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AN ULTIMATE GUIDE TO TURNING YOUR EARLY RETIREMENT DREAM INTO A REALITY

EARLY RETIREMENT

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ.

 

This article is for all those who are counting their IRAs, 401 (k), self-directed 401k and other retirement planning options to enjoy that late-life freedom as early as 45 or 40. Financial freedom at 55 has become a thing of the past because today it all depends on your ability to take the right decisions. If your 9 to 5 life has left you drained and you are serious about an early retirement, here are 8 ways to coach you from scratch:

  1. Free yourself from the vicious circle of debt

The first step to securing an early retirement is getting yourself free from debt. If you do not wish to enter your early retirement with any financial lags or large payments that can eat away a massive chunk of your modest savings, you need to increase your cash flow by clearing all your debts. Paying off your mortgage or lease early will help you divert the funds into a Roth IRA or other retirement savings.

 

  1. Start living a frugal life

Rick Pendykoski

Saving is the only way to increase the cash flow as your career progresses and this can be done by controlling your expenses. It does not mean giving up on all your desires but only requires you to live a frugal lifestyle. A few compromises and you can save a significant amount which will eventually bring you closer to your early retirement dream. From giving up on your expensive memberships and cutting down your HVAC usage to making a few compromises in your lifestyle and sacrificing a few golf games, your day-to-day frugal acts will free you from your cubicle and give you the freedom to retire early.

 

  1. Be open to the idea of changing

Prioritize between your wants and your needs. This will help you break free from the shackles of your tiring nine to five schedule. Enjoying life to the fullest sounds like a great idea to most of us, but it also means that you are losing on the real joy of retiring at 40 for momentary happiness. If fancy dinners and long drives in luxury cars mean more to you, an early retirement is obviously out of your reach. Mindful spending needs major lifestyle changes for which you may need to give up on stylish clothing, lavish parties, exotic vacations and more. This is only possible if you change your perception of conventional societal programming which demands that you give up on your desires of bigger houses and new cars. It calls for a complete mind shift from spending to saving.

 

  1. Take a head start with a high-paying industry

It is possible to retire well before you turn 60 if you are working for an industry that pays really well right from the start. A good-paying job plays a critical role in paving your path to a financially independent future. You too can enjoy a retirement of rest and relaxation if you are willing to take up personal responsibility in professional life. Getting closer to your goal of early retirement requires you to be self-sufficient early on in life.

 

  1. Automate 50% of Your Annual Income to Retirement Savings

Allocate as high a percentage of your annual income as possible to pay up your previous debts, pending bills, leases, and loans. Once you are done with of all these, automate your income towards retirement savings. You can start with 30% and raise the bar every year as your income increases. Every time you get a raise, increase the amount you add to your retirement reserve.

 

  1. Be sure to invest in a 401 (k) plan

Many employers are offering 401 (k) plans where you can invest a certain amount of your income and your employer makes a matching contribution to bolster your retirement savings.

 

  1. Stick to a frugal lifestyle

You need to revamp your investment plan as your career keeps progressing. What you want to achieve – an early retirement is an extraordinary goal and so your efforts should be focused on living frugally. Always keep a rewarding retirement at the top of your mind and you will remain motivated to keep the passion alive and pursuit kicking.

 

  1. Invest in an IRA

An IRA is a preferred and popular choice for retirement savings. You can consult an experienced and reputed financial advisor to guide you in selecting right IRA. An IRA will allow you to enjoy tax benefits if you choose to retire early. It will get to where you want faster than you think.

 

Start investing right away and make your retirement the best phase of your life.

Top 10

WHY HIGH NET WORTHS SHOULD BE LOOKING AT ANGEL INVESTING IN A NEGATIVE INTEREST RATE ENVIRONMENT

By Oliver Woolley, Envestors

 

As England gets through its second lockdown, Bank of England policymakers report the UK we may be headed for negative interest rates. This would be the for the first time this has happened in the bank’s 326-year history.

With interest rates already at 0.1%, central bank officials announced an additional £150bn stimulus package, in an attempt to boost consumer spending during the second wave of the pandemic.

Despite news of a vaccine, the BoE has taken the total stimulus to £895bn, as double-dip recession forecasts emerge.

