For some people, retiring at the age of 50 may be like a daydream. It's difficult, but not impossible, as long as you plan from the start and are smart in making financial decisions. By reducing your expenses as much as possible from now on, you can save more money and invest for the future. Also consider saving money and learning to live as you are after not working anymore.
Step
Part 1 of 3: Saving for Retirement
Step 1. Create a realistic retirement budget
To set a budget, you need to have an idea of how much money you can save until it's time to stop working. Calculate the estimated cost of living each month, then check to see if you can take that amount each month out of retirement savings.
As an experiment, try living on that budget for six months. If you can do it effortlessly, you may actually be able to retire once your savings target is reached. If it turns out that you take savings or are forced into debt, it means you are not ready
Step 2. Start saving now
It's never too soon to save, no matter how small, there must still be something set aside. By saving as early as possible, your chances of retiring according to the plan will be greater, the budget after retirement can be enlarged.
- The ideal time to prepare for retirement is when you start working in your early 20s, or as a teenager.
- If you're just saving in your 30s, then you have no choice but to set aside more money.
Step 3. Be prepared to set aside up to 75% of your income for savings
The average Indonesian saves only 8% of income. However, if you expect to retire at 50, you should be able to save 60–75%. It may seem hard, but it can be done if you are willing to sacrifice a few things.
- Make it a goal to have 30 times the amount of money you will spend during the first year of retirement.
- The exact amount that each person should save varies, depending on budget and lifestyle. Ideally, you should keep at least 15% of your annual income before taxes.
Step 4. Postpone plans to stop working until the children are old enough
Expenditures for children are usually very large. If you have children who will depend on you financially when you reach 50, your savings may not last long. So, devote time and energy to their current needs, then shift focus once they're independent.
- This consideration also applies if you are responsible for supporting a parent or other relative.
- You should still try to save even if it's not much.
Step 5. Invest outside of a pension or Old Age Security
Look for investment opportunities such as dividend stocks, property rentals, bonds, and peer-to-peer lending. The goal is to build a large and diverse portfolio across a wide range of assets. This is the best way to ensure your funds survive losses and adverse market conditions.
- Tax-deferred or tax-exempt assets are preferred by the common people over taxable assets because more money is coming in.
- Start investing more conservatively if you are getting old. The greater the risk of the portfolio approaching the age of 50, the greater the risk of loss if the market suddenly changes.
Step 6. Try not to take out retirement funds prematurely
When there is a lot of need, you may be tempted to take savings. However, it would be wise to look for ways to reduce your cost of living or increase your income. Avoid retirement funds except for very urgent needs.
- If you take out a savings account, you may not be able to close it again. If you follow a special retirement savings account, you may lose interest that would otherwise be earned. In some cases, you may also have to pay a penalty for withdrawing money prematurely.
- The only conditions in which you can take out a pension held in a financial institution are when you are disabled, when your home is about to be foreclosed on, or you have to pay medical expenses that exceed 10% of your gross income.
Part 2 of 3: Paying Off and Avoiding Debt
Step 1. Pay off your home loan
If you're still paying off your home loan, prioritize paying it off. Home loans or mortgages are the biggest expenses for most people. If it's paid off successfully, you'll be able to set aside a lot of money, which can then be allocated to other things.
- If possible, pay extra every month or when you get big funds such as annual bonuses or THR. So, the amount of the next bill will be reduced.
- Another option is to pay weekly or daily, as offered by BTN. Instead of paying every month which is psychologically greater, you can choose daily or weekly payments. Depending on the interest rate, this can reduce the bill to the equivalent of 8 years from a 30-year mortgage.
Step 2. Pay off all debts
Make sure all consumer debt or business debt has been paid in full, as well as vehicle loans, credit cards, and other major loans. If you still have outstanding debt as you approach your ideal retirement age, you should be prepared to part with most of the money you've saved.
- Start setting aside as much income as possible in the allocation of debt repayment.
- Debt makes it very difficult to save. You can't raise enough money if you haven't paid off (or reduced) your bills.
