7 Early Retirement Tips

1. Get Organized

To buy yourself the freedom to retire early, you need to set yourself up for financial success. Here are the steps to getting organized.

What are your financial goals?

Whether you want to attend luncheons with friends, play golf, travel to exotic places or spend time with grandchildren in your retirement, it’s important you figure out your long-term financial goals. Creating a chart of your goals and assigning them a timeline will inform your investment strategy.

What is your retirement spend?

Projecting your discretionary and non-discretionary spend will help inform your retirement spend and what you need to do to save money for an early retirement.

What is your net worth?

Assessing your net worth is important when investing to determine how much money you have to invest or add to your retirement resources. You have to know your total assets and liabilities to calculate your net worth. A financial advisor can help you determine your net worth as well as help you strategize how to grow that worth through smart financial strategizing.

What is your cash flow?

Calculating your monthly cash flow will help you evaluate your present financial status and determine how much you available funds you have to invest. A financial advisorcan help you determine whether your cash flow is what it needs to be so that you can retire early.

2. Manage Your Debt

Managing your debt is important at any age, but it’s especially important as you approach 50 and beyond as these are the years when your savings and financial assets are needed to sustain your lifestyle as you consider retirement. The less money you put towards paying off outstanding debts and interest charges, the more you will have to save and invest for your future.

3. Live Below Your Means

There’s a natural tendency to increase your spending as your earnings increase, but if you live below your means you’ll be able to save more efficiently for early retirement.

Your House

If you’re like most Americans, your biggest expense, and also your biggest opportunity to save, is your home. Housing costs take up a third of the average budget, according to the U.S. Bureau of Labor Statistics. Live modestly and stay in your home if your home is big enough; or at least say no to buying the biggest house you can afford.

Your Car

After a home, a car is the second-largest purchase most consumers make. But the costs don’t stop when you drive off the dealer’s lot. Owning and operating a vehicle is the second-largest household expense, according to data from the Bureau of Labor Statistics; and continuing upkeep costs roughly $8,700 a year, according to AAA’s Driving Costs study. That breaks down to $725 a month and 58 cents, on average, for each mile driven.

Your Vacations

Vacations can add up quickly. Instead of traveling to expensive tropical, luxury or foreign destinations, take a road trip or try a staycation. If you must travel, take advantage of a mileage card or hotel points to budget.

Your Lifestlye

Budget on every day items, such as grocery store deals and clothing sales. If you spend hundreds to thousands on the the next top-of-the-line clothing, accessories and gadgets, your savings will take a hit — making an early retirement challenging.

4. Invest Strategically

If you plan to retire at age 50, say, you should be more conservative with your portfolio management in your late 40s than your peers who plan to stay in the workforce until 65 or later. This is to avoid what advisors call “sequence of returns risk,” or having a series of down markets clobber you when your finances are particularly vulnerable.

5. Save, Save, Save

If you really want to retire early, you need to cultivate a whole new attitude toward your finances. Every decision to spend money has to be a conscious tradeoff weighed against your goal. Saving for early retirement is more than a little belt-tightening; it’s eliminating extravagant spending.

6. Take Advantage of Tax Savings

To retire early, you have to commit to putting away the maximum allowed in tax-favored accounts so that you can grow your money faster.

401k and IRA Accounts

Max out your yearly allowance to your 401k and IRA accounts. Married couples who file a joint tax return can fully fund Roth IRAs if their income is less than $186,000, regardless of whether they have a savings plan at work. The contribution is limited above that income and ends at $196,000.

Health Savings Account (HSA)

An HSA allows you to pay for current health care expenses and save for those in the future. One advantage of an HSA is that contributions are tax-deductible; or if made through a payroll deduction, they are pretax. Also, the interest earned is tax-free. You may make tax-free withdrawals for qualified medical expenses, as well.

7. Stay Financially Flexible

It’s important to do a regular, financial ‘checkup’ to make sure you’re on track with your financial goals, and then adjust, accordingly. A financial advisor can help you revisit your budget and update your portfolio so that you can expertly manage your finances and stay on top of your early retirement goal.

Consider a Part-Time Gig

Many people age fifty and beyond realize that retirement today is not that of a generation ago. Gone are the days of company pension, company-paid health care and assured Social Security. Today you need to plan more effectively and consider that you’ll need more money to pay the costs of living that used to be covered by work or government programs. A part-time job is an excellent way to be flexible to to save a bigger nest egg and also provide some stimulating social interaction and new skills in the process.

What is the Average Retirement Age for Men and Women?

On average, men retire at age 64 and women at 62, government statistics show. Nearly half of retirees end up leaving the workforce earlier than they had planned, according to a recent report by the Employee Benefit Research Institute. That is often due to a layoff or an illness, however, a third speed up their workplace exit because they can afford to retire early.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store