What does successful retirement mean to you? Unfortunately, this is a question that many individuals fail to ponder upon or decide when mapping out a career path and journey for themselves. You see, the definition of successful retirement does not specifically refer to reaching a certain age, which is 62 for average Americans.
In reality, successful retirement is working to the point where you no longer have to stretch yourself thin to fulfill your financial obligations. Many may only dream of retiring at the age of forty, not realizing that others make it a reality by implementing successful strategies alongside wise financial planning.
If you’re stretching yourself thin at work only till a certain age and look forward to a stress-free life after, keep reading this article. Below, we will discuss 5 actionable tips that will help you retire early.
While tremendous discipline and care are important for achieving successful early retirement, the top five tips from financial experts below will be extremely helpful. With these to assist, you can make a realistic plan to live your desired professional journey:
1.Crunch the Numbers First
The only way you can hope to retire early is when you have saved enough to last you for a comfortable retirement. For this reason, you need to plan and calculate soon after you start working.
First, you must calculate how much you need to save to make early retirement possible in your particular case. For this purpose, you will have to factor in your financial status. After all, how much you need to save for life post-retirement depends largely on your personal and financial situation.
You will have to approach this matter proactively because early retirement is not possible without years of planning. The sooner you outline your goals for this phase of your life, the more successful you will be.
To shape your savings target for early retirement, you must answer the following questions:
- Spend some time and estimate how much you intend to spend every year while living in retirement. You must factor in medical care, necessary living expenses, and other interests, like traveling.
- Ask yourself the debt situation you expect to materialize when you retire. This would include things like mortgage payments.
- Where do you expect to live post-retirement? Will you be downsizing or living in your current home?
- What hidden costs can likely transpire during your retirement season? Factor in a budget for these types of hidden costs.
You should especially consider retirement age when calculating these numbers. For instance, if you wish to retire by fifty, you’ll want a comfortable financial cushion to last you at least three decades. Considering the average life expectancy in America, which is 77, you want enough money to live comfortably over those expected years. According to many financial experts, you must save at least 75% in pre-retirement income.
2.Work with Financial Experts from the Start
There is wisdom in the universal saying that professional financial advice is the smartest way to save. Hence, when you’re charting out a path for early retirement, you must enlist the help of professional financial experts to offer you stellar advice.
There is no doubt that this practice helps one meet their financial objectives faster than when they attempt to do it all independently. Moreover, it is best to start retirement planning as early as possible.
Many financial routes are only possible when people are in their prime. Lastly, as important as starting saving early, it is equally important to start investing early. The investment will ensure your savings don’t remain stagnant but keep growing as you approach retirement age. This will help you take advantage of the power of compounding interest.
3.Resist the Temptation to Tap Into Your Retirement Accounts
Unexpected expenses are inevitable: there can be many instances in life when you may feel tempted to reach for your retirement accounts. When you see a sizable balance, you can feel it is alright to withdraw a tiny bit of it when the time calls for it.
However, this is one mistake you must prevent yourself from committing. It is important to remember that the longer your assets remain invested, the higher the chances for your investment’s growth. Moreover, in addition to ensuring continuous growth of your retirement account, you must remember the IRS charges for early withdrawals.
For example, with IRAs you are likely to suffer a ten percent penalty if you withdraw before a certain age. There is also the income tax you will have to incur upon the amount drawn. So, no matter how compelling a situation is, it is in the best interests of your early retirement plan to keep from withdrawing your funds.
4.Rebalance When and Where Necessary
The best way of making early retirement possible is through your investment accounts. But remember, despite all proactive measures, there is some risk here. To counteract these risks, you must focus on asset allocation.
As you work with your financial advisor, you must consider the potential rewards and risks of various investments. Based on extensive research and study, you must build a portfolio that will cater to your financial goals in the long run.
Remember to factor in your retirement timeline and risk tolerance in the event. When a person is in the earlier stages of life, risk-taking is easier because of the better position he/she is in. Taking risks at a younger age also leaves you enough room to cover when there are bouts of market volatility.
Once the time for early retirement keeps drawing closer, it is best to play it as safe as possible. If you become adventurous at this point, your income could take a beating due to a miscalculated step. Hence, we recommend rebalancing your portfolio to ensure you’re maintaining your preferred asset allocation.
Rebalancing is also often necessary, because the value of your investments will surely change over the course. At times, you’ll make unexpected profits, and other times, not as much. Hence, to prevent underweighted areas from developing in your portfolio, balance whenever and wherever you can.
5.Take Advantage of Employer’s 401(k) Plan When Available
When your employer offers a 401(k), you must take advantage of it, especially in the case of matching contributions. There is no doubt that the sooner your 401(k) account is active, the higher your chances of retiring early become. Also keep in mind your risk tolerance, and adjust your 401(k) accordingly.
There is no rule in the book that says you cannot retire early if you wish to. In fact, there are a lot of people in the same world as yours that retire as early as forty. Thanks to smart financial planning, investment and saving options, and proactive methodologies, any dedicated individual can save sufficiently to ensure their money doesn’t outlive them even in early retirement. From finalizing retirement saving targets early on in life to saving seventy-five percent in retirement accounts, you can live fairly comfortably even after quitting work early.