In the event of negative interest rates becoming a reality, banks would have the incentive to lend more by making loans cheaper, but account holders would likely be asked to pay to hold money in a savings account.

While plans for negative interest rates are pending, government bonds are already selling at a negative yield of -0.003%, with investors hoping for the safe haven of government issued bonds paying out to get their money back in three years.

Between negative returns on savings accounts, lower yield on bond holdings, a volatile stock market and a projected dip in property prices, investors don’t have many options to diversify their portfolio in a negative rate interest environment.

However, for investors who are comfortable with risk, early-stage investing may be the answer. Angel investors support early-stage companies through financial backing, typically in exchange for equity in the company. An additional benefit for angel investors is the generous tax reliefs offered under the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

 

Oliver Woolley

What is angel investing and why is it attractive?

An angel investor (also known as a private investor, seed investor or angel funder) supports early-stage enterprises by providing funding and getting actively involved in the business. Typically, the amount invested is between £5,000 and £50,000 per investment.

Early-stage investments are high risk as the number of early-stage businesses that grow through to an exit is low. Previous research suggested that 56% of investments in early-stage companies went bust. This is why experienced angels aim to build a diverse portfolio of 20+ investments.

While angels usually have to wait a number of years before recovering their initial investment, returns can be considerable. Due to the high risk nature of angel investing, high net worth individuals are usually looking for a 2.5x Return of Investment (RoI).

When first starting out, an investor should look for a well put together business plan with a defined exit strategy. Many angels choose to join an angel network when starting out, where investors can pool investment capital and invest alongside like-minded, experienced investors.

 

Tax relief through EIS and SEIS

In order to encourage investment in start-up companies which play a vital role in the economy, the UK government has launched several tax relief programmes, including the Enterprise Investment Scheme (EIS). This scheme, which makes investing in early stage enterprises tax-efficient, has encouraged £22bn in investment in 31,365 companies.

By investing in an EIS eligible company, angels receive income tax relief of 30% of the amount subscribed for eligible shares. Investors can put in up to £1m per tax year in EIS qualifying companies for the tax relief; this cap rises to £2m if investing in knowledge-intensive EIS companies.

In order to qualify, companies have to be trading for less than seven years and can raise a maximum of £12m.

Through EIS, angels receive a Capital Gains Tax (CGT) exemption, carry back and loss relief which can be offset against CGT or Income Tax.

Looking at a practical example:

If an angel invested £10,000 and the company failed, their actual loss would only be £7,000, due to the 30% income tax relief. However, a top rate income taxpayer paying tax at 45% will be able to claim loss relief on their tax liability at the 45% level. In this example, they’re eligible for further relief of £3,150, making their actual loss £3,850.

The success of EIS led to the introduction of the Seed Enterprise Investment Scheme (SEIS), promoting investments in riskier, earlier stage companies. About 80% of UK angel investors seek relief through EIS or its sister scheme, SEIS.

SEIS allows HNWIs to invest up to £100,000 and receive 50% tax relief on their investment. In order for companies to be eligible for SEIS, they have to have been trading for less than two years and cannot have more than £150,000 in previous investment.

 

Hot investment sectors

Reports from the British Business Bank and the UK Business Angels Association reveal that many investors are still seeing positive returns during the pandemic.

While angels are battling economic uncertainty, around three quarters are optimistic about the market bouncing back within the next 12 months.

Healthcare, Digital Health and MedTech, BioTech, Life Sciences and Pharmaceuticals are the leading sectors in terms of investor engagement during the COVID-19 crisis.

Software as a Service and FinTech have fared well throughout the pandemic and are still attracting a large number of investors.

Getting started with angel investing is now easier than ever, with an array of angel networks that can provide advice and support. Industry-association, the UKBAA, offers an Angel Investment Accelerator which is designed for those new to early-stage investing.

In order to choose the right angel network, HNWIs should look for the most active networks; Research body Beauhurst recently published a list of the most active networks in the UK.

Active networks will present a greater array of screened opportunities as well as connecting new investors to more experienced ones.

The best networks cover a variety of regions, sectors and investment sizes, and they’re forthcoming with examples of previous investments, so first-time angels can make the right choice on how to grow their portfolio.

