Who wouldn’t like to retire early? Whether you work for yourself or whether you work for a company, the idea of being able to leave work at the age of 60 or even younger and enjoy a life of leisure is a very appealing one.
Although for some people, the idea of a FIRE plan (a term used to mean financial independence, retire early) is just a pipe dream, for many more it’s something that’s achievable as long as they take the right course of action.
How can you retire before the usual age?
The answer will, of course, depend on your existing financial situation, however, if you’re serious, there are several things you’ll need to do.
Determining Your Retirement Lifestyle
Before you can work out how you can financially manage to retire at a young age, you’ll have to decide what you want to do in your retirement. Your dreams will determine the budget you’ll need. Do you want to travel? Open your own business? Do volunteering? Each dream has its own price tag that needs to be accommodated. Once you know the amount of money you’re going to need to enjoy the lifestyle you have in mind, it’s time to evaluate your current finances, to work out a budget for the future, and to work out how you can get yourself into this position.
Making Lifestyle Changes
You’ll almost certainly need to make some changes to your lifestyle if you wish to retire early, otherwise, you won’t be able to close the gap between the amount you have and the amount you need.
Several things you can consider include:
- Getting out of debt as quickly as possible. Debt will prevent you from enjoying your retirement and prevent you from saving as much money as you need for your future. Some of the debts you need to reduce and eliminate quickly include your mortgage, car loans, and student loans. A word of warning, though. Don’t consider taking an early withdrawal from your 401K to pay off those debts.
- Lowering your budget for retirement. You may need to adjust your original figure and decide to reduce your expectations a little for the future.
- Retire later. If you work for ten years more than you wanted you will be able to save more money while also giving compound interest extra time to work in your favor.
- Take on another job. This will give you extra savings every month to add to your total for retirement.
Pour All Your Resources Into Investments
If you’re serious about retiring early, you need to put every possible extra dollar towards investment. Cut costs wherever you can. Look for savings in everything from your grocery budget and utility bills to subscription services and gym memberships. Every spare cent should then be plowed back into reliable investments.
So, how do you choose reliable and profitable investments? Doing your research is key. You need to learn about everything from the basics of what dividends actually are to learning as much as possible about dividend coverage ratio. It’s important to get to grips with the principles and concepts of investing so you can determine the most profitable investments for your needs. Perhaps you want to consider a backdoor Roth IRA, or think investing in high-dividend blue-chip stocks would be the best solution for you. A financial advisor will be able to give you the information you need to allow you to make an informed decision, so it’s wise to make regular appointments with one.
Playing It Smart In Retirement
When you’re ready to quit your job for good and enjoy your retirement, there are a few practical considerations to bear in mind first so you can maximize your money.
- Revisit your retirement plan to ensure you still have the same dreams and aspirations.
- Consider where you’ll be retiring and the type of property you want to live in. If you’re planning to move, will you be downsizing or moving state?
- Decide if you’re still going to work or whether you’re giving up working completely. Perhaps you’re keen to launch a business or want to work part-time.
- Consider your health insurance needs, and whether you’ll be covered by Medicare or whether you’ll need to obtain a private policy.
- Work out how you’re going to manage your income streams. Real estate, 401ks, Roth IRAs – all are income streams that need to be dealt with effectively. If you take money too soon from certain streams you’ll be hit by a major tax penalty, whereas for others, you may be penalized should you fail to withdraw your cash early enough. Keep on top of those dates!
Follow these tips, and you’ll find that it’s possible to not only retire early but to enjoy a fantastic lifestyle in your Autumn years.