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Planning an early retirement

If you're planning an early retirement is necessary to learn about the value of money over time, how the retirement system works in your country and on alternatives to secure your retirement. Here you will learn about these issues as well as opine and ask your doubts.

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The value of money over time

Here the concept of compound interest comes into play as well as some mathematical formulas. But to put it simply, when you invest money and reinvest consistently the profits of such investments, your money grows exponentially, the more you do these operations the more wou'll earn.

Another point to understand the value of money over time is that a 100 bill is now worth more than it will be worth tomorrow. Why? Simply because there is inflation, which is the increment in the prices of goods and services. Let's put it another way: the 100 of today can buy more because prices will go up tomorrow and be able to buy smaller quantities of products and services.

Because of this, if you're planning an early retirement, the sooner you start saving the better because you can take advantage of the effect of compound interest.

The retirement system

Normally, the retirement system is written in country-specific laws. It is these rules that define whether the workers' retirement will be according to their individual contributions or through contributions to a common fund which is supposed to finance the retirement of each person.

It is important to understand this aspect as it will determine the control you have over your retirement fund. Since retirement normally is an issue strongly influenced by the policy of each government, considering also that many governments will pass until is your turn to retire and that normally laws do not allow you to touch the money until you retire, your control is minimal and therefore the risk of not being able to retire very high.

For example, suppose you start saving for your retirement at your 25, the retirement age is set at 65 years, and your savings are invested at a rate of 3%, and that each government period takes about 5 years.

Under these assumptions, 8 governments will pass until you are allowed to retire and they can radically change the rules and endanger your retirement. For example, a government could amend the law to increase the retirement age to 70 years and define the savings are invested in risky financial instruments in order to obtain "better returns"

Without detracting from any government in particular, this is an example of how easy it is to change the laws according to the interests and objectives of each government, affecting millions of people and is also a sign of the little control we have over our money.

This leads to the next point:

Alternatives for Retirement

So if you're planning an early retirement and saving for it is very unstable under the law of your country, then what can you do?

The alternative is clear: create your own source of money on which you have control so you do not have to rely on money handled by a third party (whether good or bad) for your golden years. In fact, independent professionals are experts in this subject.

If you're serious about planning an early retirement, In our section make extra money to talk more deeply about alternatives to create your own source of money on which you have full control.

It's your turn to express your opinion...

Are you planning an early retirement?

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