Retire Early in Australia: Secrets to Quit by 45

Do you dream of retiring early and enjoying the freedom of doing what you love, when you love, and where you love? If so, you are not alone. Many Australians aspire to achieve financial independence and retire early, or FIRE for short. But how do you get there? What does it take to save enough money to quit your job and live off your investments for the rest of your life? And what are the best ways to invest your money for early retirement in Australia? 

In this blog post, I will answer these questions and more. I will outline what early retirement looks like, give examples of people who have done it, share some tips and strategies to overcome the challenges, and provide some guidance on how to invest your money wisely for early retirement. 

What is Early Retirement? 

Early retirement is the concept of leaving the workforce before the traditional retirement age of 65 or 67. It is usually achieved by saving and investing a large portion of your income, typically 50% or more, and living below your means. The goal is to accumulate enough wealth to cover your living expenses for the rest of your life, without relying on a salary or government benefits. 

Early retirement is not about being lazy or bored. It is about having the freedom and flexibility to pursue your passions, hobbies, interests, and causes that matter to you. It is about spending more time with your family and friends, travelling the world, learning new skills, volunteering, or starting a business. It is about living life on your own terms, not someone else’s. 

How to Retire Early in Australia? 

There is no one-size-fits-all formula for early retirement. Everyone has different goals, preferences, and circumstances. However, there are some common steps that you can follow to plan and achieve your early retirement dream. Here are some of them: 

1. Know Your Numbers 

The first step to early retirement is to know your numbers. You need to have a clear idea of how much money you need to retire, how much money you have, and how much money you can save and invest. 

To estimate how much money you need to retire, you can use the 4% rule, which is a popular rule of thumb among early retirees. The 4% rule states that you can withdraw 4% of your portfolio value in the first year of retirement, and adjust it for inflation in the following years, without running out of money for at least 30 years. For example, if you need $50,000 a year to cover your living expenses, you would need a portfolio of $1.25 million ($50,000 / 0.04) to retire using the 4% rule. 

However, the 4% rule is not a guarantee, and it may not suit everyone. It is based on historical data from the US stock market, and it assumes a 30-year retirement period. If you retire early, you may face different market conditions, and you may need your money to last longer than 30 years. Therefore, you may want to use a lower withdrawal rate, such as 3% or 3.5%, to be more conservative and account for the uncertainty and variability of the future. 

To calculate how much money you have, you need to add up all your assets, such as your superannuation (note you cannot access until preservation age), savings, investments, property, and any other sources of income or wealth. You also need to subtract all your liabilities, such as your mortgage, loans, credit cards, and any other debts. The difference between your assets and liabilities is your net worth, which is a measure of your financial health and progress. 

To determine how much money you can save and invest, you need to track your income and expenses, and create a budget. You need to know how much money you earn, and how much money you spend, on a monthly or yearly basis. You also need to identify your essential and discretionary expenses, and find ways to reduce or eliminate the latter. The difference between your income and expenses is your savings rate, which is a key factor in achieving early retirement. 

2. Set Your Goals and Timeline 

The next step to early retirement is to set your goals and timeline. You need to have a clear vision of what you want to achieve, and when you want to achieve it. You also need to have a realistic and specific plan of action to make it happen. 

Your goals should be SMART, which stands for Specific, Measurable, Achievable, Relevant, and Time-bound. For example, instead of saying “I want to retire early”, you could say “I want to retire by the age of 45 with a portfolio of $1.5 million and an annual income of $60,000”. This way, you have a clear target to aim for, and a way to measure your progress and success. 

Your timeline should be based on your current situation, your desired situation, and your savings rate. You can use online calculators or spreadsheets to estimate how long it will take you to reach your retirement goal, based on your current net worth, your annual savings, your expected investment returns, and your desired withdrawal rate. For example, if you have a net worth of $500,000, you save $100,000 a year, you earn 7% a year on your investments, and you plan to withdraw 4% a year in retirement, it will take you about 8 years to reach your goal of $1.5 million. 

3. Invest Wisely and Diversify 

The final step to early retirement is to invest wisely and diversify. You need to make your money work for you, and grow your wealth over time. You also need to protect your money from inflation, taxes, fees, and market fluctuations. 

One of the most effective and simple ways to invest for early retirement is to invest in index funds, which are funds that track the performance of a specific market or sector, such as the ASX 200, the S&P 500, or the MSCI World. Index funds offer several benefits, such as low fees, high diversification, tax efficiency, and consistent returns. They also allow you to take advantage of the power of compounding, which is the process of earning interest on your interest, and increasing your wealth exponentially over time. 

However, index funds are not the only option for investing for early retirement. You can also invest in other assets, such as property, bonds or cryptocurrency, depending on your risk tolerance, time horizon, and personal preference. The key is to diversify your portfolio across different asset classes, geographies, and industries, to reduce your exposure to any single source of risk, and to increase your chances of capturing the best opportunities in the market. 

Examples of Early Retirees in Australia 

If you think early retirement is impossible or unrealistic, think again. There are many examples of people who have achieved early retirement in Australia, and who are living their best lives. Here are some of them: 

  • Pat Seyrak, who retired at 28 with a portfolio of $600,000, and who travels the world on a budget of $30,000 a year. He shares his journey and tips on his blog, Life Long Shuffle
  • Serina Bird, who retired at 45 with a portfolio of $1.2 million, and who enjoys a frugal and fulfilling lifestyle with her family. She writes about her experience and advice on her blog, The Joyful Frugalista
  • Dave and Kate, who retired at 32 and 33 respectively, with a portfolio of $1.1 million, and who explore Australia in their caravan with their two kids. They document their adventures and insights on their blog, Strong Money Australia
  • Peter Thornhill, who retired at 60 with a portfolio of $3 million, and who lives off the dividends from his Australian share portfolio. He teaches his strategy and philosophy on his website, Motivated Money
  • Chris Reining, who retired at 37 with a portfolio of $1.2 million, and who pursues his hobbies and interests, such as photography, writing, and travelling. He blogs about his story and lessons on his website, Chris Reining

Achieving early retirement in Australia is a journey that requires careful planning, disciplined saving, and strategic investing. By understanding the principles of early retirement, setting clear and achievable goals, and diligently working towards them, you can create a future that aligns with your deepest aspirations. Remember, early retirement is not just about leaving the workforce; it’s about gaining the freedom to live life on your terms. Whether it’s traveling, pursuing hobbies, or simply enjoying time with loved ones, the path to early retirement is paved with the decisions you make today. Let’s embrace the challenge, stay focused on our goals, and take proactive steps towards creating a fulfilling and financially independent future. 

Ready to chart your course to early retirement? Let’s make those dreams a reality, one strategic step at a time. Get in touch now

7Wealth Pty Ltd ABN 44609210246 is a Corporate Authorised Representatives and is authorised through Cobalt Advisers Pty Ltd ABN 64 628 654 099 who is an Australian Financial Services Licensee 512550. 7Wealth Pty Ltd is a Credit Representative of Australian Finance Group Ltd ABN 11 066 385 822 (AFG) Australian Credit Licence 389087. 
This blog contains information that is general in nature. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Cobalt Advisers Pty Ltd nor their directors, employees or authorised representatives, do not give any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. 

February 20, 2024