3 Easy Ways Anyone Can Retire Early

Want to retire early? Just focus on living cheaply and investing in great companies such as Bank of Montreal (TSX:BMO)(NYSE:BMO) and TransCanada Corporation (TSX:TRP)(NYSE:TRP).

| More on:
The Motley Fool

Let me take you through the life of a man I know who retired before his 50th birthday.

Life is good for Jim (a pseudonym). He can usually be found at the golf course in the morning, getting a round in before it gets too hot. Lunch is spent with his wife or any number of friends. Afternoons are spent reading or fixing something around the house. Evenings are reserved for time with friends and refereeing sports, something Jim does to stay in shape.

I recently had the chance to sit down for lunch with Jim and ask him how he managed to retire so early. His answers surprised me–mostly because they were so simple. At least for Jim, retiring early wasn’t hard.

Here are Jim’s three keys to early retirement.

Live cheaply

There’s a reason why Jim and his wife settled down where they did.

Homes were cheap just about everywhere in Canada in the 1980s, mostly because interest rates were so low. After growing up in Calgary and seeing the housing market crash there firsthand, Jim decided he’d be better off in a small town without the booms and busts that often plague larger centres.

Jim settled on a house that was approximately 1.5 times his household income in a small community. Five years later, thanks to a couple of raises at work and living frugally, he was able to make his final mortgage payment.

At that point, it would have been easy for Jim to upgrade his reasonable home. Instead, he stuck it out, content with throwing all his cash towards his investments. And 25 years later he still lives in that same house.

Make it a priority

It wasn’t that Jim hated work. He just knew there would come a time when he wouldn’t want to do it anymore. Besides, Jim worked a physical job and was constantly reminded about the toll it took on his body by older co-workers.

Jim threw himself into his work, getting all the overtime he could get. He accompanied that with continuing to live frugally in his paid-off house.

Cars were made to last for years, and when they were finally replaced, a relatively new used model would be purchased. Jim still insists on buying used cars over new.

Jim’s motto was pretty simple. If you paid attention to the big expenses, you could create enough savings to make early retirement possible.

Make great investments

Jim realized pretty quickly that high-fee mutual funds were a pretty crummy way to invest. So he switched to individual stocks.

One of his best investments was Bank of Montreal (TSX:BMO)(NYSE:BMO). BMO was Jim’s bank, and even back in the 1980s he was impressed with the company’s ability to pass along fees to customers. He also took a look at how much the bank made in interest on his mortgage, multiplied it by a couple of million and was pleased. So he bought shares.

The same arguments apply for investing in BMO today. It’s still a major player in retail banking in Canada, but has since added a U.S. division to help diversify. The stock also trades at a reasonable price-to-earnings ratio and pays a 4.1% dividend.

Or, as Jim recently put it, “I bet BMO is cheaper now than when I first started buying it in the 80s.”

Another stock Jim has held for years is TransCanada Corporation (TSX:TRP)(NYSE:TRP). It was obvious to him that energy production in Canada would continue to grow, and the business of moving both oil and natural gas would be lucrative over the long term.

Jim made sure to focus on stocks that paid dividends, knowing those payments would one day sustain his retirement. This turned out to be a very smart move.

Summary

It’s not easy for the average Canadian to retire early. But if they, like Jim, make it a priority, it’s very possible. From Jim’s perspective, it was a journey well worth making, even if it was difficult at times.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »