Early retirement sounds like a dream. Imagine having an extra decade or so wherein you have all the time in the world to travel, study, relax, and do everything else that you couldn’t do while working full-time. Sounds amazing, right?
But before you start planning for early retirement, know that it is not easy. It takes a lot of discipline, hard work, and dedication to retire way ahead of the usual retirement age, but it is definitely achievable. If this sounds like something you want to pursue in life, here are the best financial tips that can help you retire earlier than expected.
Start investing early
The earlier you start investing, the more time your money has to grow while you are still earning a regular income. Consult with a financial advisor to determine the best ways to invest your money and make it grow towards your goal of retiring early. If you are a regular employee, consult with your company’s pension provider to help you start planning. Take Lockheed Martin employees, for example. They have pension plans that assist with retirement planning, regardless of age. If there are similar resources available to you, take advantage of them whenever you can.
However, keep in mind that investments are a gamble. That said, you don’t want to pour all of your money into just one investment, even if that investment promises a high return. Diversify your investment portfolio with a combination of low-risk, medium-risk, and high-risk investments.
Calculate your annual expenses
Determine how much money you spend every year. You should be able to estimate this based on your monthly bills, credit card statements, and checking account habits. But it’s better to use a money tracking app to get a more accurate number of how much you actually spend each year.
Now that you have a number in mind, decide how many years you want to retire in advance. For example, if you want to retire 15 years before the retirement age, you should have at least 15 years’ worth of annual expenses saved or invested. Apart from that, it’s a good idea to have at least a year’s worth of expenses saved in cash for easy access.
Save, save, save
Achieving early retirement requires wrought iron discipline when it comes to saving. And the earlier you develop healthy saving habits, the easier it will be for you to put money aside instead of spending it on things that you don’t really need.
The best way to save money is to live below your means. Minimize every expense, especially the biggest ones like housing, food, bills, and transportation. This may lead you to live a simple lifestyle, but the sacrifices that you make now can benefit you in the future when you’re no longer relying on paychecks to survive.
Find other sources of income
Increasing your income is another effective way to boost your assets and help you prepare for retirement. This can be done by getting a side job or starting a small business outside of work. If you have the means, you can also look into things that can generate passive income, such as real estate, dividend stocks, and peer-to-peer lending, among many others.
Maximize retirement accounts
Invest fully in the retirement accounts available to you, even if that means tightening your budget. Retirement plans that are sponsored by employers and IRAs provide excellent tax advantages and investment growth, which makes it a vital financial aspect if you want to retire early. However, you will not be able to withdraw funds from your 401(k) without a penalty until you are 59 and a half years old, so make sure that you have alternative sources of funds that you can access in case of an emergency.
Retiring early doesn’t mean you have to stop earning paychecks. You do, however, have the freedom to work wherever you want and for how long you want. But if you want to secure your financial future and prevent your money from outliving you, start planning your retirement with these tips in mind.