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Want to retire in your 40s? It's not impossible

The Street logo The Street 10/19/2015 Nicholas Pell
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Want to retire in your 40s? Who wouldn't? With the average age of retirement currently up to 62 according to Gallup and younger Americans expecting to retire before 55, there's both the reality of an increased number of working years and also the optimistic expectation for a shorter working life. But an early retirement is no accident; in fact, many people expect to work until they drop. To retire at all, and to do so early, takes years of careful planning and sacrifice to accomplish. Even with careful planning and sacrifice, the cards might be stacked against you. So how can you make it happen for you?

There's No Substitute for Early, Aggressive Savings

Marcy Keckler, vice president of financial advice strategy for Ameriprise, says that to retire in your 40s you need to take advantage of compounding, which means that you have to start saving early and saving aggressively. Most people know that compound interest can kill them when it comes to credit card debt. What they don't know is that compound yielding is what makes all the difference when it comes to retirement savings. Put simply, your money will start making money and that money will make money and so on. "You need to be really committed and dedicated to that," she says.

With compounding, even the small sum of $100 a month, becomes $80,957.36 over 25 years at 7% yield. You're not going to retire on that, but the more you put in, the more you're going to get out. At first, that might mean a lot of Ramen noodle meals, but as you get older and make more money, it's going to be easier to save more and increase your overall yield.

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But There Might Also Not Be a Substitute For Starting a Business

Leslie Bocskor, an investment banker from Nevada and managing partner with Electrum Partners, boils it down pretty directly: "You have to be an entrepreneur, and you have to have a big win," he says. "There's a lot of risk in that."

However, he's also quick to point out that how you define retirement matters: "Does retirement mean no longer working at all and just pursuing activities that have no economic benefit, or does it mean pursuing things that have economic benefit, but not needing the economic support provided by it?" That makes a difference in terms of how you save, but also in terms of how you plan for retirement.

No matter what you decide, Bocskor points out that you need to have a few things in place. "You have to have money that's invested in income-producing instruments that allow you to live on the interest," he says.

That requires seven or eight figures and goes back to the point about aggressively and consistently saving.

"It's a pretty steep hill to climb, and it requires a degree of maturity at the age of 18 or 20 that very few people even have in their 40s," he says.

What You Spend Is As Important As What You Save

Bocskor also points out that in your 40s you can readjust your life in several ways. "You can reduce your expenses to really minimal amounts to just have the basic necessities to take care of," he says. In a sense, everyone has to do this when retiring. It's a general rule of thumb that you have to reduce your expenses by around 30% going into retirement. However, there are ways to reduce your expenses even more drastically without making major changes in your overall quality of life.

He says that you need to have health care and a place to live that doesn't cost too much. "If you're not traveling, not indulging in luxuries and just paying for the basics, you can get really inexpensive. Southern California is nice, but it's much more expensive than Tuscon. If you live somewhere that you can ride your bike all year long, you can lower expenses that way," he says. "You don't need a giant cache of money to do that."

"You need to be really intentional about how lean you can live," says Keckler. "What is the expense associated with your lifestyle?" That's going to impact how much you can save now, but also how much you need in retirement.

"If you're very lean, you can save more more and spend less during a very long retirement," Keckler adds. "Very long" is a key phrase here. Advances in health care are meaning more people living into their 80s, 90s and beyond. You need money for that or you're going to have to make hard choices.

The Blue-Collar Road to Retirement In Your 40s

Finally, Bocskor notes that while the days of getting a factory job out of high school, working there your entire life and retiring on a decent pension are largely over, there is one similar route left -- public service. "A lot of people who contemplate retirement in their 40s are people who entered public service very early on," Bocskor says. "The retirement packages are great and reward people who put in consistent work," he says. "That's really the only place where you can count on the kinds of retirement packages people took for granted 50 years ago."

So if you don't want to invest like a madman or start your own business, you've still got an option for early retirement.

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