What if you want to live your golden years carefree and to the fullest? Are your bucket-list goals different from spending endless time in the office? In that case, you’ll need a sound strategy and persistence to attain these dreams.
Yet, fears about social security or maybe outliving the savings make people doubt early retirement schemes. Luckily, if you plan meticulously and follow our tips below, retirement can be the best segment of your life.
Remember that the catch always lies in the time. Meaning, if you start watching your pennies early, you’ll need less time to spend in employment and more time to enjoy the retirement days.
Table of Contents
- 1 What Is Early Retirement?
- 2 How To Retire Early
- 3 Early Retirement Tips
- 3.1 1. Create A Retirement Plan Early
- 3.2 2. Get Debt Free
- 3.3 3. Invest Wisely
- 3.4 4. Create A Net-Worth Target Goal
- 3.5 5. Change Your Lifestyle Accordingly
- 3.6 6. Get Your Estate In Order
- 3.7 7. Start Saving Now
- 3.8 8. Maximize Cashback and Credit-Card Rewards
- 3.9 9. Don’t Raid Your Nest Egg
- 3.10 10. Get A Handle On Your Expenses
- 3.11 11. Plan For Healthcare Insurance
- 3.12 12. Create Alternate Passive Income Streams
- 3.13 13. Maximize Your Savings Rate
- 3.14 14. Sell Anything You No Longer Use (And Stack The Cash)
- 4 Final Thoughts
- 5 FAQs
What Is Early Retirement?
Retiring early just to get away from your current job is not an option. Early retirement means that you have a plan for an exciting life full of valuable moments and things to spend your time on. Moreover, this doesn’t necessarily imply that you’ll never earn a paycheck in your life again.
On the contrary, for most people, early retirement suggests that they’ll have more time to dedicate to creative work. Plus, financial independence means you get to decide the working hours and scope of work.
For other people, retiring early equals having time to travel and enjoy hobbies. Times have changed, and today there is no default age for stepping into retirement. It truly depends on your burn rate, financial circumstances, and willingness to do different things than before.
How To Retire Early
Preparation for early retirement is crucial, and this doesn’t relate to money only. Be aware that money is only the means towards a fulfilling life in retirement. The end is much more complex and requires emotional, physical, psychological satisfaction to have a joyous life.
Before everything else, we encourage you to invest time in proper nutrition and daily exercise. Foster relationships that will nurture you and support you in both good and bad times. Life without family and friends would undoubtedly be dull and empty.
Only after combining your life plan and your financial retirement plan can you complete the entire picture. One without the other is just an incomplete puzzle.
How Much Do You Need To Retire Early?
Everyone’s wish is to figure out the magic amount of savings and investments needed to retire earlier. Unfortunately, there is no one-size-fits-all mold. If you have in mind 40 years of living after quitting your active working life, focus on a well-grounded strategy.
Let’s say you plan to retire at the age of 45, and your target annual income is $65,000. In such a case, you will need about $2.75 million invested in a taxable account before you retire. The less you expect to live on as you get older, the smaller lump sum to begin with you’ll need.
Note that if you continue working in various ways after retiring, the numbers alter significantly. Here we refer to earning passive income through blogging, real estate investments, or other ventures.
Understand How You Want To Spend Your Time
Ahead of doing any calculations and applying any saving strategies, you must decide what kind of retirement you’re in search of. Carefully contemplate the way you’re going to spend your early retirement days. Since there is no generally accepted retirement living-the-moment idea, align your decision with your dreams and affinities.
Do you want to see the world? Want to dedicate time to your grandchildren and take them to vacations? Have you ever wanted to do volunteer work? Or maybe you are a business-oriented type of person. Well, any of these life paths are viable if you have the right strategy to take you to them. Yet, each of these life visions carries a different price tag.
Spending quality time in early retirement is the pillar of a joyful life. Keeping yourself busy for 168 hours a week is not an easy target. It’s not a surprise that many people decide to take an entrepreneurial move after having retired.
