Tips On How To Retire Early

By Jennifer Gregory. May 7th 2016

Many people dream of retiring early. However, actually achieving this goal takes a lot of planning and dedication.

The most important step to retiring early is determining the specific age at which you want to retire. Rob Drury, Executive Director of the Association of Christian Financial Advisors, advises that people need to begin preparing early. “While it runs counter to our culture and the nature of youth, there are people in their twenties who save with retirement and/or contingencies in mind,” said Drury. “Even if one's retirement goals aren't met particularly early, early preparation will ensure a secure retirement by preventing unexpected financial issues from becoming catastrophes.”

Determine How Much You Will Need Each Month

You cannot plan an early retirement without a clear picture of how much money you will need to live on each month after you retire. Make a list of your expected monthly expenditures. Include insurance premiums that you will need to pay until you are eligible for Medicare and be sure to factor in increased medical bills as you age.

You will also need to determine the type of retirement lifestyle that you want to have when making your list. If you want to retire early to play golf every day or take trips around the world, then you need to factor in these expenses. If you determine that you cannot cover the costs of your desired retirement lifestyle, then you might consider working for a few extra years to save more money.

Become Debt Free

While saving money for retirement is an important step, reducing your debt load is also crucial. If you have credit card debt, you should start working on zeroing out your credit balances.

You should also try to increase the rate at which you are paying off your mortgage and other loans. Getting rid of your mortgage payment and other loans significantly reduces your monthly expenses.

As you near your desired retirement age, avoid adding new debt that will not be covered by your post retirement income.

Save A Considerable Amount Of Your Monthly Income

It will be difficult to retire early if you are only saving a minimal portion of your monthly income. Since early retirement is an ambitious goal, it requires determination and discipline. Many people find that simply trying to save money isn’t as successful as having a set amount of savings to deposit each month. Elle Kaplan, CEO & Founding Partner of Lexion Capital Management LLC, recommends spending one paycheck each month and saving the other one.

“From a financial perspective, the best way to retire early is to accumulate savings rapidly, invest wisely, and maintain low monthly expenses in spite of the ability to spend more,” said Noah B. Rosenfarb, CPA and holistic financial advisor. He suggests growing your savings until you are saving 30 percent of your income. He also advises that you save 50 percent of any raises or bonuses that you receive.

Becoming used to a fixed income and watching your spending will help you be successful at living on a budget during your retirement years.

Invest Wisely

It goes without saying that someone planning to retire early should invest in a retirement plan. But to exit the workforce before age sixty, you will also need to make additional investments and make those investments wisely. “As far as early retirement savings, tax-qualified retirement plans are not sufficient for early retirement, as one normally incurs penalties and taxation for withdrawals prior to age 59.5,” said Drury. He recommends investing in corporate stocks and bonds, municipal securities and cash life insurance for those planning to retire early.

When selecting stocks and bonds to invest in,  you should consider investing in companies with long track records of steady and strong performance instead of the “hot stock of the day.” You should also keep your portfolio diversified, spreading your investments across global markets and industries. “Let the advantage of time help you get where you want to be and you can own high quality companies for the long haul,” said Rosenfarb.

Consider Part-Time Income

Oftentimes when people dream of retiring early, they do not picture getting a part-time job after leaving their full-time job. But the reality is that many early retirees find part-time work for both financial reasons and for meaningful ways to spend their days. Working part-time can also help you bridge the gap between your previous employer's health plan and Medicare coverage if you have an employer who offers benefits for less than full-time employment.

“From an emotional perspective, try to find work you enjoy that you would not want to stop doing,” said Rosenfarb. “You may find that at some point you can "retire earlier" from the work you do not enjoy and transition to work that is pleasurable -- using the assumption that the smaller income can be with you to supplement your retirement income.”

Retiring early requires a lot of discipline and determination. However, with the right planning, you can start your golden years early.

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