Do you dream of retiring early, maybe even in your 30’s? As nice as this dream sounds, it will stay a dream for most Americans. The vast majority to be exact. The traditional retirement strategy doesn’t offer much hope for retiring early, much less any guidance on how to retire by 40. If retiring while you’re still young enough to enjoy it is one of your goals, you need to think outside the box and seriously question conventional wisdom.
Per conventional wisdom, most Americans save for retirement by using a 401(k) or IRA. These accounts are heavily regulated by the government and restrict access to your money. You are supposed to keep your money in these accounts until you turn 59 ½. Just by the nature of when you can begin to make withdrawals makes retiring by 40 impossible. If you want to take money out prior to age 59 1/2, you will get hit with ordinary income tax (the highest tax) plus an extra 10 percent penalty on your early withdrawal. Not only is it impossible to retire early using a traditional retirement plan, it’s extremely costly if you were to try.
When you invest in a 401(k) or IRA, you build a pool of savings. The idea is that this pool grows big enough to produce enough residual income to sustain a comfortable retirement. Most Americans are having to either live well below the lifestyle they had become accustomed while they were working, or work well into their retirement years. It’s a scary proposition for most people. Terrifying, actually.
Having said that, it’s not impossible to retire young, even as young as 30. However, if you want to achieve this goal, you need a completely different strategy. If you want to know how to retire by 40, the answer is residual income. The traditional plan has that part right, but I’m speaking of residual income NOW as opposed to waiting for that residual income in your 60’s. To accomplish this, an immediate shift from the antiquated “saver’s” mindset to a “residual income” mindset will be necessary.
Now… residual income is money that comes in regularly from your investments. Once you get a residual income asset up and running, it starts generating money with very little work on your part. Done right, this residual income can start hitting your mail box on a monthly basis nearly immediately after putting the investment into place. Properly managed, the residual income will last indefinitely. Since the goal of saving money the old-fashioned way is to eventually create a residual income for your retirement, the big question is…
“Why wait until your 60’s to receive your residual income when you can receive it RIGHT NOW?”
Residual income investments consist of assets like rental income property, automated businesses, and royalties. All of these assets can generate an immediate and consistent return on your money. It can take some effort to set up, but once it is… it can continue to create a residual income with no extraordinary effort on your part well into your retirement years. Further, you can spend your residual income as soon as you receive it which, needless to say, makes it conducive to an early retirement.
The key to retiring early is building up multiple sources of residual income as soon as possible. Start now and watch your total monthly income rise. As you’re receiving this extra money each month and use it to build, or grow, another source of residual income. Once your monthly residual income exceeds your monthly expenses, you can essentially exit the rat race [Read more: How to Get Out of the Rat Race], or… retire altogether
No matter how you manage your money, it is difficult to retire before you turn 40. If you only use traditional investments, it’s pretty much impossible. However, residual income gives you the best, a possibly the only, chance to hit this goal. If you want to learn how to retire before you are 40, invest in your financial education and learn how to invest your money to create residual income.