Broker Check
Tips for Early Retirement

Tips for Early Retirement

| April 20, 2024

Many people dream about retiring early, and you may be among them. If so, it’s time to stop dreaming and get to work. 

Family and friends may tell you that leaving the workforce earlier than 65, the traditional retirement age when Medicare kicks in, is a pipe dream. However, early retirement is attainable if you adjust your mindset about money and alter your lifestyle. 

Unless you have enough squirreled away for 20, 30, 40, or 50 years, you’re going to have to cut your expenses, increase your savings and investments, and find retirement income to get you to the ages that permit you to access Social Security and retirement investment accounts without reductions or penalties. 

This post will provide a few helpful tips to put a plan in motion so you’ll have a shot at achieving your dream of early retirement. 

Figure Out What You Want to Do 

Generally, the first two things people discuss regarding retirement are the age they want to stop working and the amount of money they think they’ll need to stash away. 

These are important numbers, no doubt, especially if you want to end your career pursuits sooner rather than later. However, the first thing to know before planning your early retirement bash is what you want to do in retirement. 

What will your retirement look like? Are you looking forward to lazy days at home or traveling the globe? If the former, where will you live in retirement? If adventure calls, where will you go, and how lavish will your accommodations and activities be? 

Knowing what your retirement might look like will give you a better handle on the next tip: budgeting. 

Build a Budget 

You can imagine how different your expenses would be if you were to spend your retirement relaxing at home rather than hopscotching around the world. Still, it’s important to get as granular as possible. 

You must tally your expenses to know how much your dream retirement will cost you each month. Subtract your estimated monthly Social Security benefit from that figure to determine roughly how much retirement income you’ll need to generate. 

Here are a few rules to keep in mind:  

  • The 80% Rule: Most financial experts estimate that you’ll need approximately 80% of your pre-retirement income to maintain your lifestyle in retirement 
  • The Rule of 25: You should have about 25 times your planned annual spending set aside before retiring 
  • The 4% Rule: Plan on withdrawing no more than 4% of your retirement savings in your first year; increase the percentage as needed later to reflect your cost of living 

Developing a budget and making these calculations may sound like a lot of work, but there’s more to be done to ensure that you can enjoy your retirement years. 

Account for Healthcare 

People often forget to consider the cost of long-term care. Assess your health carefully and honestly to determine your physical condition later in retirement. Depending on your age at retirement, you might be able to swap your long-term care insurance for life insurance. 

Pay Off Debt and Cut Your Expenses 

Whether you plan to retire early or later, wiping out your debt and pulling back on spending are necessary to make your retirement vision come true. That may mean working harder and living more frugally now so you can relax more later. 

Start by paying down any highest-interest debt. Once you’ve done that, move on to the next highest, and so on, until all your debts are paid off. This includes your “good” debt — your mortgage. As you cut back on discretionary spending and save from paying other debts, put more toward your mortgage each month until it’s gone. 

This strategy allows you to retire debt-free, hold your home as an asset that could be turned into retirement money, and retain the option of staying put or moving. 

Develop a Retirement Savings and Investment Plan 

Your approach to saving and investing for retirement will depend on how much you need each year and how much you’ve already saved. If you’re retiring early, you’ll have less time to save and invest while you’re working and more time to spend. 

The shorter time horizon for saving and investing means you’ll need investment vehicles geared for growth, including possible brokerage accounts to help make it to the ages where you can tap into retirement funds without penalties or reductions in benefits. 

Consider Talking to an Advisor About Early Retirement 

Whether you’re starting your first job or in your peak earnings years of 40–55, you may be wondering whether you can realistically retire early. The tips outlined here can help you put an end to that wondering. Consider speaking with a financial advisor at Good Life Morehead City for more assistance. 

The knowledgeable financial advisors at Good Life Morehead City have the tools and experience to provide the services you need. Contact us today to take your first step toward your dream of early retirement.