Monday, January 11, 2010

Different types of retirements

There are many ways to retire. Some are easier than others. And some still think there is no way they can retire at all :)

There are 2 main factors in retirement;

1. IN : how much do you have and
2. OUT : how much will you use during your retirement

So naturally if you have more IN than OUT then you can retire.

One of the ways is to calculate how much your OUT would be and then accumulate IN as fast as possible. You may have read that its rather simple for a single woman to retire at young age.

There are 2 main influence on the figure OUT;

1. if you live a luxury life, it may take longer to retire ... if ever ...
2. if you live frugally, you may retire sooner.

Some may think they live frugally but actually they may have been spending more than they should. A good way to quantify your OUT is to look at how you have been expensing for the past 10 years. It would most likely be how you will spend in future. The way we use our money is deeply embed in our subconscious. Its easier to discover it than to change it.

Once you have figured out how much you need to retire, you can work on the IN part. There are 2 ways to accumulate your IN;

1. Lump sum : save as much as possible until you reach the same amount as OUT, then retire.
2. Passive income : find a way to consistently receive your IN in smaller amount but continuously without doing much.

Now the key of successful retirement is you will need BOTH ways to accumulate your IN. Simply put, keep your day time job and start learning and building your passive income at the same time.

Problems come when some focus only on one Lump Sum to achieve retirement but a sudden expense surge in future may kick them out of their retirement. Some others only aim at luxury goals by only pursuing passive incomes neglecting the use of Lump Sum Saving method as a backup plan.