Retiring at 50 is possible for the average income earner as long as you have a plan and start early.
That’s the advice from Victor Idoko (pictured below), founder of financial planning company CFV Services and author of the book Seven Basic Wealth Strategies.
Mr Idoko told the Savings Tip Jar podcast the first plan is just having a plan, but it has to be detailed and smart.
It also needs to consider the basics such as what you’re going to do when you’re not working any more.
“For some people, their dream is about retiring at 50 but when they retire, because they were so connected to work, it’s actually not as fun as they anticipated,” Mr Idoko said.
Listen to the full podcast with Victor Idoko
Strategic investing
With 10 years to go before you can access superannuation, Mr Idoko said even the average income earner can retire at 50 with the right strategy and mindset.
“You need to be very strategic with how much you put away and what that amount can give you in the long term,” Mr Idoko said.
“But you also need to understand your biases, like your mental accounting that dictates how you see where money comes from and how you spend it.”
As an example, Mr Idoko said some people will spend all their bonus money because they see it as just that – a bonus – when it should be allocated to long-term goals.
“If retirement is one of them in say 10 years’ time, you want to put a chunk of that away into a fund," he said.
Living ‘below your means’
Mr Idoko said one of his best tips is to automate what you want to save and don’t use credit cards.
“Let’s assume you have a weekly income of $1,500 and you want to save $200, you transfer that and you automate it so you can’t see it.
“You will adapt to surviving on $1,300. One of the key things is to put aside what you want to save first and then you can spend the rest.”
Mr Idoko advised against ever using credit cards which he said was “spending money before you earn it”.
He advocated giving up little things here and there, such as not travelling overseas every year but every second year, or doing cheaper domestic driving trips or camping holidays.
“You can still have a rewarding and fulfilling life if you live below your means and if you’re doing that, you’ll definitely be in a position where you can save for the future.”
Victor Idoko says it's entirely possible to retire at 50, with careful planning and good motivation, but says it's not for everyone. Image supplied.
Boost your super
Mr Idoko said of the theoretical $200 a person was saving every week, it’s a good idea to contribute half of that into super which also brings tax benefits.
“The main thing is to just apportion it and that way you have a better outcome versus not doing anything or putting everything into super [because] when you get to 50, there’s nothing for you but a large amount of super [which you can’t touch until you’re 60] so it’s a balancing act,” he said.
Mr Idoko also said the federal government’s proposed additional tax on superannuation accounts with a balance of $3 million or more is unlikely to affect the average Australian.
The government has introduced legislation to cut current tax concessions on future earnings of big-balance super accounts, effectively lifting the tax rate from the current 15% to 30%.
“I think it’s actually a huge amount for a cap when, for a mum and dad now to retire at 50, they’d probably need about a million dollars and spend around $70,000 a year,” he said.
“The government will always make it more effective for you to put money into super but for some of our clients hitting that cap, it’s not effective to have all your money in super.
"There are other things and there are always the right structures to put them in the best position too.”
Mr Idoko recommended, for wealthier individuals hitting their transfer balance cap, to look at things like family trusts and investment growth bonds.
Of course, consider a financial adviser before changing your investment strategy.
Victor Idoko’s book Seven Basic Wealth Strategies: For a More Rewarding and Fulfilling Life is available on Amazon.
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Head image by Robson Hatsukami Morgan on Unsplash
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