According to a recent Gallup survey, the average retirement age in the U.S. was 62 in 2014. That’s up from 61 in 2013.
What I found more interesting was that 11% of 18-19 years olds expect to retire before the age of 55, which is a much higher percentage than other groups.
The article theorized that this could be because young Americans don’t fully have an understanding of the financial realities of retirement, compared to their middle age counterparts. While that theory has some merit, I’d like to look at it from another perspective.
The thought of retiring at the age of 62 doesn’t really appeal to me. But up until not too long ago, I didn’t really think that I had any other options. But my opinion changed as I got older.
Growing up and seeing my parents work day in and day out and eventually retire at 62, I thought that was how life worked itself out if you worked hard and saved up. However, when I started actually looking into retirement, I knew I had other options, as long as I started planning now.
While we’re a generation of dreamers, we also have much more access to resources than generations past. That’s why I think people in their 20s today are able to make more educated decisions about their finances and how it relates to retirement.
My goal, like 11% of my generation, is to retire by 55 (maybe even earlier). Yes, it’s a lofty goal but it’s not at all impossible. Are you hoping to retire early too? Here are four steps to take:
1. Determine Your Ideal Retirement Age
Everyone’s ideal retirement age is different. Some people love what they do and want to do it forever. Others want to drop it all and retire right now if they could.
As I mentioned, I’d like to retire at 55. That’s 7 years earlier than the average American, which means I need have to save a higher percentage of my income over the next 29 years.
The first step to reaching retirement early, is to do the calculations. Understand your expenses, both now and later. Then determine how much you need save, how you’ll invest your money for the future, and what return you expect to get. Of course, this is a rough number but it will be accurate enough for you to get started.
Once you determine your idea retirement age, you’ll have to closely monitor your spending and retirement accounts over the years leading up to your goal.
2. Save Vigorously
This might be obvious but it’s the most important thing you can do to ensure you’re able to retire early: save vigorously. This doesn’t mean you have stop spending altogether, but it does mean you have to watch how you spend, and prioritize saving over other things.
Most Americans spend frivolously on things they don’t need. I know I do. Understand what you need to cut out and make the necessary sacrifices.
Building a lifestyle that you’re comfortable with now will help you reach retirement early, but also enable you to live comfortably during retirement too.
3. Invest Early (But Cautiously)
The earlier you save and invest (even if it’s a very small amount), the higher chance of success. Why? Because you have the power of time and compound interest on your side.
Start investing your money early to get the most return. You also want to be cautious of investments that have too much risk — one bad investment can derail all of your retirement plans.
(Also note that if you chose to put your money in retirement accounts, you may be penalized for early withdrawals so make sure you understand what you’re putting your money into.)
4. Build An Emergency Fund
Life is unpredictable. You’ll probably encounter some unexpected life events, so plan ahead. While you’re saving up for retirement, you should also save up an emergency fund to pay for these surprises.
You don’t want to continue putting off retirement due to medical, family, or financial emergencies. Without an emergency fund, your finances are vulnerable, along with your dreams of retiring early.
Planning for Early Retirement
Do you know your ideal retirement age? How does that measure up to your financial standing, ability to save, and your investment strategy? Take a few minutes this week to evaluate your retirement situation and see what changes need to be made.
Don’t wait until next year, get started now! Each month you put off is another month you’ll have to postpone retirement in order to maintain the lifestyle you’re used to.
If needed, contact a financial advisor and talk to them about your plans. They may be able to help offer some ideas and strategies for you to reach your goal. Early retirement is possible, you just have to plan for it and prioritize it over your other financial goals.
When do you want to retire? What kind of sacrifices need to be made to reach that benchmark?