With the right strategies – from planning ahead to investing smart – you can learn how to save for early retirement. Here are a few suggestions to get you started.
1. Know Your Numbers
How much money do you need to retire? It’s important to know the exact amount; then consider that you’ll need even more if you’re planning for early retirement. Calculate both the annual and monthly income you hope to take home in your retired years, and the type of investments you’ll need to make in order to generate that cash flow. Pinpointing the exact numbers not only gives you a goal but also illuminates a way to get there.
2. Boost Your Savings Rate
Financial planners recommend saving 10 to 15 percent of your income for retirement – the best way to retire early is to save more than 15 percent. 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
Another step to early retirement is to take a hard look at your budget. Review everything on which you spend money, then create a cost-benefit analysis. Even if you think you’re living frugally, you might be surprised to learn there’s room for improvement. We all have one or two hidden expenses that, once eliminated, can add up over time. For example, how often do you dine out for lunch or buy coffee on the way to work? Making minor changes to your spending can help you stretch your savings for years – and help you get closer to early retirement.
4. Eliminate Debt
Debt can postpone retirement since you’ll have to work longer in order to pay off any loans or credit cards. Determine the age at which you want to retire and then make sure you’ve paid off all outstanding debt by that time. 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
Wondering how to invest to retire early? One easy solution: 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.
Ready to Plan for Early Retirement?
We can help! Farm Bureau can help you examine your options and achieve your retirement goals.