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

The Motley Fool
Holiday scene, deckchairs and parasol on a beach
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.