5 Tips for Retiring Early

Early retirement is an enticing and elusive wish for many working individuals. Regardless of status or wealth, workers often dream of having time for traveling, sleeping in, and spending time with their families. If you have dreams of retiring early, there are things you can do now to make that dream a goal and a plan. Here are five tips for retiring early.

Tip #1: Stick to a Budget

Budgeting is vital for long term financial wellness and it should be a priority in your plans for early retirement. Budgeting allows you to live within your means, avoid unnecessary debt, and build your savings and retirement funds.

The term “budget” often has a negative connotation. Budgets are unfairly treated as the thing preventing you from going on vacations, treating yourself to luxuries, and enjoying your money now. On the contrary, a budget is the very thing that will allow you to go on those vacations, indulge in luxuries, and be financially secure now and in the long run. You can go on that trip to the Caribbean as long as it fits within your budget. This means your income supports the trip expense in addition to your regular lifestyle expenses and retirement savings.

One of the great things about budgeting is that you can tailor it to your own wants and needs. There are plenty of recommendations and “rules of thumb” telling you how much money you should spend on housing, food, and so on, but you can create your own budget that suits you. Maybe you love indulging in gourmet foods and splurging at lavish restaurants, and you don’t need much more than a closet-apartment to hold your belongings. In that case, you might budget for high food costs and low housing costs. The important thing is to live within your means, which means you don’t spend more money than you make.

Tip #2: Get Out of Debt

If you want to retire early, focus on paying off your debts.  It’s hard to live on a retirement income if a portion of that income is still going toward a mortgage or car loan. Likewise, avoid getting further into debt if you can. If you buy a house today and get a 30-year mortgage, will you still be paying it off in retirement? 

Getting out of debt will not only protect your retirement income, it will free up cash flow during your working years so you can contribute more to your retirement savings or investments. The sooner you pay off debt, the sooner you will have more cash flow and the less you will pay in interest.

Find out how 101 Financial can help you get out of debt.

Tip #3: Fund Your Retirement Account

Contribute as much as you can to your retirement accounts. If you work for a company that offers retirement account matching, such as 401k matching, try to contribute the maximum amount the company will match. Take advantage of tax benefits related to retirement saving.

Diversify your retirement savings. Consider having various accounts such as an IRA, a 401k, a cash-value life insurance policy, and more. It’ll protect your retirement funds if you diversify not only within each account, but by having different types of accounts.

Tip #4: Know Your Numbers

In order to plan for retirement, it’s important to know your current numbers and your projected numbers. Keep track of your net worth, how much income you rely on now, how much your investments are worth, and what your expenses are. Knowing your current numbers will help you plan your expected retirement numbers.

Decide how much income you would like to have in retirement. Evaluate your current savings and investments and determine how much more you will need to reach your target income. Look for investments that will generate that figure in passive income, such as real estate or businesses.

Tip #5: Set Goals

Set financial and retirement goals. What is your target retirement income? What is your target retirement age? Is there an accomplishment you’d like to achieve in your career before you retire?

Develop a vision of what you would like to do in retirement. Having a dream and a vision of your future will help keep you motivated to work toward retirement. Even if you love your career, setting yourself up for early retirement will allow you to work because you want to, not because you have to.

Conclusion

Though early retirement may seem like nothing more than a dream, it may be within your reach. It’s the simple things like budgeting and building your savings that make retiring early possible. With diligence, the small steps you take every day will bring you closer to your goals.

Find out how 101 Financial’s Workplace Wellness program helps workers prepare for retirement.