Ever dream of leaving the rat race, retiring early, and spending your days doing what you want to do? If so, you're not alone; a 2016 report from HSBC found that 65 percent of 45-year-olds would like to retire within the next five years in order to travel, pursue their interests or spend time with their families.
However, the number of people that can actually retire early isn't quite as high. Only 38 percent of the surveyed population said they were in a position to retire by age 50. And the number one thing keeping them from retiring? Not surprisingly, their financial circumstances stand in the way. 2014 data from the Employee Benefit Research Institute indicates that 60 percent of American workers have saved less than $25,000 for retirement. So is the dream of early retirement just that... a dream?
Perhaps not...if you start planning now. Our retirement plan advisors share what you need to do now in order to make early retirement a reality.
Calculating the Numbers: Retirement Investment Advisors Share Tips
The first step toward an early retirement is a comprehensive understanding of your financial circumstances. If you don't have a realistic picture of how much you need to maintain your desired lifestyle without regular paychecks, it's all but impossible to develop an early retirement plan. As a general rule, retirement planning advisors recommend estimating a minimum of 80 percent of your current expenses for retirement. You'll also need to factor in other potential expenses, such as:
- Disability and/or long-term care insurance
The next step in an early retirement plan is saving... a lot. Your goal should be to save as much as possible, so if you're serious about an early retirement, you'll need to make a few sacrifices now. Living well within (or even below) your means translates into cutting the non-essentials, such as eating out, expensive vacations, a new car every year, and even down-sizing to a smaller home. This may sound like a lot of sacrifice, but remember that going without as much now will mean the ability to enjoy those things later.
Financial Strategies to Facilitate Early Retirement
You can advance your early retirement plan by seeking out creative ways to build your nest egg. One of the best ways to earn "free money" is by taking advantage of your company's match for employer-sponsored 401(k) or 403(b) retirement plans. Many employers will match half of the contributions you make to your retirement account, up to 6 percent of your salary. Turning that down is, literally, just like turning down free money.
You may also want to consider taking advantage of credit card rewards programs. Do a bit of research into available offers; you may find cash-back rewards programs that deposit your rewards directly into your retirement account, making it easy to keep on saving.
When you're meeting with your wealth advisor, keep retirement planning in mind as you make investment decisions. While investing is an important component of any retirement plan, those who wish to retire early may want to approach investment planning a bit
differently. For instance, you might allocate the assets in your portfolio similarly to someone who wants to retire at a "traditional" retirement age, e.g. in their sixties, but you'll need to keep in mind that your nest egg has to last much longer. This means you'll need to be a bit more flexible with withdrawals during times of need.
Following these early retirement tips can help you create the financial future you're dreaming of, but remember: starting now is the key.