Wouldn't it be nice to retire early? You don't have to stress about work and money. But work also has its benefits. Especially if you love what you're doing. It helps exercise your mental alertness and keeps your body active. It also helps bring in money to spend on your wants and needs.
But early retirement also means that you won't earn any more money from work. So how do you sustain your lifestyle when you want to retire early? Simple, build your passive income. Invest the money you earn towards building that passive income that will earn money and help you attain that early retirement.
Do know that early retirement also requires work. You need to work for it to be done. There is no shortcut. It requires a lot of planning and wise decision making.
So how to retire early?
I'll give some tips for you to follow when you're planning on retiring early. This does not mean you won't have to do the hard work. Every good thing comes at a cost of something. For early retirement, it requires your time to learn, educate, and plan out your path to early retirement.
9 Tips for Early Retirement
1) Assess Your Early Retirement Lifestyle
What's your purpose of early retirement? Isn't it to get out from work and live the lifestyle you want? So you first need to assess what lifestyle you're going to do. Determine the kind of lifestyle you want so you'll know how much your expenditure will be.
2) Estimate Your Budget
If you want to retire early, you need to calculate your expenditures. Create your expected budget to help you have an idea of how much you're gonna allocate to a certain expense and to also estimate your total expenses. It could be daily, weekly, monthly, or yearly depending on your preferences or lifestyle.
Examples of expenses to consider are:
- Utilities (water, electricity, etc…)
- Phone & Internet
You also have to debt. It would be best to clear up all debts and mortgage before you want to retire early. You may find yourself in trouble as debts consume your retirement fund and change your lifestyle.
3) Assess Your Financial Capability
You've calculated your budget and your lifestyle. So you should know the total amount of fund to be able to support your early retirement. Also, find out the amount of fund you currently have allocated for your retirement. Your retirement portfolio may consist of investments, real estate, cash, annuities, and other forms of assets. Now subtract the total amount of fund your early retirement needs to your retirement portfolio. This should show you the amount you need to be able to support early retirement. It's also good to be over the desired amount to have leverage in case some problems come along the way in your early retirement.
4) Change Your Lifestyle According to Your Retirement Funds
I know all those vacations, luxury items, and hobbies you want to try. But always keep in mind that you have limited funds and that there is no more work for you to fall back to in case you overspend. Most people fail to retire early because they aren't able to adjust their lifestyle according to their retirement fund. They end up overspending and going broke. This may surprise you but a lot of people retiring to other countries do not live a luxurious life. Instead, they live a simple life and never overspend. They adjusted their wants and needs in order to fit the allocated retirement fund they have to last for a lifetime. Here are also some points you can look into when changing your lifestyle:
Be Debt-free - Debts are a huge money sucker to your retirement. Especially with high-interest rates. Before you retire, make sure to clear all your debts so you won't have to compromise your retirement fund.
Be Simplistic - You could try taking lesser vacations or cut expenses for your hobbies. The secret to retiring early successfully is to be content with things. It doesn't mean you have to be thrift all the time then there would be no point in retiring. It's just that you have to be wise in spending. Do you really want to go on a luxurious vacation? Then be patient. Wait for discounts and promos to come. It will save you a lot of money.
Have A Balance of Work and When to Retire - This goes without saying that retiring at a later age, gives you more funds for your retirement. This means more flexibility in your lifestyle plans. Always consider that if you retire a bit later, you will get more funds for a better option for your lifestyle. But if you really want to retire early, like at the age of 40, then be contented with a simple lifestyle cause you may not have enough funds to support an expensive retirement lifestyle.
Be Open to Having 2nd Job - If you want to retire early then you need to work for it. If you lack the retirement funds for the lifestyle of your choice then you have to start considering getting a 2nd job. It'll help you save a lot of time and you can even retire at an early age of 45. Having a 2nd job eats your time but if you really want to retire at an early age then it's worth it. You also have more funds for your early retirement.
5) Investment is Key
Build that passive income! There are many ways you can invest your money in like real estate, stocks, annuities, and etc… Don't let your wealth just sit still and not grow. Passive income helps you build up your retirement fund. It also provides you income when you no longer work and will be one of your main sources for money in early retirement.
6) Invest in What You're Good At
If you're investing in your early retirement then it must mean that you're working and trying to invest your money at the same time. You won't have the necessary time to learn a new field. So it's best to stick to your expertise. Invest your money in something you are knowledgeable of or good at. That way you already have the basics down and can keep track of your investments easily. You save time learning a new field and can allocate it to other resources.
7) It's Always Good to Have Expert Advice
You don't want to manage your retirement fund without any knowledge or experience. You may not know certain terminologies used and the whole process might be confusing for you. That's why a professional can help you make the right financial decisions. They also provide knowledge and guide you in securing that retirement fund you want.
8) Look to Cut Costs
There are things like taxes and investing fees that can prolong your years towards early retirement. If you don't manage it because you think it's a small thing, those costs accumulate and is actually a big hindrance to early retirement.
Look to put your money into tax-advantaged accounts. This lessens the amount of your income which also lessens your tax. There are also tax reductions you can look into like:
- Retirement account contribution
- Mortgage interest deduction
- Business expenses
- Tax credits
- Investment loss carryover
- Charity donations
- Qualified dividend investments
It's best if you hire an experienced early retirement tax accountant to help you with saving money from taxes. You also need to understand the process and learn so that over time you can handle it yourself and reduce costs. Remember that all the cost reductions will go to your retirement fund. So it's all worth it.
The same goes for investment fees. The added up investment fees is a huge chunk taken out from your potential retirement fund. If you don't know or understand investment fees, you should consult a professional to help you minimize cost.
9) Be Wise
Don't rush into things. You might think that you're ready for early retirement but there are still things you need to take care of. The first purpose for your early retirement in the first place was to enjoy life and get away from the stress at work. So here are some things you have to do before deciding to retire early:
Plans After Retirement - What are you gonna do after you retire? How do you imagine your daily life after retirement would be? Are you gonna travel or work on achieving a lost dream?
Retirement Location - Where will you live after retirement? Are you gonna stay in the U.S? What state will you live in? Does it have a high cost of living? Do they have tax breaks? If you decide to retire in a different country, are you prepared? Do you know any people there? Do you have a concrete plan of settling there?
Social Security and healthcare - You need to secure good health insurance before you retire. Social Security is only an added stream of income. Don't rely on it too much.
Properly Manage Your Income Stream - This is the source of your money to pay for your early retirement. It's important that you manage this properly and be watchful of it as one mistake could jeopardize your early retirement.
Early Retirement comes with hard work. But that hard work will pay off once you live your early retirement life comfortably. Remember to assess and manage your finances. One mistake can extend your early retirement plans. If you're unsure of what to do, you can always seek the help of professionals to help you understand the process.