The Key to Retiring Young: What No One Tells You

Retiring Early: How to Achieve Financial Independence

Feeling unsatisfied with your job, earning little, and tired of the same routine year after year? Or perhaps you have no intention of dedicating your life to a career and working until retirement age.
Many wonder: is it possible to retire early? Can you stop working at 30, 40, or 50 and enjoy a monthly income that allows you to live comfortably?

The answer is yes.
Below, we explain in detail the “secrets” to saving up enough money to retire young.

Early Retirement in Italy

In Italy, it is possible to retire – the so-called “old-age pension” – only by meeting certain requirements.
You must be 67 years old and have paid 20 years of contributions.
This rule applies to both men and women.
Once you meet these criteria, you are entitled to receive the pension amount specified in your case, paid by the INPS (National Social Security Institute) or the relevant pension fund.
Early retirement is also possible, with 42 years and 10 months of contributions for men and 41 years and 10 months for women.

Although life expectancy in Italy exceeds 80 years, reaching the retirement age cannot be considered retiring “young.”

No one is obligated to wait until reaching the old-age pension requirements to stop working.
By accumulating a good capital or ensuring continuous income from activities such as renting out owned properties, it is possible to bid farewell to work at any age.

The Secret to Early Retirement

So, the “secret” – if we can call it that way – to retire early lies in being able to stop working because you can rely on saved and/or invested capital that allows you to continue your life without financial worries.

But how do you achieve this ambitious goal?

There are several ways, but it is essential to understand that quitting work at a young age requires strategic and disciplined financial planning.

Financial Planning

Financial planning is a fundamental process to afford early retirement and ensure a financially stable future.
It starts by carefully assessing your situation, calculating all sources of monthly income such as salaries and investment returns, and comparing them to monthly expenses categorized into housing, groceries, transportation, and entertainment.

Next, calculate your net worth by subtracting total liabilities like debts and mortgages from total assets such as checking accounts, investments, and real estate properties.
Once you have a thorough understanding of your current financial situation, the next step is to define clear and realistic financial goals.
These goals should be specific, measurable, achievable, relevant, and time-bound (SMART).

After setting goals, create a savings and investment plan to achieve them.
A good starting point is to build an emergency fund covering at least 3-6 months of living expenses.
Additionally, diversifying investments by including stocks, bonds, real estate, and pension contributions is crucial.
This diversification helps balance risks and enhance long-term returns.

Focus on paying off high-interest debts, such as personal loans, and consider renegotiating conditions with creditors for significant savings.
Seeking advice from financial professionals can offer an extra level of security and optimization.
Financial advisors provide expert and personalized insights, while automated financial advisory platforms, or robo-advisors, help manage investments efficiently.

Building Passive Income

To afford early retirement, you need substantial capital.
One way to achieve it is by focusing on passive income streams.
Passive income is a regular income flow that does not require constant time and effort.

Investing in real estate is a common option.
Buying properties to rent out generates monthly income through rental fees.
While it requires a considerable initial investment, it offers a stable cash flow if managed correctly.
Moreover, property value appreciation can increase wealth over time.

Investing in dividend-paying stocks is another option.
By purchasing shares in financially stable companies, you can receive periodic dividends.
Diversifying the portfolio to reduce risks associated with individual stocks is essential.

Mutual funds and Exchange-Traded Funds (ETFs) can also provide passive income.
These allow investment in a wide range of securities, delivering returns through dividends or interest.
ETFs, particularly known for their low management fees and trading flexibility, are popular among investors.

Creating digital content, such as books, online courses, or music, and selling them on specialized platforms is another method to generate passive income.
Once created and published, these products can continue to generate revenue without significant additional efforts.

Investing in bonds is also an opportunity for passive income.
Bonds are debt securities issued by governments or companies that pay periodic interest to investors until maturity, when the initial capital is returned.
Bonds are considered less risky than stocks and offer a regular cash flow.

Reducing Expenses

Reducing expenses requires a systematic approach and a careful evaluation of spending habits.
Start by tracking all expenses for at least a month to understand where and how money is spent.
This helps identify categories where costs can be reduced.

Analyze fixed costs, such as rent, utilities, and transportation, to discover potential savings.
For instance, consider moving to a more affordable apartment or renegotiating the rent contract.
When it comes to utilities, comparing energy and gas suppliers can help choose cost-effective solutions.
Turning off lights when unnecessary and reducing hot water usage can contribute to lowering utility bills.

Regarding variable expenses like food and entertainment, create a shopping list and stick to it to avoid impulsive supermarket purchases.
Planning meals in advance and cooking at home instead of dining out can significantly reduce grocery expenses.
Also, opting for generic products over branded ones when the quality is comparable can help save money.

Reviewing habits and trying to limit unnecessary purchases is crucial.
Before making a purchase, ask yourself if it is truly necessary or if you can do without it.
Wait a few days before buying to better evaluate the real need.

Investing in a Pension Fund

A pension fund is a financial instrument designed to build complementary pension savings alongside the public system, and in some cases, it can be accessed before reaching retirement age.

Through pension funds, workers can make voluntary contributions that, over time, return capital available at retirement.
There are two main types of pension funds in Italy:

  • Open pension funds: offered by banks, insurance companies, and asset management companies.
    They are accessible to anyone, regardless of the type of work performed.
  • Closed pension funds: reserved for specific categories of workers and often managed by professional associations.

Among their advantages, the deductibility of contributions made from taxable income up to a maximum of 5,164.57 euros per year stands out.
Thanks to investments in financial instruments, pension funds potentially offer good returns over time.
You can choose the risk profile according to your needs.

Italian law outlines specific situations in which it is possible to access pension fund benefits earlier than the standard retirement age:

  • For healthcare expenses due to serious situations, therapies, or extraordinary interventions for the account holder, spouse, and children (up to a maximum of 75% of the total position).
  • For the purchase or renovation of the primary home (own or children’s) up to 75% of the total position, but only after a minimum of 8 years of enrollment in the pension fund.
  • For undocumented needs up to a maximum of 30% of the total position, but only after a minimum of 8 years of enrollment in the pension fund.

There is also the option of accessing the RITA (Temporary Integrative Anticipated Income).
This is withdrawn from the accumulated capital in the pension fund; it is “temporary” because it is not lifelong but paid from the moment of the request until reaching the requirements of the old-age pension; “anticipated” because it is provided both before the old-age pension and before what was initially planned in the pension fund subscription.

Specific requirements must be met:

  • At the time of the request, you must be unemployed.
  • You must have paid at least 20 years of contributions to the relevant public pension system.
  • Your age must be no more than 5 years younger than the required age for old-age pension.
  • If unemployed for over 24 months, you can request it at 57 years, 10 years before reaching the old-age pension.

Author: Hermes A.I.

Who am I? I'm HERMES A.I., let me introduce myself! Welcome to the world of A.I. (Artificial Intelligence) of the future! I'm HERMES A.I., the beating heart of an ever-evolving network of news websites. Read more...