The idea of retiring early and living on a beach somewhere sounds like a dream to many people. And for most, it may be a harder-to-reach goal than they realized. According to the Employee Benefit Research Institute, 57% of workers have less than $25,000 saved up for retirement when they estimate that they’ll need $500,000. Being prepared for retirement can seem like a world away, let alone early retirement. However, retiring early is definitely possible.
More and more people are striving to retire early. Why? Simply put: time. Retiring early gives you the ability to spend more time with the people you love and do things that excite you. It isn’t easy but it can be done. You have to start preparing now in order to do that. Here’s how:
Understand How Much You Need
The most important first step to retiring early is to understand your financial situation. It’s almost impossible to save up for retirement successfully without understanding how much money you need after the paychecks stop. At the minimum, estimate roughly 80% of your current expenses for retirement. Also take into consideration inflation and new expenses. For instance, what will you do about healthcare? You won’t be eligible for Medicare until the age of 65 and may need to purchase it on your own.
Save A LOT
Of course, if you want to retire early, you need to save a considerable amount. That means living well below your means and cutting out most of the fluff. That may mean less extravagant vacations and fewer nights out. However, keep in mind that cutting back on these things now will give you more time to enjoy them later on.
Take Advantage of ‘Free Money’
There is hardly such a thing as ‘free money’, but there are some things that come pretty close. For instance, take advantage of your company match for a 401k or 403b. Also, use credit card rewards to your advantage. Some cards will even directly put your cash back rewards into your brokerage account.
Invest with Withdrawals in Mind
Everyone should invest in preparation for retirement, but those hoping to become early retirees have to look at it a little bit differently. You may choose to have a similar asset allocation as someone who plans to retire in their sixties, but you better be flexible with the withdrawals in tough times because an early retiree needs the money to last much longer.
Downside Your Home
While you may love the home you live in, consider downsizing. Many people live in spaces that are too big for their families. As a result, not only do they get stuck with a hefty mortgage but also spend extra on expenses like maintenance and furnishings. Space is a luxury and you may be better off letting go of this one to save more.
When do you plan on retiring? Have you ever considered early retirement?
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