Three reasons to retire early (and how to do it)

Holiday scene, deckchairs and parasol on a beach

I see two different types of retiree around me. There are those that fill their days with projects, events, family, friends, hobbies and interests and typically utter statements like, "I don't know how I ever found the time to work."

Then there are those whose purpose and identity in life seemed so entangled in their career or work that when retirement arrives there's nothing much left in their lives and they tend to say things like, "I feel like I've been tossed on the scrapheap."

Cry freedom!

What if you retire early though, because you have enough money to never work again if you don't want to?

My guess is that if you retire like that the road ahead will likely be full of action and fun, and retirement will end up being a positive experience. Consider these potential benefits of retiring early with money to support you.

1. Time

There will beno need to work for income if you don't want to. Therefore, you can pursue other interests, perhaps occupations that don't require relentless early morning starts.

2. Choice

You can fill your days doing whatever you want. Relieved of the necessity of earning, the choice is yours. Family? Golf? Writing that book? Creating a prize-winning garden? You can even go back to work if you want, perhaps switching to something you love for a change or maybe volunteering with a charity.

3. Balance

For most, juggling family plus other commitments and interests with work often leads to life being out of balance. Often, work takes more out of our lives than it should.

Early financial retirement would give you the chance to restore your life balance and enjoy all the benefits that would flow from that.

How to do it

Assuming you have some kind of income, the first step to building enough wealth to retire on is to save some money on a regular basis. Once you start to build up a pot of funds you're in the powerful position of being able to scale up your funds by compounding.

The principle of compounding is your ticket to an early retirement. Compounding allows your wealth to expand without you having to labour for more hours. Your money is working hard for you -- earning interest and interest on the interest, and so on.

Keep earning, keep saving, keep compounding and early financial retirement could be closer than you imagine. To speed up the compounding process and to enjoy larger returns, many turn to investing in the stock market.

Evergreen defensives

Shares, in general, have a good long-term record of returns for investors and make good vehicles for compounding if you stick with defensive, growing companies and avoid the firms that have riskier businesses. Defensive firms tend to operate evergreen businesses that are less affected by the ups and downs of the wider economy.

By carefully selecting shares and reinvesting dividends back into these firms, it's possible to compound faster than simply saving money in a bank account. As well as compounding, an underlying business that's growing can push up dividend payments and share prices, which could add even more impetus to propel you to an early retirement.

How to get compounding returns

Shares with underlying businesses that are growing with steadily rising cash flows and dividends make it possible for you to compound your returns and build your wealth. That's why such a strategy is step five in the Motley Fool research report called 10 Steps To making A Million In The Market.

I urge you to find out about the other nine steps that could help propel you to a life-changing sum of money. This research is free and you can download it right now. Why delay? Good luck on your journey. Click here.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to Unbiased.co.uk - because while baby boomers know how to have fun - they also know how to save for the future.

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