As a resident of North Carolina, you might find yourself compelled, more than residents of other states, to step away from your 9-to-5 early on and leave the rat race behind altogether.
With the FIRE (Financial Independence, Retire Early) movement ablaze on social media, you’ve been watching thousands of retirees move to North Carolina every year. No one would blame you for wanting to kick out and kick back alongside the nearly 18 percent of people 65 and older in the Tar Heel State without actually waiting until that age to wrap things up.
Still, the trend to retire early is a relatively new phenomenon. And though some online influencers retiring at 30 or 40 may make early retirement look straightforward, getting there isn’t easy, even in a moderately tax-friendly state with a fairly low cost of living.
On that note, below are some notable tips for retiring early as a North Carolina resident:
Save at a High Rate
According to the Bureau of Economic Analysis, the personal saving rate in the United States is 4.80 percent. That’s less than the 8.45 percent average from 1959 until 2024, and well below the 10 percent to 15 percent financial professionals recommend to retire by 65.
What that indicates is that you must save at a much higher rate to comfortably retire early. Advocates of the FIRE movement save between 50 percent and 70 percent of their income.
Maximize Your Earning Power
It is an obvious connection, but if you can increase your income, you can save more. As such, consider working overtime, seeking a raise, or transferring to a higher-paying position altogether to earn additional income you can put away for early retirement. You also can start a side hustle or invest to generate passive income.
Invest Early and Often
Saving alone isn’t likely to get you to retirement, let alone an early one. You must invest early and regularly. Consider maxing out your employer’s retirement savings accounts, such as a 401(k), as well as a traditional individual retirement account (IRA), Roth IRA, and other investment accounts.
Start investing early and set up an automatic deposit into your investment accounts every month. Doing so will allow you to take advantage of compounding interest, which will substantially grow your investments for early retirement.
Cut Down Your Spending
Finding more money to save doesn’t always mean finding a higher-paying position or creating another side hustle. You can also cut back on your spending.
A person living alone spends $4,641 per month on average, according to the U.S. Bureau of Labor Statistics. Housing takes up about 33 percent of a household’s income. You can trim your spending by canceling unused subscriptions and memberships, eating at home, and pulling back on other discretionary spending.
Plan for a Long Retirement
Many rules for planning for retirement are geared toward a retirement lasting 25 or 30 years. For instance, the rule of 25 calls for estimating your annual spending and then multiplying that number by 25. If you retire at 30 or 40, the amount you expect to retire on might get you to 55 or 65, far short of the ever-lengthening human lifespan.
There’s also the chance that you end up spending more than you expect. An Employee Benefit Research Institute survey found that 26 percent of retirees spent more than they had anticipated on housing, health, and medical expenses.
You also have other considerations, such as being able to access money in retirement savings accounts, such as a traditional IRA or 401(k). You will incur a 10 percent penalty for withdrawing money before age 59 ½ from a 401(k) or IRA, and your withdrawal will be taxed as ordinary income. You also may have to pay state taxes.
Your planning has to account for bridging your retirement income until after that age or until you are eligible to take your Social Security. You also must find a way to fund your health care until you are eligible for Medicare at age 65.
Find a Financial Advisor
If you want to retire early in North Carolina, you now know some of the hurdles you must cross. The process may not be easy, but it can be done with a financial advisor in your corner to help guide you. At Good Life Morehead City, we know North Carolina and we can help you work toward your financial freedom. Reach out to us today to learn more.