How to Use Leverage to Create Retirement Income?

Retirement Income
Retirement Income
Written by Vikas Sethi

Retirement planning is being widely discussed these days with people being more and more aware of the FIRE movement. FIRE is a movement that refers to ‘Financial Independence, Retire Early’. The idea found its value in the lives of youngsters who wanted to enjoy a relaxed retirement as soon as they could, rather than spend the best years of their life in their stereotypical 9 to 5 jobs. They are willing to step out of the box to plan and execute their early retirement.

The FIRE movement and introduction of leverage in retirement planning

The FIRE movement essentially talks about a phase where individuals work extensively and save rigorously during their working life. The idea is to increase your monthly income considerably by working over-time or part-time, taking up a secondary job, freelancing on the side, or opening a business. The savings also need to be invested in avenues that initially account for capital appreciation and later on provide a steady flow of income to fund your post-retirement life expenses.

Going forward with the principals of the FIRE movement, you need to save at least 70% of your earnings and invest them in suitable avenues. But the problem with retiring early is not just money. There are many other related aspects as well. For instance, early retirement would mean that you will most probably be at home relaxing while others are hustling in their busy routines. This psychological shift can make you feel unaligned with your peers or family members. Secondly, there may be an initial sense of financial abundance soon followed by a sudden realization of living on depleting assets. You need to be extremely diligent on how and where you spend your money to make sure that you do not outlive your savings. Lastly, retiring by the age of 35 or 40 leads to a longer retirement phase and a shorter work life. This is indicative of an imbalance between two important factors:

  • Earnings
  • Time to earn those earnings

In the traditional way, the later you retire, the more time you have for planning, earning, and saving for your retirement.  But when it comes to early retirement, you need to work harder, go the extra mile, and earn more money to fund your early retirement. While the demand for putting in more work and earning more money increases, the time at hand is considerably cut short. This is where leverage can aid your early retirement.

But before you decide to create some financial leverage, you need to answer the following questions to get some clarity:

  1. How much money do you need to retire?
  2. How much time do you have to earn that money?
  3. Do you have any debts or loans to repay?
  4. Is your lifestyle inflated?

Answering these questions will bring some clarity to your present financial situation and help you plan for the future accordingly. Not everyone is struggling to make ends meet and some professionals are also able to earn a substantial amount of money in the first few years of their careers. However, regardless of these factors, planning well and investing the money you earn is the first and most crucial step towards early retirement and financial freedom.

Once you know what you have at hand, you can then decide how to use leverage to create an additional source of income for your retirement. Leveraging income in this context refers to using your resources to their maximum possible advantage to generate extra income that will help you earn more for your early retirement.

Traditional retirement options and leverage income

Retirement accounts

Accounts like 401(K), Roth IRA, and Simple IRA are traditional retirement options but in order to be able to access these, you need to fall between the ages of 55 and 59.5. However, reaching this number with an early retirement plan in place can seem tricky. It is also difficult to stick to extreme frugality after an early retirement. In addition to this, your Social Security benefits are not accessible until a fixed age. This is why you need to have a secondary income source that generates regular income for many years.

Additional source of income

It is also important to have a secondary source of income that allows you to easily access that income without any restrictions or penalties and can be scaled as per your requirements. This implies investing in a retirement account that lets you step-up or step-down your contributions or withdrawals as per your current and future goals.


Financial leverage is important for your retirement as it assures you a safe future. For instance, investing in mutual funds, ELSS funds (for tax saving), or investing in a small business apart from your traditional retirement savings account, can bring you good returns over a period of time.

Freelance or part-time work

One of the most executed and accomplished financial leverage tools is to take your hobby and skill as freelancing. You may become a freelance writer, teacher, coder, website designer, consultant, psychologist, therapist, etc. Apart from freelancing you can start up a small business that does not require too much of your time. Remember time is the constraining factor in early retirement.

Side business

Retiring early not only accounts for financial leverage but also gives you plenty of time to do the things you like in the form of entrepreneurship. It is up to you how to strike the right balance in enjoying your life and utilizing it meaningfully side by side. For instance, if you have ever dreamed of running a food business, you can start with setting up a food truck and grow the network across regions eventually.

To sum it up

Using leverage to your financial aid is all about exploring the available options at hand. Multi-tasking and investing your time in side hustles can help you increase your financial corpus. Early retirement requires you to tap on all possible resources and optimally utilize them to keep the cash flow coming in so you can fortify your decision of early retirement. However, it is easier said than done, and retirement planning can seem confusing especially if you are planning for an early retirement.

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About the author

Vikas Sethi

Pursuing Bachelor of Technology in Computer Science || Tech Geek || Author || Open Source Developer