For many years, I dismissed the financial advice of my father, Charlie. I thought they were outdated and didn’t apply to my contemporary lifestyle. However, everything changed when I saw him retire comfortably at the age of 55 and start traveling the world as if he had no problem at all. At that moment, I realized that I had greatly underestimated his financial wisdom. Therefore, I asked him to reveal his secret to me. What he shared with me was a simple but effective strategy, based on four fundamental pillars.
Some retirees have the privilege to claim a retirement of $4,873 a month, but they are very few, since they must meet three main conditions. The first is to retire at the age of 70, which already leaves you out of the premise of this plan to retire at 55 or as soon as possible.
The second thing is to have made contributions for at least 35 years in Social security taxes and make sure that those contributions have been correctly reported on the corresponding dates. For each unreported year, the Social Security administration will compute $0, which will reduce your average contributions.
The third and last requirement is to have had a high income, that is, high salaries during those 35 years or most of them, in this way you will be able to reach $4,873 per month.
However, this article is not aimed at those privileged people with the maximum retirement, but at those who are starting to design their retirement strategy and are looking to enjoy a life of rest as soon as possible without having to wait until the age of 70. This is where the advice of Charlie, my father, who retired at the age of 55, comes into play.
Principle #1 for an Early Retirement: Spend Less Than You Earn
It may seem obvious, but many people do not follow this premise. The foundation of any sound financial plan is to spend less than you earn. This involves creating a realistic budget and sticking to it over time, not only in the short term but in the long term. It means avoiding unnecessary debts and impulse purchases, prioritizing savings over immediate spending.
There is a very concrete and clear saying of my father, which stuck in my mind forever: “Wealth is not about how much you earn, but how much you keep”. That’s the advantage of being clear about this concept: “Living below your means allows you to free up capital to carry out the strategy,” Chuck told me (that’s what his retired friends tell my father) on another occasion when we talked about the future.
Principle #2 for Early Retirement: Investing in Retirement Accounts
Retirement accounts, such as 401(k) plans or IRAs, offer tax benefits and the opportunity for your investments to grow with compound interest. My father always maximized his contributions to these accounts, even when it meant a small sacrifice in his current lifestyle. “Investing in your future is the best investment you can make,” says my dad, who now enjoys large retirement savings to be able to travel the world.
401(k) retirement accounts receive contributions from both the employee and the employer, which helps the future retiree to have a higher saved amount that benefits from compound interest over the years.
On the other hand, IRAs are individual and voluntary retirement plans, and there are two types: traditional IRA or Roth IRA. Research which of the two types of IRA retirement accounts is best for you and which one is more suited to your financial needs and retirement goals.
Principle #3 for Early retirement: Diversify Your Investments
It is not wise to put all your resources into one option. Let’s see: not only during retirement but also my father diversified his investments in stocks, bonds and rental properties. Stocks offered long-term growth potential, bonds provided stability, and rental properties generated passive income.
His advice was clear: “Reduce risk by diversifying your portfolio. Don’t put all your money in one place.”
Principle #4 for Early Retirement: Always Have a Backup Plan
Even with the best plans, life can be unpredictable. That’s why my dad always had a backup plan for emergencies. This plan included an emergency fund with several months of expenses covered, full medical insurance and a support network of family and friends.
His philosophy is: “Be prepared for the unexpected. A backup plan will give you peace of mind.” By following these four principles, my father managed to retire at the age of 55 and enjoy a comfortable and fulfilling life. His strategy taught me that financial freedom is not a distant dream, but an achievable goal with discipline and smart planning.
