How To Retire Early In Australia

The following tips can help you make your goal of retiring early achievable.

1. Make a Plan To Minimise Costs and Maximise Wealth

To retire early you’ll need to expedite the accumulation of wealth. Proponents of the “financial independence, retire early” (FIRE) approach focus heavily on avoiding debt, being extremely tight with spending, increasing their earnings, and saving and investing 50% or more of their income.

Robbins says mindful spending, and allocating extra money wisely, are both essential to set yourself up for financial freedom. She puts extensive time into mapping out what a client’s end position could look like based on their current position, to see how much work is required to give them a choice about when to retire and maintain a quality lifestyle.

“If they can manage the outflow, then we will have some surplus, and then managing the surplus well—where that is allocated—is the key to what the future will map out like.”

Professional financial advice plays an important role in ensuring you avoid any “lazy money” or nasty surprises, according to Robbins. This includes planning your super for tax minimisation, a well-structured investment portfolio that provides a decent return, and having core insurances in place.

She says that while home ownership and property investing may not be viable for everyone during the accumulation phase, inexpensive housing or owning a home was vital for managing expenses during the retirement phase.

“The pull-down on assets is too great if we have to fund rent, on top of cost of living in retirement.”

Robbins says you could plan to purchase property once you can access super, but you’ll need to ensure all your pots of money (e.g., cash, investments, assets, super) enable such a purchase and give you enough to last until potentially 100 years of age.

2. Get Clarity On How Long Your Money Will Last

A retirement ‘budget’ is critical to realising an early retirement goal. There’s an old rule of thumb that suggests retirees can withdraw 4% of their nest egg each year in retirement—adjusted annually for inflation—in order to make your savings last over a 30-year period.

Extrapolating from this rule, you can roughly determine the total balance you’ll need by aiming to save 25 times your desired annual expenses in retirement. For instance, if you can live on $50,000 per year, you could seek to retire once you’ve achieved income sources valued at $1.25 million (25 x 50,000).

However, the rule isn’t foolproof and wasn’t designed for early retirees, who’ll likely be retired for longer than 30 years. In practice, you may also want to spend more of your savings earlier in life, to enjoy major purchases or travel while you’re younger and healthier.

Robbins says you may need to live more frugally if you retire before 55 to make your money stretch. However, she says some people “freak out” when they switch from the accumulation phase to retirement because they’re scared to draw down on their capital.

“And that gives them a bad retirement. Suddenly someone’s yelling at someone for spending money—well, I’m sorry, if not in retirement, when?”

Consider getting regular financial advice to evaluate the right level of expenditure depending on market performance and your lifestyle goals year-to-year. How much you withdraw and how long your money lasts will also depend on the performance of your funds that remain invested—another reason for ongoing financial advice.

3. Create Reliable Passive Income Outside Super

Robbins says it’s important to avoid a situation where all your savings are tied up in superannuation that you can’t access till you’re 60. Some of your surplus money should go into an investment portfolio that can generate passive income if you want to retire early.

Australian FIRE devotees tend to favour low cost broad-based index funds, ETFs and LICs, as well as holding multiple investment properties.

How you’re invested, and how the market performs, makes a huge difference. For instance, time in the market matters—starting early and investing consistently means you’ll benefit from compounding interest. Having a sound investment strategy and diversified portfolio that balances returns and risk also helps you maintain gains despite market volatility.

Robbins prefers yield-generating portfolios over a bias to growth investments, to achieve good returns without taking too much risk.

“The main reason for that is income is given and it’s known. I get flexibility, I can reinvest it, I can pay it to the cash account, I can utilise it. That is very valuable,” she said.

She says it’s ideal to be able to draw down less than what you’re earning on investments each year in retirement. But many people will need both yield and growth returns, even as they gradually spend their capital.

“We’re not trying to die with a pot of money.”

“Some people do want the next generation to have something, and that’s okay if that’s the goal. But more and more, It’s okay for people to live their best life and actually use the money for their own purpose.”

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