Early retirement gives you more options, but it requires planning for a longer time horizon as a pensioner.

Interested in leaving your job in the next 10 years and heading into early retirement? You first need to estimate what kind of income you will need to survive.

The experts put this at 75 per cent of your current income.

So, if you are currently earning $1 million annually, you will need retirement income of $750,000 per year.

But, say, for example, you decide that $600,000 annually is enough, as you want to obtain a monthly retirement income of $50,000, to get there in 10 years, you first need to determine the lump sum needed to generate $50,000 of pension income monthly.

To arrive at this monthly income of $600,000 annually, one would need capital, $6 million invested at 10 per cent per annum on retirement, ($6 million @ 10% = $600,000).

However, since this amount earned from interest would take a year to generate, it is necessary to have the first year of retirement income $600,000 already on hand.

Therefore, the capital required would be $6 million, plus first-year income of $600,000 for a total lump sum of $6.6 million.

The next step would be to calculate how much money you would need to invest annually to generate $6.6 million in 10 years.

This requires calculating the future value of money to determine the annual amount needed for investment each year, using an actuarial factor of 23.349 (extracted from a future value table), which assumes interest is being compounded at 15 per cent.

The required lump sum would be $6.6m/23.349 = $282,667.

So, annual investment necessary to reach retirement in 10 years would be $282,700 per year.

The formula is the same for any dollar amount, and financial calculators and charts can be used to calculate retirement savings needed to achieve desired goals.

Other analysts note that if the saver is 40 years old when he or she begins this mission of retirement savings to generate $600,000 in annual interest, he or she should know that the purchasing power of that money might be much reduced by age 50, he or she when they have achieved the goal.

Historically, the Jamaican dollar has lost, cumulatively, more than 500 per cent of its value in a decade.

At age 50, you might find yourself with an income ($50,000) that can only pay utilities.

Do not forget that having left your job earlier than the average Joe and Jane, you will have a retirement, which is also much longer than they.

For example, if you walk away from a nine-to-five job at age 50, you should pan for at least 35 years of retirement income.

You will need to index your annual or monthly savings amount to the inflation rate and watch changes in the value of the dollar to see how it affects your goal.

Otherwise, you might find that what you have saved is not enough to provide an adequate cash source in your retirement.

In addition to a source of cash, you will also need to consider acquiring other assets as suggested by our experts, including real estate, as you might have to sell one or two properties along the way in order to survive in your remaining years.

Maintaining an insurance policy might also be prudent as another hedge against missing income in the golden years.

avia.collinder@gleanerjm.com