Ways to Maximize Retirement Savings: Leverage Investments to Retire Early
The ultimate goal for building an investment nest egg is to find creative ways to maximize retirement savings. These activities will eventually hatch into the realization of financial freedom. With many people gunning for early retirement, it also makes a lot of sense to learn how to guard your wealth from loss. It is your responsibility to ensure maximization of returns going forward.
To grow your investments while you are in early retirement requires a two pronged approach. We will discuss a laid-back defensive strategy in this post. But for an active or activity based option with details for each stock market trend, read this article.
The Default Gold Standard: The 4% Rule Annual withdrawal Policy
When most people hit their financial freedom number, they proceed to retirement. The idea is to ensure that two major variable hold true. Firstly, grow investments to a threshold that bears returns (in dividends, interest, cash flow) that will meet the annual cost of your living expenses.
Meet Your Set Target Age
Secondly, meet your set age target. Aim for an age range that is deemed lower than the retirement age. These two ways to maximize retirement savings is a no-brainer. Also, ask yourself: how much you’ll need to cover your living expenses during retirement? Make provision for both inflation, and a substantial increase in medical and healthcare cost.
The above tells you that if you have an estimated living expense target of $50,000, you must be sure to accumulate investments worth at least $1,250,000 before retiring. The 4% rule will enable you make $50K annual withdrawals ($1,250,000 X 4% = $50,000) safely without breaking the bank. Assuming your stock portfolio grows at an average of 6% annually with inflation hitting a maximum of 2% (at the time of writing this).
Make Further Adjustments
Remember that the example has a lot of assumptions. Unforeseen market uncertainties require crucial adjustments to the strategies. Of course these are just estimates. As inflation inches above 3%, you’ll likely to take a hit in meeting your ends squarely. These are some of the ways to maximize retirement savings.
On a lighter note, the best use of the 4% rule is to have a double of the investments. Meaning you should be able to withdraw about 8% annually, but you will constrain your consumption to only 4%. The other 4% cash flow can be used to store up existing or new emergency accounts. You may reinvest the excess liquidity into financial opportunities in the future.
Be Like Buffett: Keep 99% of Your Wealth in Equities Indefinitely
This sub-heading alone may drive some controversy and raise a few eye brows here. But certainly this is not financial advice. This level of thinking has made billionaires richer in leaps and bounds. If you were waiting to hear those orthodox ways to maximize retirement savings you’ve found another. This is how Warren Buffett got rich.
For nearly a hundred years, financial advisors have been preaching the same sermon. You are told to be weighty in equities and light on bonds and money market instruments. And you are consequently asked to reverse these when you are approaching retirement.
But this was not what Warren Buffett did. He stood with equities and weathered all the risks that came with the stock market until this day. The stock market with its risk perceptions, is actually one of the safest places in the world to invest money (don’t tell them I said this here ;-).
It requires a solid well diversified portfolio of outstanding businesses. Borrowing Pareto’s ratio: Take a look at Buffett’s investment history. You will make 80% of your wealth towards the last 20% of your life on earth. Such ways to maximize retirement savings are not for the risk averse. On the other hand, the miracle of compounding will assist best those who have a higher equities exposure.
Pursue F.I.N.E: Financial Freedom Next Endeavor
Do you want to discover ways to maximize retirement savings results while enjoying early retirement? One other way of pulling this off is to graduate from F.I.R.E to F.I.N.E. What would be your next endeavor after achieving financial security? Consider your current or past career. Examine your labor of love. Can you gas up your current side hustle and turn it into a big business?
As you retire early, most of your income would be in the “passive” category. You have purchased your time. You have moved from being a wage earner, to having money work for you – while you sleep. With nothing to lose, you can fearlessly grow a brand from the ground up. Take it to its highest potential by listing it as a public company someday. You have found ways to maximize your retirement savings by flirting with big capital. You will look back at your 7 figure investment nest egg as child’s play some day.
Sage Tip: Budgeting for Beginners: A Guide to Managing Your Finances
Minimize Mistakes: Avoid Speculation in the latest fads
At a time when you’re about to go from an active income earner to a passive income earner – requires wisdom. Remember that you got this far by dedication, commitment and consistency. You won’t easily fall for get rich quick gimmickry would you? So it pays to be vigilant always and invest only in ways to maximize retirement savings without risking it all.
But what if you want the taste of the N.E “next endeavor”? Can you dip your toe in with 10% of capital? The easiest counsel it to go ahead and invest all that you are willing to lose. Do this if indeed you believe you can sleep at night with that on your conscience.
But risking more capital has many effects. You could get used to winning from a coin toss and think you are invincible when you’re not. That’s how you experience a mental fart. Thinking that if Speculation ‘A’ didn’t get me burned, then what’s stopping me from leaping into Speculation ‘B’?
Keep on Learning: A Never Ending School of Life
Your financial literacy is actually what helped you develop your money mindset. This mindset is responsible for helping you achieve your financial goals. But this learning curve needs to be sustained. It cannot end. It is what will help you keep and maintain the wealth you have acquired.
Read Next: 4 Ways to Invest in Your Child’s Future
If you ever stop reading and building your financial acumen, the bricks of your foundation would begin to look shaky. Knowledge appears to be complete after acquiring it. But there is an unconscious process in the background that lead people into unlearning the fine things they know – when they least expect it.
Our thoughts remain volatile. A money mindset that has established ways to maximize retirement savings could suddenly revert back to old habits. You could experience molecular mental depreciation with regard to your financial acumen. For instance, if you binge on TV series for months, or hang out with peers who have bad money habits.
A Few Parting Words About Ways to Maximize Retirement Savings
A lot of investment nest eggs may see a plateau at the end of an active income life. This is because new money is not entering into the fund. The assets themselves are being sustained by the sheer power of compounding. But to experience maximization and leverage without undue downside risk, you may only need to make subtle shifts in your thinking and mode of operation.
As obvious as the above recommendations may seem, it all boils down to how they’re applied. Use these ways to maximize retirement savings with some creativity. Perform periodic reviews and optimize. Use a little innovation, and place a spin on the general rule. Then see the difference impacts your financial destiny over time.
In the comments below, share your ideas for maximizing and leveraging your investments – especially if you have an early retirement goal.
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