Make your dream of early retirement come true!
Retirement planning doesn’t have to be as challenging as you might think. While we already know that good things usually come to those who wait, sometimes, better things come to those who act. This includes mustering the nerve to secure an early retirement.
Amid discussions by finance leaders and some members of Congress to raise the retirement age, many daring savers aim to ditch the 9-to-5 grind way ahead of schedule. But sadly, this dream doesn’t always come true for everyone.
That’s why Retirement In USA has decided to do some research, so you don’t have to, and we spoke to those who were successful.
We’ve got 10 golden nuggets of wisdom on early retirement from people who have retired and done it well. Here is the secret sauce for how to retire early.
Early retirement tip: Ensure it’s the right thing for you
Exiting the workforce as swiftly as possible is a dream many share. But, an early retirement can require significant sacrifices and a commitment to strictness that many may find too challenging.
Especially when observing family and friends embracing more easygoing lifestyles. Beyond the financial hurdles, though, finding fulfillment and joy is challenging. Are your plans in sync with your spouse or partner? What will you do to occupy all that time?
If most of your friends are still working, will you be lonely? Researchers have discovered that some successful early retirees experience feelings of anxiety and emptiness and find themselves in a constant search for labels to define their purpose and identity.
The good news is that the path to an early retirement isn’t irreversible. You can always decide to “unretire,” and there’s no penalty for saving more.
Early retirement tip: Consider how you’ll be spending your free time
Many retirees are shocked to find that they miss going to work. Being home all day every day gets boring eventually. If you have ideas for spending your free time in early retirement, try testing them out. You might want to go to the gym, hike daily, or even train for a marathon.
Practice getting out on the weekends while you’re still working to ensure you enjoy those activities. Think about joining a neighborhood class, volunteering, or starting a weekly gathering with close friends.
Early retirement tip: Don’t forget about healthcare costs
You’ll be eligible for Medicare once you reach age 65. If you retire before that time, you may have to find your own health insurance. You might sometimes be eligible for coverage through your spouse’s insurance plan if they’re still employed.
Self-funding your own health insurance can be a challenge. So consider the risks. This is where many early retirements fall apart. Costly health situations could derail everything you’ve worked towards.
Early retirement tip: Maximize your income
A lofty income isn’t a requirement for early retirement. Consider a survey by Empower that shows Americans associate financial independence with an annual income of approximately $94,000.
Nevertheless, the equation is simple: higher earnings streamline more significant savings. You can boost your revenue within your current career by seeking promotions, working additional hours, or transitioning to a job that pays better.
Beyond conventional employment, though, you can look for freelance opportunities, start a side job, or invest in assets that generate passive income.
Early retirement tip: Be flexible
Reaching your goals will bring a sense of financial stability. But, additional expenses are bound to spring up and surprise you at some point. For example, you could spend more than you originally planned on a home renovation.
Maybe you’ll have to rejoin the workforce if your funds don’t last as intended, or you’ll miss the office social circle. To earn extra income, consider starting a business or trying out a new side hustle in an area that intrigues you.
Early retirement tip: Invest wisely
Any retirement would be difficult to achieve without investing. To retire early, you might need to max out your employer’s retirement plan, health savings accounts (HSAs), individual retirement accounts (IRAs), and any other investments you use.
You may allocate funds to bonds, stocks, mutual funds, and other assets within your investment accounts.
Investing a high percentage of your monthly income and beginning to do that as early as possible enables substantial growth in your savings, making early retirement possible.
Early retirement tip: Focus on the positive
If you’re feeling down after retiring, creating a list of the things you enjoy doing and accomplishments you hope to achieve can be very beneficial.
Having a purpose and achieving accomplishments is vital when it comes to your golden years. You can even focus on pursuing new challenges. Do you have a lifelong dream of becoming a pilot? Now’s the perfect time for that.
Early retirement tip: Set a higher savings rate
Basically, the higher the percentage of your income you save, the sooner you can retire. The average person only saves approximately 4% of their earnings, a stark difference from the 10 to 15% recommended by financial specialists.
T. Rowe Price’s analysis indicates that saving at the higher end of this range could allow you to accumulate 11 times your pre-retirement income by the time you reach age 65. Hence, to retire early, this figure needs to be much higher.
Many often aim to save between 50 and 70% of their income, suggesting that early retirement necessitates a significant shift in spending and saving habits for most individuals.
Early retirement tip: Plan carefully
Early retirement entails some unique financial planning challenges, including a more significant longevity risk. Exactly how much do you need to retire early? The Rule of 25 offers a straightforward answer. Estimate your yearly retirement expenses and multiply that by 25.
For example, requiring $80,000 annually translates to a savings objective of $2 million, allowing for a 4% annual withdrawal while maintaining your capital. While a 4% withdrawal rate might work for some people, it may not work for you.
This is particularly true for retirements beginning in one’s 30s or 40s and lasting 50 years. As one expert points out, the 4% rule was based on a 30-year horizon. So, early retirees should consider a dynamic spending withdrawal strategy.
This allows investors to spend more when markets perform well and decrease spending when markets perform badly, enhancing the chances your portfolio will weather out storms in retirement.
Furthermore, early retirees must consider penalties on early withdrawals from specific accounts, tax implications, and healthcare coverage before Medicare eligibility at age 65, all of which mandate meticulous planning and potentially seeking out alternative solutions.
Early retirement tip: Control your spending
Creating a high savings stream also implicates minimizing expenses. Simple measures like dining out less, cutting cable, and canceling unused memberships can significantly lower discretionary spending. For more significant savings, consider more substantial expenses.
The average household spends approximately $70,000 annually, a third of which goes to housing. So, exploring more inexpensive living arrangements or downsizing can offer some added financial relief.
While some might view such belt-tightening as restrictive, others embrace the simplicity and liberation of a minimalist lifestyle.
This philosophy is echoed by author and minimalist advocate Joshua Fields Millburn, who writes, “Now, before I spend money, I ask myself one question: Is this worth my freedom?”
We hope you found this article insightful. Be sure to leave us a comment in the section below to share your own thoughts on the matter with us.
But don’t leave yet! Retirement In USA has many for fantastic tips and tricks for enjoying retirement life. For instance, we highly recommend checking out: 5 Dangerous Retirement Myths That Ruin Your Golden Years
