Do you dream of quitting work early and enjoying your golden years with peace of mind and financial security? This requires early retirement planning and knowing critical retirement hacks, which the FIRE movement espouses.

FIRE stands for Financial Independence, Retire Early, a program committed to prudence, aggressive saving, and investment. It enables people to retire much earlier than typical financial plans allow.

One of the leading retirement tips FIRE offers is setting aside up to 70% of yearly earnings, allowing supporters to leave their jobs long before reaching 65 years old. This way, they can rely solely on small withdrawals from their investment portfolios during retirement. Over the past few years, embracing the FIRE concept has been a growing trend among Millennials.

There are different types of FIRE methods: 

• Fat FIRE is best for those with regular 9-to-5 jobs who want to save well above the average while maintaining their current lifestyle. Achieving this usually requires a high income, religious savings, and investment strategies for retirement.
• Lean FIRE is for those dedicated to frugal living and intensive saving, which demands a much simpler lifestyle.
• Barista FIRE is for individuals who want a middle ground between the above-mentioned options. They have left their 9-to-5 jobs and rely on a mix of part-time work and savings, allowing them to afford a few luxuries.

Many believe that FIRE works for those who earn a substantial income, which is true if your retirement age definition is just in your 40s. Still, if you want to know how to plan for retirement in your 50s, you can gather insight from FIRE. The approach represents financial independence, from which you can benefit, whether you want to retire early or pursue work you enjoy rather than work you’re obligated to do.

 

How to plan for retirement in 10 ways

Planning for retirement involves blending smart spending habits and income streams with effective investment strategies and preparation for long-term healthcare expenses. If you are thinking of leaving the rat race earlier than the mandatory retirement age, you must:

1. Set your target savings for early retirement
Early retirement necessitates a profound shift in spending and saving habits. While how much you need to save depends on your lifestyle, life expectancy, and target retirement age, the Rule of 25 provides a straightforward solution: calculate your estimated annual retirement expenses and multiply that amount by 25. For example, if you think you’ll need P400,000 per year, aim to save P10,000,000 before you retire.

2. Budget and live below your means
Set a feasible budget to boost retirement savings while fulfilling your regular financial duties. To do this, you need to track your spending and identify areas where you can reduce costs.  To significantly increase your savings, living within your means may not be enough; FIRE enthusiasts suggest you live below your means. Sacrificing that morning coffee or cutting down your weekly cinema habit releases more money for saving and investing.  Moreover, getting used to spending less creates a habit of thriftiness, which you will need once you retire.

3. Make saving automatic
You need to factor in your savings as an expenditure, not as the amount left over after you’ve done your spending. Set up a savings account solely for your retirement fund and automate savings by scheduling regular fund transfers from your paycheck to your retirement account. The key is to save as much and as often as you can.  FIRE enthusiasts typically strive to save between 50-70% of their income.

4. Invest wisely
Consistently investing a significant portion of your monthly income, especially if you begin early, can lead to substantial growth in your savings, making early retirement a realistic goal.   Diversify your investment portfolio by investing in various asset categories, including fixed income securities, equities, UITFs, and insurance.

5. Build your emergency fund
While it’s wise to invest in medium to long-term investments to give your money more time to potentially grow, you also need an accessible savings account. It’s best to stash away money for living expenses for 6 to 12 months. This ensures instant cash access for your daily needs and emergencies.

6. Boost your income
Higher income enables bigger savings and investments. You can increase your income in your current job by working extra hours, pursuing promotions, or transitioning to a higher-paying role. Additionally, you can start a side hustle, seek freelance opportunities, invest in income-generating assets, or if you have an extra room in your house, you can perhaps rent it out.

7. Maximize government programs
While still working, find out all you can about employee benefits that can increase savings while lowering taxes. For instance, enrolling in the Modified Pag-IBIG II (Pag-IBIG MP2) Saving Program enables active members to earn extra and achieve higher dividends, supplementing their Pag-IBIG Regular Savings. Additionally, dividends are tax-exempt and can be withdrawn yearly or after the maturity period of five years.

8. Get out of debt
Debt can delay your retirement because you'll need to work longer to pay off loans or credit card balances. Identify the age at which you wish to retire and ensure that all outstanding debts are settled by then. By focusing on eliminating your debt now, you can enhance your savings for an earlier retirement.

9. Prioritize good health
Aging makes you prone to health risks that may require costly treatments. This is why it’s important to develop lifestyle habits that promote good health well into your senior years. Regular exercise, a healthy diet, stress management, and health check-ups are all vital in helping you enjoy a good quality of life.  Still, sickness is unavoidable, so it’s a good idea to invest in comprehensive health coverage that protects you from a wide range of critical illnesses like cancer, stroke and heart attack. This can cover costs from early diagnosis and hospitalization to recovery.

10. Assess and modify your plan regularly
Building a retirement fund is a continuous process that needs constant review and adjustment. Do this every year or whenever you experience milestones like starting a family, shifting careers, or moving to another location. Regular assessments let you know if you’re still aligned with your goals.

 

It’s never too early to save for retirement

Early retirement requires a lot of hard work now and a clear retirement vision. Unless you win the Lotto jackpot or inherit loads of money, you need to double down on building your nest egg faster if you dream of retiring sooner than most people.   But even if you plan to keep on working until you hit your 60s or even 70s, you should start saving for your golden years as early as possible to enjoy financial freedom for the rest of your life.

Like everyone else, you need to hang up your hat eventually.  Fortunately, being retired—early or not —doesn't have to be a permanent decision. You can always opt to "unretire" if you wish, and have a second career, or do some consulting or volunteering, or do whatever makes you happy and gives your life meaning.  Focused on your needs, Chinabank offers a full range of savings, investment, and insurance products and services to help you build your retirement fund so you can retire at the right time for you, whenever that may be.