How to Achieve Early Retirement - A Practical Guide

How to Achieve Early Retirement - A Practical Guide
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Emma Dau

The average retirement age is around seventy years old or older, depending on when you can withdraw retirement savings, your employment, and even your tax bracket. 

That said, you can still retire early. While many people dream of early retirement, it can be a challenging goal to accomplish, but you can take the necessary steps to achieving this goal.

Read on for more information about what constitutes early retirement and how to begin planning for early retirement. 

Early retirement: What's so good about it? 

Generally, men and women tend to retire at age 54 and 62, respectively. Early retirement may occur as early as your 40s or 50s. 

Remember that there is no “best age to retire.” Ultimately, it’s whatever best suits your lifestyle and financial situation. 

One of the most significant benefits of retiring young is having more freedom to pursue your interests and spend your money how you wish. Discussed below are strategies that can help you do this.

How to plan an early retirement

How soon can I retire? If you’re thinking about retiring early, here are some things you should consider:

One: When will you claim social security benefits? Eligibility for social security payments doesn’t disappear when you retire early, but you will not receive the total amount. You may lose up to 30 percent of your monthly benefits. 

Two: What are my health care options? You can’t rely on the Medicare health insurance plan until you reach the age of 65. If any health issues do arise before the age of 65 and you don’t have health coverage from your or your spouse’s private insurance, you may have to pay any medical bills out of pocket. Private health insurance is expensive, but your company might offer retirement benefits related to health insurance. Make sure you sort this out before retiring.

Three: Do I need to find a part-time job to make ends meet? Despite all the calculations you try and account for, most people end up spending more money than they think. Landing a part-time job may be helpful, but having to work a minimum number of hours or on specific days won’t give as much flexibility as you may like. 

Four: What will I do to occupy my time? Upon retiring, you suddenly have a lot of free time on your hands. It's important you have enough activities to stay busy. Do you want to volunteer? Go back to school? Travel? 

Five: Do my plans align with my spouse’s or partner's? Retirement is a big transition, regardless of when it happens. You’ll be spending more time at home, and this could lead to issues in a marriage. Since 1990, the rate of divorce after age 50 has doubled. 

Achieving early retirement

Next comes the heavy lifting: making early retirement your reality. Here are five retirement planning strategies to help you begin this journey. 

One: Make a budget. One of the biggest downsides of early retirement is that you have less time to accumulate savings. But establishing a budget plan will help immensely. Individuals aiming to retire early should aim to live on 50 percent or less of their income while working and then save the remaining amount. 

A noteworthy method is that of FIRE. FIRE stands for “Financial Independence, Retire Early.” Recently, public perception of FIRE has shifted from a fringe movement to a practical lifestyle where you live within your means and sacrifice luxuries while employed to reap the benefits in the future. Setting a goal of saving 25 times one’s expenses and withdrawing only 4 percent of one’s savings is a common and “safe” strategy for early retirees when trying to prevent outliving their money. 

Fortunately, FIRE is a flexible approach that is adjustable for different lives. There are three types of FIRE goals one can follow:

Fat FIRE

This method believes you can retire early without having to change your current standard of living. It requires aggressive actions when it comes to investing and saving.

Lean FIRE

Lean FIRE is the opposite of Fat FIRE and requires individuals to live minimalistically, cutting expenses to the bare minimum. These folks typically aim to live off of $25,000 or less each year. 

Barista FIRE

This is the middle ground between Lean FIRE and Fat FIRE, combining a simple lifestyle with active saving (and potentially a second job) to bring in more money. 

Two: Calculate your annual retirement spending. Being proactive and estimating how much you’ll spend once you leave the workforce is wise. You can do this by calculating your monthly expenses and multiplying that value by 12 to learn your approximate annual retirement needs. Remember, you always want to allot for some breathing room in the case of an emergency or health crisis.

Furthermore, retiring early means you’re subject to withdrawal restrictions on your accounts. If you have an IRA account, you must pay a penalty for taking out your money before age 59 ½. 

Three: Estimate your total saving needs. There are a few strategies that early retirees tend to adopt in order to stay within their annual retirement spending, including the rule of 25 and the 4 percent rule. The rule of 25 dictates that you should try to save at least 25 times your planned annual expenses before you officially retire. The 4 percent applies to withdrawal amounts; you should only take out four percent of your savings during the first year of retirement. If you combine these, you should have an easier time meeting your budget plan.

Four: Invest for growth. Since you have less time to build up savings, investing a portion of your wealth and earning additional returns can help tremendously. Investing in stocks, bonds, and less risky mutual funds will provide more stability for the post-work chapter of your life. 

Five: Keep your expenses in check. These days, living expenses are quite high, so you must maintain your expenses until the time comes for you to leave the workforce. You need to closely stick to your budget or whatever strategy you’ve chosen. Otherwise, you may end up running out of money. If this happens, you will need to return to full-time work. 

Final tips

To conclude, here are some tips for you if you’ve got your heart set on retiring sooner than the average retirement age.

Tip #1: Open a retirement account. Whether you open a traditional IRA or Roth IRA, having access to a reliable source of funds outside of the workforce is essential.

Tip #2: Pay off your debts. You’ll be able to save much more if you aren’t making regular monthly payments toward student loans or a mortgage. 

Tip #3: Use a credit card that benefits you. Credit cards are convenient tools that the vast majority of Americans use to make daily purchases. But their fees can be costly and slowly drain your retirement savings. 

One fantastic tool to help alleviate the financial strain of credit card fees and to take meaningful steps towards a work-free, debt-free future is Point Card.  

You work hard for your money, and Point works just as hard for you in return.

Designed as a transparent, easy-to-use alternative payment card, Point allows cardholders to exercise fiscal independence and spend their money as they see fit. At the same time, members receive exclusive benefits, including unlimited cash-back and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases. 

Alongside Point’s extensive rewards program that aids in building wealth, membership also comes with multiple measures to protect that wealth. New purchase insurance, car rental and phone insurance, two free ATM withdrawals a month, fraud protection with zero liability, and no interest rates are just a few of these features. Cardholders can have peace of mind knowing they don’t have to worry about unnecessary costs, allowing them to better focus on their next chapter. 

Tip #4: Consult a financial advisor. The financial world complex. There’s absolutely nothing wrong with seeking professional assistance if you need a second opinion or are unsure where to start. Financial advisors can help you design a budget plan and keep you on track to follow that plan.

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