Typically, most people retire in their early 60s. What if you want to retire a decade or two before the average worker? While retiring earlier is lucrative, many people shy from it because they might fear lower Social Security and outlasting their retirement savings. Luckily, retiring early can be a reality with careful planning. Learn tips to make your early retirement dream a reality.
Answer the Why
Retiring early is about time as it is about money. This means that you cease to work and earn money in exchange for loads of time to do whatever you want. As such, take time to establish why you want to retire early and how you will spend your retirement time. Answering this question is crucial and can be a greater motivator.
Leverage Workplace Retirement Plans
Taking advantage of workplace retirement plans can help you accumulate significant savings for your retirement. Ensure you contribute at least the amount our employer matches, if possible. You can also go ahead and increase your contributions annually. In case your company does not provide retirement plans, you can save through an IRA and SEP.
Get Out of Debt
Debt is one of the biggest preys on your income. Therefore, if you want to retire early, eliminate any debts to improve your cash flow and retirement savings.
Start by writing down all your debts, from those incurring the highest interests to the lowest. Then, make a plan for clearing the debts. Minimizing your expenditure can go a long way to help you clear debt and keep your debt balances down.
Find Passive Income Opportunities
You might have heard that the earlier you retire, the more savings you will need. While this is true, and you need significant savings to fund the additional retirement years, you have another way out. You can find passive income opportunities so that you still have a reliable income even after retirement.
Common passive income opportunities include real estate investing, hobby earnings, side gigs, and entrepreneurship. The secret is finding a passive income source that requires minimal overhead and time before you retire.
Reducing your expenses has numerous benefits. First, it frees up money so you can pay your debts and save more. Second, it teaches you to live on less money, which will be helpful during retirement. Lastly, it decreases the money you live on, and you will need to save a lower amount for your retirement.
Cutting your expenses does not have to be complicated. It can be as simple as getting rid of costly entertainment, cooking at home instead of eating out, taking shorter showers to reduce utility bills, and eliminating the subscriptions and services you don't use or need.
When reducing expenses, your mindset is crucial. Do not perceive saving as a punishment but a way to control when you retire. Every dollar you save is a ticket to retirement freedom and enjoyment.
Early retirement means two things. First, you have a short duration to save. Second, you have a longer time to depend on your savings. Consequently, savings alone will not sustain you. Consider investing so that you can live on the investment returns in retirement. You can invest in bank fixed deposits, real estate, tax-free bonds, and stocks.
Do Not Withdraw Retirement Savings Prematurely
Although you might be tempted to withdraw your retirement funds early, this is not advisable. The longer you invest the funds, the more the returns. Also, early withdrawal attracts a penalty, which can be a significant amount. For instance, the IRS enforces a 10% penalty if you withdraw your funds before you are 59.5 years old.
If you have considered early retirement, get in touch with Presidio Wealth Management for help preparing for it. We offer individualized planning for your needs to guarantee a happy and long retirement.