The question of how to retire early is a common one. For many people, early retirement is more than just a dream. Many people can retire early by following a good strategy, working hard, and persevering.
Several decades ago, retiring at 60 rather than 65 was considered “early retirement.” Today, the way people view early retirement has changed. Younger generations have adopted a healthy curiosity about what it takes to retire as early as their 20s or 30s, with movements like Financial Independence, Retire Early (FIRE) gaining momentum.
No matter what your goal age is for early retirement, the only requirement is your ability to be financially independent. Early retirement is possible for some people in their 30s and 40s. Nevertheless, most of these individuals continue to work, often on passion projects or simply because they enjoy it. Let’s look at some ways you can work towards early retirement.
Step 1 – Do Your Calculations
A number is often the starting point for retirement planning. Many believe they can retire if they meet a specific, static financial milestone, like having $2 million. But retirement often requires more than simply hitting a mark. Bank accounts are only one of many viable avenues that all work together to provide financial stability in retirement. Creating sustainable income from your retirement savings, general investment accounts, and supplemental income is what it is all about.
A person who receives $6,000 per month from pensions and Social Security will need far fewer savings to maintain the same standard of living as a person whose only fixed income is a $1,250 benefit from Social Security. Keeping the same living habits after retirement requires about 80% of your pre-retirement income. For example, an individual with an annual salary of $80,000 would need a yearly income of $72,000 after retirement.
You should also examine your budget and determine how much you expect to spend during retirement. Is your spending going to increase or decrease? There may be a reduction in certain expenses. For example, commutes, lunches, and building a business wardrobe will no longer be part of your daily routine. However, healthcare is an out-of-pocket expense. Traveling is also a considerable expense for many retirees who retire early.
Step 2 – Remain Disciplined
When your account balance is substantial, it may be tempting to withdraw the entire amount to make a large purchase. However, if you invest your assets for more extended periods, there is more potential for growth. Another reason you should wait to withdraw money from many of the most common retirement funds before the age of 59.5? In some cases, the IRS may charge a penalty for withdrawals taken before that age.
Keep debt and interest in mind as well. Your retirement assets are at risk every time you take on a long-term loan. Furthermore, paying interest increases your expenses — an unnecessary and avoidable cost.
Step 3 – Establish Multiple Income Sources
A side hustle or part-time job could generate income, such as investing in properties or a business venture. You can save more toward your goal by generating alternative income streams.
As people live longer, their retirement years are longer. As a result, many people consider retirement an extraordinary time, spending more time with their families, volunteering, or traveling.
You will be in a better position in the future if you plan now to set yourself up for retirement, perhaps even fulfilling your early retirement goals if you are lucky.