investing during the bear market of 2000 to 2003," says Robert. "We bought stocks 'on sale' and reaped the rewards afterwards." Although they could have gotten a higher return on investment if the timing had been different, he says, they also underestimated future earnings, so that helped them reach their target more quickly than planned.
5. Don't rule out temporary work
Dips in the market have made it more challenging for the Charltons to live off their interest. So when Robert was offered a six-month consulting project in 2009, he jumped at the opportunity to rebuild their capital. Although he'd once dreaded going to work, he actually liked the temporary arrangement. "I genuinely enjoyed working hard during that window because I knew it wasn't endless, which was the thing I found challenging early on when I first came up with this plan," he says.
Robin adds that they're open to making adjustments as they go or returning to work if needed. However, she values the change to traveling and being active while they're young and healthy. "Working as a nurse, I realize so many people save so much, and a lot of people don't get all the years they thought they'd get," she says.
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