Who says you have to wait until age 65 to retire? And what is retirement? It really is financial independence. It is the freedom to live your dreams and do what you want in life—travel the world, volunteer, learn, and play sports, to live without borders. How can you have all of this at age 50, or 40? Here are 8 tips to help you retire early.
- Get rid of debt. If you want to be in a financial position to retire early, then you must make it a priority to eliminate your debt. This means putting all available resources first toward paying off credit card debt, consumer loans, student loans, and other debt that is draining your budget every month and lowering the amount you have for retirement savings. It might seem daunting, but with discipline and a realistic budget, you can do it. Once you arrive at the finish line, stay out of debt. If you use your credit card to make a purchase, and sometimes it is the only or best option, make sure you can pay the bill in full. Use your debit card whenever possible, or cash.
- Extend the life of your salary. Once you have eliminated your debt, you will notice that you have a lot more money coming in each month than you thought. Which means that you have more money to put toward retirement savings, if you want to retire early. Under normal retirement goal circumstances, the experts recommend saving 10-15% of your income in retirement accounts. But, if you want to slip into retirement life early, then your target will be closer to 50%, which is perfectly doable when you don’t have all those credit card and other bills to deal with each month.
- Put your lifestyle on a diet. The formula is pretty straightforward—the less money you spend on unnecessary things, the more you will have to save and the sooner you can fly into retirement. Assess your daily, weekly, monthly out-of-pocket spending. Do you really need to buy take-out coffee every morning? Or the daily lunch at the restaurant? Do you really need a new car every year? Five star vacations? The truth is that if you read stories about people who have succeeded in retiring early, you will find a common theme—they lived frugally. This does not mean you have to suffer, it simply means spending wisely and with a focus on your number one priority—early retirement.
- Establish an emergency fund. If you want to retire early, then you might need a one year cushion to adjust from life without your salary. Calculate your annual living costs and put that amount in a special account such as a mutual fund or CD.
- Increase your income. If you find it difficult to pay off the bills, get out from debt, and increase your savings so that you can retire early, it may be necessary to either demand a raise, find new employment, or take on a second job. Assess your skills and look around for freelance work, such as teaching, or consulting on the topics that reflect your expertise. Start a side business.
- Diversify your retirement investments. While you should absolutely max out on the allowable contributions you can make each year to your employer sponsored 401(k) or a Roth IRA, you will not be able to tap into these resources, without substantial penalties, until you are close to 60. If you want to retire early, then you need to diversify your investments into other portfolios. This is why consulting with an expert in the field of investments and retirement planning is key to your success.
- Purchase a home you can afford. Remember that saying, “house poor?” If your new home costs you so much that you don’t have money to buy groceries or pay the bills then you are house poor. You may have a great place, but the mortgage, furniture and furnishings, utilities, property taxes, etc. is draining your resources, the very same money you want to invest in your retirement.
- Maintain a healthy lifestyle. Medical costs could be the one stumbling block to early retirement. Now is the time to focus on living a healthy life—eat properly, exercise, dump any unhealthy habits, and go for regular checkups.