Do you want to know how to retire early? Early retirement can be possible but requires careful planning, disciplined saving, and smart investment strategies. In this article, we’ll discuss eight strategy tips to make sure you are READY for the next stage of life.
What Is an Early Retirement Age?
Early retirement typically refers to retiring prior to being eligible for social security and medicare benefits. Often, people will refer to early retirement as retiring prior to age 65. The definition of early retirement can vary depending on someone’s individual goals, financial situation, and lifestyle choices. Many individuals and couples dream of retiring in their 50s or even earlier to pursue their passions and reduce work stress. Others may want to “retire” from their current work and pursue a side hustle or part time job to ease into financial independence.
Strategy for Retiring Early
1. Determine Early Retirement Goals:
To retire early successfully, it’s important to sketch out your vision for retirement. Consider what activities you want to pursue, where you want to live, and how much income you’ll need to support your needs. Does retirement for you mean no work? Does your dream retirement include starting a business or working part time to supplement your lifestyle? Are you already engaged in the hobbies you envision for yourself in retirement?
2. Draft Your Retirement Budget:
Creating a detailed retirement spending plan is essential for estimating your retirement expenses and determining how much you need to save. Account for healthcare costs, travel expenses, housing, and other living expenses. It’s also important to factor in inflation and unexpected costs to ensure your budget remains realistic. After you draft your projected budget, spend some time tracking the surprise expenses that pop up throughout the year that wouldn’t be included in what you’ve already projected.
3. Assess Current Financial Situation:
Build a basic balance sheet to track down all potential resources for living your life post employment. Calculate your retirement savings, including contributions to retirement accounts such as 401(k)s, IRAs, and other investment accounts. How much do you have saved now and how much are you adding to your investments each year? How much risk are you taking in your investment accounts? Do you have a decent amount of cash for emergencies and for income needs if the stock market were to take a prolonged downturn?
4. Invest Wisely:
Investing your savings in a diversified portfolio can help your money grow over time without being overly exposed to unnecessary risks including being too concentrated in any one company or sector of the market. Consider allocating funds to both tax-advantaged retirement accounts and taxable brokerage accounts to diversify the tax types of your invested assets. This may help you reduce income taxes when withdrawing from your accounts and help you avoid tax penalties if you are starting income under age 55 or 59.5. Consult with your tax professional for specific guidance regarding your tax situation.
5. Continually Manage Your Expenses:
Regularly review your expenses and identify areas where you can re-prioritize without sacrificing your quality of life. Consider redirecting money saved towards your retirement accounts or savings vehicles to boost your resources for early retirement. Lifestyle creep is a real concept. If you are serious about retiring early, continually evaluate if your spending is in line with that goal.
6. Consider Social Security Benefits:
While you may be eligible for Social Security benefits as early as age 62, delaying your benefits can result in higher monthly payments. Evaluate your options carefully and consider how Social Security fits into your overall retirement income strategy. If you are married, be sure to consider the impact of one spouse passing away on your social security benefits.
7. Stay Flexible and Adjust Your Plan:
Life circumstances and financial markets can change over time. Stay flexible and be prepared to adjust your retirement plan as needed. Periodically review your financial situation, investment performance, and retirement goals to ensure you remain on track to retire early. You may even find that your own definition of early retirement changes over time depending on your enjoyment and satisfaction with work.
8. Enlist the Help of a Professional:
Consulting with a financial advisor who specializes in retirement planning can provide valuable insights and guidance. An advisor can help you develop a personalized retirement plan, optimize your investment strategy, and navigate complex financial decisions to achieve financial independence. Contact Stage Ready Financial Planning to learn more about how we can help!
FAQs
How much money do you need to retire at 55?
The amount you need to retire at 55 varies from household to household. Factors including lifestyle expenses and the cost of living in your town/state will dramatically impact the amount you need to save. A common rule of thumb is to target a retirement savings amount of at least 25-30 times your total annual income needs. This may or may not work in your situation so be sure to run your own numbers with the help of a professional.
What is a good early retirement age?
A good early retirement age depends on your financial readiness, health, and personal preferences. Some people aim to retire in their 50s, while others may choose to retire even earlier if feasible. An important note is that most employer sponsored retirement accounts such as 401ks & 403bs aren’t easily accessible without tax penalties prior to age 55.
What is the 4% rule for early retirement?
The 4% rule suggests withdrawing 4% of your retirement savings annually to sustain your lifestyle throughout retirement. This rule is based on historical market performance and is a possible strategy to provide an income stream that could last throughout retirement. There are many challenges to this theory of retirement income planning and the 4% rule is not necessarily appropriate for all market conditions or individuals.
Is it better to take Social Security at 62 or 67?
The decision to take Social Security at 62, 67, or anywhere in between depends on factors including your life expectancy, financial needs, and other sources of income. Taking benefits early may result in lower monthly payments and delaying your benefits can lead to higher income payments. How long you might live and how much you would need to withdraw from your retirement savings are usually key factors in determining the appropriate timing for social security benefits.
What is the biggest expense in retirement?
Healthcare expenses are often the biggest surprise expense in retirement, including medical insurance premiums, prescription drug costs, medical procedures, doctor visit copays, and potential long-term care costs. Planning for healthcare costs is crucial when preparing your budget for retirement.
Who We Are
Stage Ready Financial Planning is a fee-only financial planning firm based in Dayton, OH proudly serving individuals & couples over age 50 looking to retire early or at just the right time to live their dream life. Whether those dreams include escaping the midwest winters or simply living a life of happiness and abundance, we are here as your trusted partner to help prepare you for the next STAGE of life. Click here to learn more about us.