Looking to retire before the traditional retirement age of 65? It isn’t easy, but it is possible. With the right strategies, you can steadily boost your savings and prepare for an early retirement. Just take these five steps, and you’ll be well on your way.
1. Know Your Numbers
How much money do you need to retire? It’s important to know the exact amount, and you’ll need even more if you want to retire early. Calculate the annual income you hope to take home in your retired years, as well as the amount of investments you’ll need to generate that cash flow. Knowing the exact numbers gives you a goal and a way to get there.
2. Boost Your Savings Rate
Financial planners recommend saving 10 to 15 percent of your income for retirement and starting as soon as possible. For early retirement, you might need to save more than 15 percent. Again, it’s essential to save early and often, which will increase your compound earnings, giving you higher growth over time. If you start saving later, you’ll have to increase your contribution rate to cover lost ground.
3. Cut Back on Expenses
If you want to stretch your savings for decades, you’ll need to take a hard look at your budget. Review everything you spend money on and create a cost-benefit analysis. Even if you think you’re living frugally, you might find there’s room for improvement. There’s usually one or two hidden expenses that, once removed, can add up over time. For example, how often do you dine out or buy coffee on the way to work? Making minor changes can help you get closer to your goal of early retirement.
4. Eliminate Debt
Debt can postpone retirement. By the time you retire, you’ll want to have paid off all of your mortgages and student loans. Plus, taking time to clear out your debt now will increase the amount you can save for early retirement.
5. Invest in a Qualified Retirement Plan
If your employer offers a 401(k) or another savings plan, invest. Contributions to your employer’s plan are tax deductible, meaning that earnings from your investments can grow tax-deferred. Taking advantage of a retirement savings plan is key to being able to retire early.
Have Questions About Early Retirement?
We can help! Farm Bureau can help you examine your options and achieve your retirement goals.