Are you planning on an early retirement? You can almost forget it if you live in Denmark. The Scandinavian nation has raised its state pension age from 67 years to 70 years. It could even rise to 74 by 2040. It’s shocking but not entirely unexpected.
Denmark, it would seem, has let the genie out of the bottle. There is now speculation that other countries might not be that far behind the Danes.
Point is, life expectancy is rising and the workforce in many countries is shrinking. So, many economies around the world could require their citizens to postpone the day that they are allowed to hang up their boots.
For some workers, delaying their retirement might not be a huge ask. After all, working behind a desk is hardly the same as digging holes in the road. But for those whose work requires strenuous labour, the prospect of having to work into their 70s might not be nearly as appealing.
Whether we work in an office, in a factory or out in the open air, we can still be in control of our own financial destiny. I like to call it “salary independence”.
If we are not totally dependent on a monthly salary, then we can decide for ourselves when we would like to work fewer hours or even when we want to stop working, altogether. But it requires a bit of planning beforehand.
It is also crucial that we estimate how much money we will need if we should decide to stop working. I call it the magic number. That number should tell us how much money we will need to have in place before we can call time on work.
It will be different for everyone because there is no one- size-fits all magic number. We are all different. We all have different requirements, different expectations and different lifestyles.
Achieving salary independence should be everyone’s goal in life. It is attainable if we are prepared to make some sacrifices early on. It boils down to whether we want to have our jam today or a lot of jam later on.
For me, it is a no-brainier. Perhaps it was because I understood the power of compounding at an early age. And when the concept of routinely using spare cash to make even more spare money is applied to investing in good income-generating shares, then “salary independence” is no longer an implausible dream but an achievable reality.
The secret is to know where we are now and where we want to be at some time in the future. Then we need to identify a collection of investments that when assembled in a coherent way can help us achieve our target.
After that, it is just a matter of continually adding money to the portfolio, ignoring the noise in the market, and letting compounding do all the heavy lifting until we reach our magic number.
Make no mistake. There will be noise aplenty in the market especially with you-know-who around to cause as much chaos as possible. But sticking to the plan is key to successful investing.
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Disclosure: David Kuo does not own any of the shares mentioned.
