So You Want to Retire Early? Here’s How To Do It
For many Americans, retiring before age 65 is one of their ultimate financial and lifestyle goals. With some careful financial planning, it’s an achievable goal, too.
If you’re planning to retire early, here are 6 financial tips that will help you maintain your lifestyle well into old age.
1. Calculate how much you need to save
There’s no one-size fits all answer to the question, “How much do I need to save for retirement?” But, you have to figure out your own savings goal before moving ahead with other aspects of retirement planning.
You need to take into account your lifestyle ambitions, current age, income, existing investments, and more. This retirement calculator from Bankrate can help you figure out the financials.
2. Make a retirement savings plan
Now that you have your retirement savings goal, it’s time to make a plan. You know how much you should save per month or per year, how will you meet that goal?
3. Max out your retirement accounts
Legally, in 2018 you can save up to $18,500 per year in a 401k retirement fund. Maxing out this account is a great place to start, especially if you got started saving later in life. Traditional and Roth IRAs are two more tools that people can take advantage of, though the rules vary:
The most you can contribute to all of your IRAs is the lesser of:
$5,500 (for 2015 - 2018), or;
$6,500 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.
To learn more, visit the IRS website.
4. Explore more savings options for the self employed
What if you don’t have an employer sponsored 401k with a generous match? You aren’t out of luck, and there are a few options you can utilize (in addition to the more well-known IRAs):
Defined benefit plans
If you need to save a lot in a short period of time, Solo 401k’s and defined benefit plans in particular are a very attractive options. To learn more about the aforementioned plans, have a look at this helpful guide from NerdWallet.
5. Weigh the pros and cons of early retirement
Do you really understand what it will take to retire before 65? There are some very important things to consider before making this choice.
For starters, while you can start pulling from Social Security at 62, you won’t receive your full benefits. The full retirement age used to be 65 for anyone born in 1937 or earlier. Now, it’s 66 for most Baby Boomers and 67 for anyone born in 1960 or later.
Early retirement isn’t for everyone, so make sure retiring before age 65 will work for you.
6. Work with a retirement planning professional
Saving for retirement can be complicated, especially if you’re self employed and own a small business.
Hiring a financial planner or investment advisor will help you get the most out of your savings and investments throughout retirement, and you’ll rest easy knowing you aren’t missing out on a retirement savings opportunity.