Less than half of older workers feel they will have adequate retirement income or are well prepared for retirement, according to a survey by the Insured Retirement Institute.
But that doesn’t stop many from dreaming of early retirement: 30% of workers think they’ll retire before the age of 65. Nor does that mean they can’t reach that goal.
Some lucky and few hardworking retire in their 30s and 40s, or even earlier. If you’re hoping to retire early, you should do all of these things.
1. Select your dream retirement
For some people, retirement may mean the freedom to travel and eat at every 3-star Michelin restaurant in the world.
For others, it may just mean they don’t need work anymore so they can spend the whole day writing novels in a remote mountain hut.
Others just want to own their own home, be debt-free and spend a lot of time with their grandchildren.
Different visions require different amounts of money, so it’s important to define in as much detail as possible what you really want after retirement. It will make your goal more realistic and allow you to start figuring out the financial milestones you need to achieve.
You’ll also want to get on the same page with your partner if you’re planning to retire as a couple.
2. Cut costs where you want
If you’ve ever read about millionaire millennials, you’ve probably heard some extreme examples of frugality in economics. Savings are in the eye of a wallet holder, but, for example, might mean sharing a cramped studio with three roommates.
You don’t have to do this unless it makes you happy. Our daily lives are as different as our view of retirement. We all have different values and priorities.
What matters is taking a close look at your costs, figuring out what’s important to you and cutting back on what you can afford.
You’ll likely find more success-cutting expenses that are easy to drop. Check out “15 Painless Ways You Can Cut Costs in 2021” before turning to bigger sacrifices.
However, the biggest gains can come from cutting your biggest expenses. So, if you have the flexibility and are willing, for example, to live somewhere cheaper – with roommates or family, or away from cities – your savings will increase faster.
3. Increase your profits
There is a limit to how much costs you can cut, but the sky is the limit on what you earn.
Check out “10 Tips to Remember When Asking for a Raise.” Keep an eye out for higher paying opportunities. Learn new skills, and consider reading about how to make money online, including through passive income sources.
Then manage lifestyle inflation. While you earn more, don’t spend more. Direct most or all of that increase or transfer money into your long-term savings.
4. Invest early and frequently
The difference between retiring early and not retiring at all can come down to smart investing.
Start small and small if possible. But even if it’s too late to start investing at a young age, it probably isn’t too late to start investing or even retire early – see 5 Ways You Can Save $500,000 in 15 Years.
If your employer provides a 401(k) match, take full advantage. Matching a 401(k) means that the company will contribute to your retirement when it does, up to a maximum. It’s free money.
Next, switch to low-cost exchange-traded funds. You can harness the earning power of the stock market without playing a guessing game that will best perform stocks or paying expensive brokers to guess them.
And here’s the key: Don’t get too excited to touch your investments, especially when they start to decline in value. Do what famous investor Warren Buffett does and stop well; Time is on your side.
5. Prioritize debt repayment
Even if you earn a significant return on your investment, you may still pay 17% interest on your credit card balance. Then there are student loans, car loan, mortgage and whatever else you might owe.
It’s hard to become financially independent when you owe money. The sooner you become debt-free and stay that way, the sooner you can retire. So, make a plan to erase your debt quickly.
If you need help, check out “8 Surefire Ways to Get Out of Debt ASAP” or consider talking to a reputable credit counselor.
6. Start planning
Don’t be afraid to start estimating how much you will actually need to retire using online retirement calculators.
You may find that they ask you for numbers you don’t yet know, but a ballpark estimate is okay as long as you take the results with caution, as Stacy Johnson, founder of Money Talks News, explains details in “Ask Stacy: Are Online Retirement Calculators Reliable?”
These numbers will become more realistic as you approach retirement, but in the meantime they will help you focus on what you need to do now. You will have a dollar number that you have to put aside instead of “as much as possible”.
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