So, while looming negative interest rates may require a rethink of current investment strategies for many – it might also open up a new and exciting investment class that offers much more than just financial gains.

 

ABOUT THE AUTHOR

Oliver Woolley is CEO and co-founder of Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early stage investment in the UK.

Envestors partners with accelerators, incubators and angel networks to provide a white-label platform empowering them to promote deals, engage investors and connect to other networks.

Founded in 2004, Envestors has helped more than 200 high growth businesses raise more than £100m through its own private investment club.

Envestors is authorised and regulated by the Financial Conduct Authority.

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Wealth Management

QUICK FIXES TO LOWER YOUR CAR INSURANCE

Car insurance is something we all have to pay for, no matter how much we despise it. However, it’s not all bad. There is light at the end of the tunnel, as there are several things you can do to reduce your car insurance payments. We have teamed up with RAC Shop to put together a simple list of quick fixes on how to lower your car insurance legally.

 

Shop Around

Never take the first quote you find to be the only price that you should be paying for your insurance. Whether you’re looking for new insurance or you are looking to renew your current insurance shopping around and comparing car insurance prices can save you a significant amount of money. This also helps you find the best possible deal. Staying loyal to your current insurer can, in some cases, be a hindrance and could lead to paying more and more each time you renew your insurance.

 

Pay Up Front

Once you have found an insurer that you are happy with and have found the best deal for your vehicle, it is always a far better idea to pay in full upfront rather than in instalments. When you sign up to pay monthly, insurers are far more likely to charge you interest on top of your base fee. Which can sometimes be up to around 30% APR, which is precisely what you want to try and avoid.

 

Pay For What You Use

People may think that you are likely to get the best deal when paying for a third party fire and theft policy rather than a comprehensive one. However, the team at RAC Shop would recommend always going comprehensive, which can be cheaper than a lower level protection plan. Some insurers associate third party fire and theft policies with high-risk drivers that are looking for the most affordable option and would therefore automatically charge you more as a result.

 

Avoid adding modifications to your car

It may be tempting to get carried away with adding modification after modification to your vehicle, however even changing the simplest of things such as upgrading your stereo or speakers can increase rather than decrease the price of your insurance premium. This is because the more modifications you make to your vehicle, the more desirable your car is to thieves. Modifying any part of the car’s body or engine, for example, are something to be avoided, as vehicles with these modifications incur higher insurance premium prices as they tend to be driven by younger drivers who are at a higher risk of crashing.

However, not all modifications mean your insurance price will skyrocket. Car alarms and dash cams added will reduce your insurance price. Some insurers even offer up to 10% off your insurance if you fit a dash cam to your vehicle. You are improving safety whilst decreasing your payment. What more could you want? Remember, it is essential to declare any modification you make to your car for any claims that are made not to be rejected.

 

Add a Black Box

A black box is a small tracking device that is widely used especially with young or new drivers, which allows insurance companies to see how well you drive and as a result, can significantly reduce your insurance.

Although adding a black box has an abundance of perks, it can also cause limitations to your driving. For example, you may be penalised for driving later at night. The other thing to note is that you will be paying for the black box every month. This allows the insurance company to re-evaluate your driving each month, where you can be rewarded with lower insurance prices for good behaviour or punished with a higher price if any rules are broken, or they deem you’re driving unsafe.

 

Maintain a Good Credit Score

Maintaining your credit score has seen many people reduce their insurance premium. Most insurers will use your credit information to help determine a price for your insurance premium. It has been researched and proven that people who manage their credit will tend to have fewer claims. This can be done by ensuring all bills are paid on time, obtaining only the amount of credit you need, and keeping credit balances as low as you can. All can help reduce the insurer’s policy prices.

 

Reduce Your Mileage

Regularly reviewing and considering how much mileage you are realistically likely to use will ensure you are paying the correct amount. If you are looking at ways to reduce this price, the less mileage you rack up, the lower your premium price will be, whereas the higher the mileage, the higher the price. If you are overestimating how much your annual mileage will be, you are effectively, just throwing money away. Keeping track of your mileage each year will make things easier when estimating your yearly mileage the next time around. Be careful not to underestimate, however, as this may end up costing you more if you need to claim on your insurance.

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