Retiring early may seem like a far-fetched dream for many, but it’s not – if you know what tips to follow. More Americans retire early than one may think. According to New Retirement, “About half of Americans retire early – between 61 and 65. (that’s a full five to six years before full retirement age as defined by the Social Security Administration), and 18% of Americans retire even earlier than that” (“Want to Retire Early? Here Are 8 Tips to Make it Happen ASAP”, 2017). Wouldn’t it be nice to be part of that 18%? If you want to retire early, consider following these tips:
- Start Investing Early
The earlier you start investing in your retirement account the better. Ideally, you should start to invest heavily in your 20’s, so that your money will have decades to acquire the benefits of compound interest. For example, at the retirement age of 70, a 25-year-old who invests $5,000 has 45 years of growth potential. This is much more effective than a 60-year-old investing $5,000 due to the short growth potential of only 10 years. To potentially have bigger rewards later, start investing as early as possible.
- Eliminate Debt
One of the most essential steps in saving for early retirement is eliminating your debt. According to New Retirement, “Debt weakens one of your most powerful wealth-building tools: your income. Payments toward debt reduce your cash flow, cutting into the money you have available to save and invest for retirement” (“Want to Retire Early? Here are 8 Tips to Make it Happen ASAP”, 2017). So how do you get rid of this debt? You could start by making a list of all the debt that you currently have, in the order of highest interest rate to lowest. Make it your priority to pay off the debts with the highest interest rates first. As you start dwindling down the list of debts to pay off, you will be able to redirect this money into your savings.
- Cut Down on Expenses
Cutting down on expenses can benefit you in several ways. Not only does it free up money to pay off your existing debts, but it also conditions you to live more frugally, which will help you set aside even more money for your retirement savings. The first step in cutting down expenses is to stop paying for the small luxuries that you can live without, such as that $4 Starbucks latte every morning. You should also look for ways to cut more expensive costs such as reducing your utility bills by taking shorter showers, canceling subscriptions you don’t use, or even canceling cable. Once you have made these small sacrifices, you will be able to refocus this money to put it towards your early retirement fund.
- Rethink Your Retirement Plan
Contrary to popular belief, early retirement isn’t about never working again. It is about having the flexibility and freedom to do what you want, when you want. While relaxing on a beach for the next 30 years may sound great right now, you will most likely get bored of the same routine and wish you were still employed. Consider finding a part-time job in a rewarding field that interests you such as being a mentor, a coach, or even starting your own small business. According to New Retirement, “The right retirement job can provide an income stream and possibly other benefits while giving you the flexibility to pursue your passions” (“Want to Retire Early? Here Are 8 Tips to Make it Happen ASAP”, 2017).
To retire early, with enough money to stay retired, can be an attainable dream. Early retirement will require making small sacrifices and having a strong plan in place. Be smart with your money, start investing early, pay off your debts, cut down on unnecessary expenses, and even rethink your retirement plan.
**The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss or principal.
Sources:
Council, Forbes Finance. “Ten Effective Ways to Prepare for Early Retirement.” Forbes, Forbes Magazine, 26 Sept. 2017, www.forbes.com/sites/forbesfinancecouncil/2017/09/26/ten-effective-ways-to-prepare-for-early-retirement/#6f49ccd01f49.
GOBankingRates. “15 Ways to Retire Early.” The Huffington Post, TheHuffingtonPost.com, 7 Dec. 2017, www.huffingtonpost.com/gobankingrates/15-ways-to-retire-early_b_7630872.html.
Loudenback, Tanza. “If You Want to Retire Early, Follow These 6 Savings Life Hacks from People Who Actually Did.” Business Insider, Business Insider, 26 Apr. 2017, www.businessinsider.com/best-pieces-of-advice-for-retiring-early-from-people-who-did-it-2017-4#-1.
“Want to Retire Early? Here Are 8 Tips to Make It Happen ASAP.” NewRetirement, 29 Jan. 2018, www.newretirement.com/retirement/retire-early-8-tips/.