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Can you really retire before 40?

By Judy Martel · Bankrate.com
Wednesday, April 10, 2013
Posted: 6 am ET

It's a topic of endless fascination, and one I've written about before: quitting the rat race well before the smoke clears from the candles atop your 40th birthday cake.

It's possible to build a golden nest egg early, but it takes dedication.

A generation or two ago, it was common for an employee to work for one company for 40 years or more and then retire with a pension to fund the remaining 10 to 20 years. These days, employees and companies have no such expectations. Employees change jobs on average every five to seven years and the responsibility for a retirement nest egg is largely up to the employee; pensions are becoming as scarce as the retirement gold watch.

Yet the stories of people who have chucked the 9-to-5 in their 30s and 40s continue to perform a siren song for cubicle-dwellers. Most of those plotting financial independence at an early age are making smart financial choices that include low-cost investing for growth, spending well below their means, choosing the simple life and avoiding debt. But there are potential roadblocks in the plan, such as unexpected medical costs, family needs and investment missteps.

Financial independence

Avoiding risk is an important part of any long-term financial plan. Jason Flurry, president of Legacy Partners Financial Group in Woodstock, Ga., advises taking these three steps toward achieving early retirement.

  1. Build a solid financial foundation that provides adequate risk management coverage and ample cash reserves.
  2. Create multiple streams of income that don't require you to be actively involved in order to work.
  3. Invest in yourself and your own personal development, especially when it comes to improving your financial literacy and understanding of financial concepts.

"Inflation and taxes are the biggest enemies of wealth creation, followed closely by the burden of carrying consumer debt," says Flurry.

"If you can manage to collect assets, earn stable income from them over time, avoid the debt trap and on average stay ahead of taxes and inflation with your earnings and investment returns, you can significantly improve your chances to get out of the rat race early," he adds. "Focus on them in that order. Just remember that cash flow is more important than net worth."

In fact, cash flow -- whether it's income from investments, rental property or another source -- is important to ensure you don't erode your nest egg, Flurry says. "Wealth comes and goes," he says, "but with constant, dependable and, preferably, rising cash flow as your buddy, you can make it for decades with peace of mind and comfortably enjoy your financial security for the rest of your life."

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