Let's examine early retirement strategies that will allow you to answer the question "Am I ready to retire?" with a resounding "yes."
If you hope to spend your retirement in a modest cottage, quietly enjoying your golden years, your budget will look far different from someone who wishes to travel the world regularly or live at a high-end condo on the beach. To know how to retire early, you need to know how you want to live as a retiree. This may involve conversations with your partner or spouse and understanding of your children's — and your own — expectations.
Hopefully, you've already created a budget for your current life. You'll need to refer to it as you plan and possibly tweak it to allow you to save more.
But now you also need to create another budget: one that accounts for your future. Your early retirement budget should include all the expenses you anticipate having after retirement. Don't forget health insurance costs, especially if you hope to retire before Medicare kicks in. It shouldn't include long-term debt, which we'll talk about next.
One of the most crucial early retirement strategies is paying down debt while you're still working. For many individuals, their mortgage is their largest debt. Your early retirement plan could include paying extra every month with your mortgage payment, so you no longer have this drain on your finances by the time you retire. The same goes for car loans or high levels of consumer debt. Ideally, you want to have no long-term debt dragging you down and tapping into your retirement budget by the time you retire.
Now is the time to get out your current budget and review it to see if you can trim it down. Do you travel extensively for pleasure now? Go out to eat several times a week? Give generous gifts? One of the best early retirement planning tips is to make small sacrifices now and use the money saved to either pay off debt or as an investment. Even small savings add up. Cutting back to one dinner out per week may save you $50, which is $2,600 extra that could be used strategically over the year.
So you've tightened your belt, you're paying down debt, and hopefully, you still have a little leftover. This is when you want to find investments that will pay a dividend when you're retired to add to your revenue stream. Investing for early retirement in smart financial vehicles can play a significant role when you're no longer drawing a paycheck from work. There are many ways to do this, from stocks to real estate. A good financial advisor can guide you in finding the right vehicle.
Another question you may have when planning how to retire early is whether you should save your money or invest in a life insurance policy. The answer could be "both." Life insurance can protect your family if you have dependents. This is usually accomplished with term life insurance, as younger individuals with small children commonly use it.
Term policies end after the term is finished. On the other hand, permanent insurance lasts your entire life and may have a savings component that can add to your retirement revenue stream after you've owned the policy for years.
If you've tried multiple early retirement strategies and you're still coming up short, you may need to make more significant changes to your lifestyle. One option is to take on a part-time second job, stashing everything you make there into your retirement savings or using it to pay your mortgage's principal. Or, start paying into an IRA, even if it's just a few dollars a month.
Be creative in looking for revenue streams. Do you have a hobby that may be monetized? Those macrame wall hangings may bring in some good money on Etsy.
Then, revisit your retirement wishes. Does that condo really need to be on the beach? Can you limit your travels to once-a-year trips? Are you willing to take on a part-time job after retirement? Knowing what to do when you retire may offer you other ways to earn money.
More than anything, your attitude will make a difference in your early retirement strategies. You may need to accept some sacrifices to retire early, and you may have to work harder now, while you're younger, to afford the lifestyle you hope to have after retirement. But if you tackle the process with a positive attitude and willingly accept that you may not get everything on your wishlist, you should be able to retire earlier than you may have thought possible.
The information and content provided herein is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. You should consult with an attorney or other professional to determine what may be best for your individual needs.