Retiring early is a goal for many people. However, according to findings from the Boston College Center for Retirement Research, the average age of retirement has risen to 65.7 years old for college-educated men, 62.8 years old for college-educated women and around 62 years old for people whose highest level of education is a high school diploma.
Retiring early requires that you plan ahead
The early retirement dream really centers on gaining control over your time. You may equate retirement with the idea of collecting Social Security benefits, but some Silicon Valley tech millionaires are retiring by 40 and younger. In order to make early retirement a reality, you may want to create a financial plan. Set a target savings value that is equal to the amount of money you’ll need in order to retire early.
There are many online tools that can help you build a plan with what you have and show you the outcome of various scenarios. Taking into consideration your current and future income, in addition to analyzing your current and future expenses, can help you determine how much money you’ll need to have in order to retire securely and comfortably.
Consider establishing additional streams of income
Look into expanding your income streams in addition to maintaining your current job. Invest in income-generating assets such as rental properties or a small business. Take on a part-time job or start a side hustle to create another income stream to help cover your current cost of living. That way, you can save more money and put it toward your retirement fund.
Plan now to better position yourself in the future. Think about money, but also think about time. You’re trading your dependence on a job that provides you with money for the freedom to spend your time however you like. Remembering why you are taking measures to save money now can be very motivating.
Here are six tips to adhere to if you want to achieve an early retirement:
- Contributing to your workplace retirement plan means you’ll essentially earn free money if your company is willing to match your contributions. Surpass the value of your employer’s match and increase the value of your contribution by 1% every year at the very least. If possible, set up automatic deposits. Make an appointment with a financial adviser to seek advice about your best alternative option if you either aren’t eligible for an employer-matched retirement plan or a workplace plan isn’t offered. Your options could include saving in other ways, such as via an individual retirement account, a Roth IRA or a simplified employee pension plan.
- Avoid making withdrawals from your retirement savings account. The longer you allow your assets to be invested, the greater is your long-term potential for growth. You’ll also avoid the 10% penalty from the IRS for withdrawals taken out of a savings account prior to the age of 59.5 years old. That way, you will not have to pay income tax on the amount that you withdraw.
- Pay off your current debt and avoid accruing more. Every long-term loan jeopardizes assets that could be used for retirement. You’ll increase your costs by having to pay interest, which is a completely unnecessary and avoidable expense.
- Start investing early, and make it a habit. Over time, your money will compound, so taking advantage of the growth offered by investments is crucial.
- Strongly consider opening a health savings account. Health care costs will become a main concern as you age, so don’t overlook the importance of an HSA, many of which are offered alongside high-deductible health care plans. You’ll be able to contribute to your HSA tax-free, your assets will grow in a tax-deferred manner and you’ll be able to make withdrawals for qualified expenses without paying taxes on the money you take out. Contributions carry over from one year to the next, even if you change employers. Refrain from withdrawing from your HSA as much as possible when you are still employed. The greater the amount of money remaining in the account when you retire, the more you can put towards qualifying healthcare needs.
- Take advantage of stock plans offered by your employer. If an employer stock purchase plan is offered to you, don’t hesitate to take it. You’ll either have the opportunity to purchase the stock at a discounted rate or receive a matching contribution from your employer.
Retiring early requires that you pay attention to your current spending habits and align your behavior with your long-term goals for the future. There are many finance-tracking services online that can help you create your own spreadsheet, which can be used to track income versus expenses. Other income streams can create more flexibility and allow you to reach your early retirement goals faster or more easily.