Step 3. Use a credit card only as a last resort
Save a credit card for emergencies, such as when the vehicle needs a new transmission or to help pay for a close relative's hospital. Credit cards are also a tempting debt trap. The more credit card debt, the more interest and fees that must be paid, which should be saved.
- Always try to pay for anything in cash. The price is the same, but there will be no interest and burden to eat away at you.
- If you must use a credit card, make sure you pay off the bill on time. Too bad you have to pay interest and late fees.
Step 4. Postpone family planning until you have made a retirement plan
The presence of children is not an obstacle to saving, it's just more difficult. The amount of funds that can be saved for early retirement will be less if you have dependents. If you're not careful, you could end up in debt. So, it is very important to make a financial plan before starting a family.
- Families with a combined annual income of IDR 60 million spend an average of IDR 11 million per year on one child until they reach the age of 18.
- With the habit of saving and investing before starting a family, you will be better able to accumulate enough money to retire when your children are independent.
Part 3 of 3: Life As It Is
Step 1. Cut down on unnecessary expenses
Re-evaluate monthly expenses and determine if there are any that are unnecessary or can be reduced. This includes landline phones, cable TV, or expensive data plans. Look for ways to reduce or choose a cheaper plan. For example, you can unsubscribe from cable TV and choose streaming or change to a family plan with another provider that offers lower costs.
- To reduce expenses that are really needed, eat less, use one car transportation with friends or family, and reduce the use of air conditioning.
- If you really want to cut expenses, consider selling your car and buying a bike or using public transportation. Even an economical vehicle can drain your monthly budget when you factor in the cost of gas, insurance, and routine maintenance.
Step 2. Move to a smaller house or apartment
Instead of spoiling productive years by living in a luxurious house, consider choosing a medium-sized house or apartment that provides enough space as long as it is comfortable for you and your family. Smaller residences usually also mean lower maintenance costs and less space to decorate with unnecessary items.
- If you don't like the idea of a small house, an alternative is to move to a cheaper part of town with less expensive property prices.
- Another way to reduce housing costs is to choose a shorter mortgage. If you can pay off your house in 15 years instead of 30, you can save money that would otherwise be used to pay interest.
- You can also consider renting out part of the house. Additional income from there will help with mortgage payments.
Step 3. Move to another province or region with lower taxes
The amount of local taxes varies. So if you move to a place with lower local taxes, you can save more and enjoy retirement at a lower cost.
Another benefit of moving to a low-tax area is the change of scenery, which is a breath of fresh air if you live in the same place your whole life
Step 4. Get more affordable health insurance
Look for insurance alternatives with lower premiums, but cover outpatient, prescription drugs, hospitalization, as well as dental and eye care. Choose insurance that covers emergencies, but doesn't drain your monthly budget too much.
- The National Health Insurance from BPJS is a very affordable alternative to private insurance. You can adjust the monthly premium with your ability to pay, but the facilities provided remain the same. In addition, JKN also covers patients of all ages. However, there may be certain measures and medications that are not covered.
- Compare alternatives until you find a policy that fits your budget. Inexpensive policies are hard to come by, but they exist. So, don't hesitate to search.
Step 5. Barter whenever possible
If you have a special skill that others might find useful, ask if anyone would be willing to use your services in exchange for other services or goods. So, you don't have to reach into your wallet for many purposes.
For example, if you're an IT expert, offer to design a website for someone who has the tools and expertise to fix a broken air conditioner
Step 6. Try working part time to supplement your retirement fund
If you can't quit your job completely by the time you reach 50, consider staying part-time. So, you still have enough money for living expenses while saving.
- Suitable jobs for semi-retired people are shop clerks, clerks, consultants, repairmen, and personal or medical assistants.
- Spend some time looking for a part time job. There are many interesting jobs that you can do without any specific training or education.
Tips
- Don't forget to calculate inflation in your financial projections after retirement. An increase in inflation can make spending swell so that savings are reduced more quickly.
- By relying on the money you invest in the early stages of retirement, you can avoid the penalty for withdrawing your retirement funds early.
- Today, private employees also get Old Age Security if registered by the company. However, if you are a civil servant or a member of the military, you may be able to apply for early retirement.
