It’s the end of the year and a lot of us are now thinking about our goals for 2018. Maybe you want to lose weight, maybe you want to travel more, or maybe you are thinking about your long-term goals and are focusing on getting out of the rat race and retiring as soon as possible. Retiring early has a lot of advantages; you will have more time to travel, spend time with friends and family, and pursue hobbies and still have the energy to enjoy it all. But it’s not an easy thing to do. Retiring early means hitting big financial goals and carefully planning how you are going to get there. A lot of people in the United States aren’t setting enough aside to retire ever, let alone do it before the age of 65. Do you know if early retirement is a viable option for you? Working with a retirement planning expert in Absecon can help you determine whether or not you could be retiring early and how you are going to get there.
Tips to Help You Achieve the Goal of Early Retirement
Know how much you’ll need.
The first and probably most important step towards planning your early retirement is to know how much money you are going to need. It’s going to take a fair bit of planning and some research to determine this magic number. Most people will need an annual retirement income that’s around 80% of their income while they were working, but you may want to plan for slightly more if you will still have a house payment or if you plan on doing a lot of traveling.
You need to determine how much money you need in your portfolio in order to generate an annual income that will allow you to live comfortably. There is a good rule of thumb to use when trying to determine how much you need to have in your retirement portfolio: enough that you can pull out 4% each year. That 4% number comes from the idea that your investments should, on average, see an interest gain of at least 6% per year. So pulling out 4% allows you to live off of the interest while still seeing some growth in your portfolio. If you make good investments, you’ll see a much higher return than this.
Let’s look at an example. Let’s say that you are currently making $60,000 a year. If you assume that you’ll need 80% of income amount for your retirement, then you’ll need roughly $48,000 a year. In order to meet that 4% interest goal, you’d need to save $1,200,000 for retirement.
Keep in mind that this is just an estimated amount. It’s wise to get professional retirement planning help in order to get a more accurate picture of what it’s going to take to achieve early retirement. After all, things like inflation and health care costs are going to skew your totals a bit, and a professional retirement planner will be able to help you determine their effects on your plan.
Develop a plan to help you hit your goal.
Now that you know how much you are going to need in your portfolio in order to retire, you can start working towards it. While saving a million dollars or more into your retirement plan might seem like an impossible task, it might be more in reach than you first think. In order to save the amount needed above ($1,200,000), you’d need to save about $27,000 per year for 45 years (assuming you are working from age 20 to age 65). So if you want to retire at age 45, you’ll want to save $48,000 a year. So how is it even possible?
You have to start by lowering your monthly expenses. The quickest and easiest way of saving the money necessary for early retirement is to limit the amount of money that is going out of your account every month. It seems like a basic concept, but it’s harder for people than you might think. Small expenses can add up quickly. Doing things like moving into a smaller apartment, cutting cable, or skipping your daily stop at the coffee shop can add up quickly. Cutting expenses by $500 a month can put $6,000 a year back into your retirement fund.
You are probably already investing in a retirement account (and if you aren’t, you should be) so take those numbers into consideration when planning your investments. If you are already investing $500 into your retirement account each month, then along with the money you save by cutting back on your monthly expenses, you are already saving $12,000 a month towards your retirement goal. Admittedly, that isn’t anywhere close to your actual goal of $48,000 a year. You’ll need to make up some ground by investing wisely. By investing in areas where you see compounding interest, you’ll see much bigger gains in your savings portfolio.The more you can cut back on monthly expenses and pour into your retirement account, the sooner you’ll be enjoying the fruits of your efforts.
If you are doing everything that you can to hit that magic number of $48,000 a year and not making it, you might need to adjust your plans. Adjusting your retirement plans by 5 or even 10 years still gets you out of the workforce much earlier than most other Americans and gives you more time to save up the money that you’ll need to do so.
Keep your eyes on the prize.
Whether or not you are going to be able to retire early is going to depend a lot on how passionate you are about reaching the goal. It might mean making a lot of sacrifices to your lifestyle now, such as dinners out and driving a nice car, in order to enjoy the finer things in life in your retirement years. If you are truly passionate about retiring early, there are ways to make it happen, but it’s going to involve a lot of diligence and sacrifice on your part.
Want More Advice About Early Retirement?
Our retirement planning team in Absecon is ready to help. We’ve been helping people plan for retirement for years and we know what it takes to help you plan for your future and reach your goals. If you are passionate about retiring at an early age, we can sit down with you and help you figure out exactly how to make it happen. It might be more plausible than you think with the right investments and planning. You can get started on your future goals now by getting in touch with our team for a free no-obligation consultation. We’d love to talk to you about your financial planning and retirement planning needs and show you how we can help. Give us a call or contact us through our website to schedule your consultation today.