Are you faced with (or hoping for) an early retirement?
Then you’ll want to do your homework to learn how to retire early without hurting your finances.
According to a study from the Employee Benefit Research Institute, nearly 50% of workers plan on retiring after the age of 65 to collect maximum social security benefits. However, only 19% end up staying that long.
Most of the time, early retirement can be attributed to unexpected events such as poor health, economic downturn, loss of employment, or family issues. However, with the right planning and budgeting, you can retire early on your own terms.
Keep reading this guide to learn how to retire early and why it should be your primary goal.
Benefits of Retiring Early
There are obvious reasons to retire early, including having more time to spend with family and do the things you love without having to work around your work schedule. Many individuals will take that time to travel or experience things they haven’t had the ability to do before.
Although retiring early does have incredible benefits, it can be hard on some individuals as well.
Early retirement will mean less social security benefits—as much as a 30% reduction in some cases. Fewer income-generating years also mean your savings will need to last longer and you’ll have to deal with expensive health insurance premiums until you reach the age for Medicare.
However, if these disadvantages can be overcome, early retirement can be an exciting prospect!
How to Retire Early
This is a situation many people dream of achieving, but unfortunately, just as many individuals don’t believe it’s possible.
The problem is that “early retirement ” is a term that can be applied to different situations—you can retire early because you were forced to (due to unforeseen circumstances) or you made it a priority and achieved your dream of financial independence.
“Financial independence” is a popular phrase that is garnering more attention, thanks to the FIRE movement. Standing for Financial Independence, Retire Early, FIRE has recently taken off in popularity among millennials and younger generations. The idea is that, through vigorous saving and aggressive investing, you can grow your savings as quickly as possible to achieve retirement faster.
The ability to retire can be broken down into two main categories: saving and investing.
Individuals will have to make the most of both categories to achieve financial independence and retire early.
Your savings is everything when it comes to retirement. It’s your lifeline that will keep you afloat.
You will want to save as much as possible so you can be comfortable when it does come time for you to retire. Using tools such as a retirement calculator, you can determine an estimate of how much savings you will need to retire.
Creating a budget can also help you visualize what your expenses are compared to your income.
Investing is the other half of the retirement equation and can easily make the difference between retiring early and having to wait to collect social security payments.
It’s ideal to begin investing as soon as possible to allow the compounding effects to take place and generate as much wealth as possible. You will have to consider your risk level and goals of investing to determine what investments are best for you.
The closer you are to your target retirement age, the less risk you should be exposed to on the financial markets. Stock markets do experience corrections from time to time, and your portfolio should be prepared in case that happens.
Are You Planning for Retirement?
Retiring early might be an excellent goal to work towards and achieve. It will take a lot of hard work and budgeting, but with the right planning, you too can make your early retirement goals come true. Imagine all the free time you would have to spend with family and do all the fun things you have been waiting to do!
If you are planning for retirement and are looking at how to retire early, contact us today, and we can help get you started on the right path.