Who wouldn’t like to retire early, preferably in their forties? Many people would want to quit their nine-to-five jobs as early as possible and spend the rest of their days traveling, exploring, or simply relaxing. Given how stressful the current work environment is, early retirement is a great idea! However, not many people can retire early.
According to a report published in May 2020, half of the retirees surveyed said they retired before age 62, nearly one-fourth retired between the ages of 62 and 64, while the rest did so after 65. If you don’t want to be one of the people who retired in their late sixties or early seventies, you will need to start planning your retirement now. The good news is, with planning, self-discipline, and help from experts, you can achieve your early retirement goal.
Here are a few tips that can help you retire early.
- Define Your Early Retirement Goals
Early retirement can mean different things to different people. So, before you start planning for early retirement, it’s necessary to define your idea of the same. It essentially involves defining your lifestyle after retirement. This, in turn, will help you determine your early retirement budget.
Asking yourself the following questions can be the first step in defining your early retirement goals:
- What does early retirement mean to you?
- How do you plan to spend your time?
- Where do you want to retire?
- Do you plan to do some creative work (not as income) when you retire?
- Will it be a complete retirement, or would you be working where you can make your own hours?
- Would you like to travel or pursue any other hobby after retirement?
- How much will your said travel or hobby cost?
- How much will you need to spend on healthcare?
- What will your routine be like? And how much will it cost?
Just take a pen and paper, and start jotting down your early retirement routine. It doesn’t have to be precise. However, do take a few days to think over your potential retirement plans. The more details you can add, the better. If you’re not sure how to arrange this in a systematic manner, firms like Walker Capital Preservation Group may be able to assist you with a tax-centric retirement plan.
- Find Out How Much Money You Need for Your Early Retirement
Once you have jotted down what your early retirement lifestyle should be like, the next step is to find out how much it will cost. When creating this mock budget, you have to consider both one-time and recurring monthly expenses.
- Recurring Expenses
Recurring expenses may vary depending on your lifestyle, location, and a few other factors. Usually, recurring expenses will include the following:
- Food and groceries, including vegetables, dairy products, meat, fish, and other staples like bread, butter, eggs, and flour
- Healthcare (medicine and treatments). This cost will most likely go up with growing age. Make sure to take that into consideration.
- Utilities and fuel (water, electricity, gas)
- Internet, cable, phone, and Over-The-Top (OTT) services, among other entertainment expenses
- Takeaways and hoteling expenses
- Repairing and maintenance costs for car, appliances, and the house
- Clothing and personal accessories, including cosmetics
- Gifts and other expenses
In most cases, early retirement will not require you to make student loan, credit card debt, or mortgage payments. However, if you have to pay any of these costs, include them in your list.
- One-time Expenses
These expenses will include paying for appliances, equipment, or accessories you may need to fulfill your retirement plan. They usually include big-ticket expenses like the following:
- Movers and packers if you are retiring to a different location
- Real estate and related expenses if you are buying a new house
- Big-ticket items like car or home appliances, among others
- Equipment for your hobbies. For example, if you love fishing, you will need to invest in good-quality fishing gear. You may also need to invest in a small boat.
Although these expenses are not recurring, they will eat into a large chunk of your savings. You will also need to consider the increase in both recurring and one-time costs due to inflation. So, make sure to plan all your potential expenses well in advance.
- Take Stock of Your Existing Finances
As you now know what your retirement lifestyle looks like and how much it’ll cost, it’s time to take stock of your current finances. You will need to consider four factors when analyzing your finances.
What is your total household income at present? You can consider your primary income as well as side hustles, if any. Make sure to consider your income after taxes because this is the money that you can actually use or invest.
Next, note down all your household expenses, both recurring and one-time. Apart from your monthly obligations, it includes your bill payments, vacationing, gifting, and other leisure expenses as well.
If you are young, you will most likely have considerable debt, including student loans, car loans, credit card payments, and mortgages. If you have taken out a loan from a friend or a family member, include that in your list too.
According to the latest data, Americans are saving a higher percentage of their disposable income nowadays. In February, 2021, Americans saved 13.6% of their disposable income. Hopefully, you are also able to save and invest a higher percentage of your disposable income. Note down all your investments and savings, including checking accounts, savings accounts, shares, stocks, bonds, certificates of deposits, 401Ks, and IRAs, among others.
Make a list of all these finances, preferably in a spreadsheet. You can easily edit this spreadsheet as time progresses and your financial portfolio changes.
- Optimize Your Present Lifestyle
As you know how much your early retirement will cost and how much your current lifestyle costs, you will have an estimate of your retirement. Once you have worked out your retirement budget, the next step is to optimize your current spending and investments.
Depending on your income and retirement goals, you may have to make significant adjustments to your current lifestyle. Usually, spending less than your earnings is the bedrock of successful early retirement planning.
Here’s what you need to do.
- Cut Down Unnecessary Expenses
You need to cut down unnecessary expenses. For example, instead of eating out or ordering in, cooking fresh meals at home can help you save money. It is also a healthier lifestyle. You can also avoid buying an expensive car on credit or splurging on expensive clothes and accessories.
Perhaps your biggest expense is mortgage or rent. However, if you can move into a less expensive neighborhood or a smaller house, you can save considerable money.
- Earn More
If you have the time and skills, running a side hustle can be a great idea. It can put your early retirement dream on the fast track. You can use the extra money to pay off debt or make more investments.
- Invest for Early Retirement
Early retirement means you have less time to build your corpus, which in turn, means you will need to make a few aggressive investments. The aggressive investment strategy aims to maximize returns.
You can choose from several aggressive investment options, including options trading, high-yield bonds, and small-cap stock funds. However, an aggressive investment strategy also requires high-risk tolerance. That’s why consulting a professional and experienced financial advisor is essential.
- Consult a Professional Financial Advisor
A certified financial planner can help you in many ways, including the following:
- They can suggest ideas and strategies that’ll help you achieve your financial goals on time
- Their knowledge and experience can reduce the risk of losing your hard-earned money considerably
- You can also enjoy a relatively higher return on your investments
- Professionals can help you build a portfolio with the right combination of aggressive and conservative investments
- As your advisor will do the research, paperwork, and other tasks, it’ll make your financial management less stressful
- But most importantly, your financial advisor will help you chalk out a realistic wealth creation plan
All these factors will make it easier for you to retire early. However, whether you are looking for retirement planning in Gainesville or Sacramento, make sure to consult a reliable and experienced financial advisor.
When looking for an advisor, keep the following in mind:
- Make sure to work with an advisor with a successful track record
- They should also have considerable work experience
- Check required certifications and licenses before hiring an advisor
- Always hire an advisor who is compatible with you
For many people, early retirement may seem like a distant dream. However, with careful planning, you can turn this dream into reality. To make that happen, you will need to put your early retirement plan into action as soon as possible. These five tips will help you kickstart this plan right away. How do you plan to achieve your early retirement goal? Tell us in the comments section.