Early Retirement Tips
The biggest hurdle on the way of realizing perfect early retirement plans is money. Yet, with meticulous planning and following the tips below, retiring early won’t be just a pipe dream. Study our suggestions and turn later life into a pleasant and peaceful reality with your hands totally free to do everything you ever wanted.
1. Create A Retirement Plan Early
The reason behind this tip is straightforward. The sooner you start planning, the more you’ll save, and the earlier you can retire. Second, if you start planning for your days in retirement while you’re still relatively young, you’ll have more investment options available. You can try out several opportunities and take risks without fearing loss, and this is your upper hand over those who started planning later.
The chances that you’re alone without any kids to take care of at the age of 20 are huge. So, what’s left except to create a good retirement plan and stick to it? Even if something goes wrong and your plan doesn’t work out, you’ll still have plenty of time to try another saving variant.
Lastly, if you began retirement planning at the age of 30, you can put more money into your savings fund. Make your plan flexible so that you can quickly adapt it depending on the age you eventually decide to retire. Don’t forget to keep track of the law changes as this can seriously affect your pension plans.
2. Get Debt Free
Your plans to build a fortune later in life can be utterly ruined by outstanding debt. This means you’ll have to renounce the retirement of your dreams. Payments to settle your debt exhaust your income sources and reduce your cash flow every month. As a result, you’re left without funds that can otherwise be saved or invested in return for a stable retirement scheme.
To eliminate any unsettled debts, make a payment plan as soon as possible. Order any money you should repay by the value of the interest rate. Begin with paying off debts with the highest interest rate. Also, reduce excessive spending so that you don’t add to your debt balance.
Focus your attention on eliminating credit card debts, mortgages, and other loans. For instance, make additional principal payments towards your mortgage as most banks allow this without imposing a penalty. The same can be applied to car loans.
3. Invest Wisely
One way to reach smart decisions about your investments is to invest in financial education. Improve your financial intelligence by taking courses and researching methods to boost your wealth. The cost you’ll pay on missed investment opportunities and mistakes is way higher than acquiring financial education on time.
If you don’t have many resources to build your empire on, you can always start your journey by investing as little as $100. You can try opening a high-yield savings account and then invest small sums whenever you have additional financial resources. Consider investing in yourself, in penny stocks, invest in your health, or even buy cryptocurrencies.
You can also become a peer-to-peer lender by borrowing money to people in need and then earning funds from the interest rate.
4. Create A Net-Worth Target Goal
Never just plunge into the savings pool without having a concise net-worth target. This is extremely important if you want to put your financial goals and the retirement plan into action. The target varies according to age, income, and work experience.
If you find it difficult to set money aside, print out a strict saving plan and stick it to your fridge. Don’t become one of those people who always wonder where their money went. Guide yourself according to the net-worth schedule and increase the savings amount any time you deem this is possible.
Once again, saving targets will motivate you if you’re falling behind. Build multiple streams of income to reach the set targets. For example, if you’re in your 30s earning $80,000 per year, by the age of 40, you should strive for a net value of $160,000. By the age of 50, consider having a net-worth target four times your annual salary.
5. Change Your Lifestyle Accordingly
To become financially independent in retirement, you must never break the golden rule of wealth. Never spend more than you can afford. You don’t agree? Well, just look around, and you’ll realize that the number of people who prefer to look wealth rather than be wealthy for real is strikingly high. They quickly fall in the traps of an imagined luxurious lifestyle.
The hardest thing is to resist the temptation of overspending and strive to achieve actual wealth. The truth is there are far more people in debt than rich. This is because they wouldn’t renounce their lavish lifestyle and horrible spending habits. In short, you can’t have it both ways unless you’re loaded.
If you aim to reach financial freedom, focus on buying productive assets only. This doesn’t include consumption debt. Learn how to break the slavery from the consumerism society. Purchase only necessary items that might even pay off in the future. For example, a new car will lose half of its value in a couple of years. Branded clothes and accessories is another spending trap.
6. Get Your Estate In Order
Make sure you plan your estate properly so that you don’t leave any burden behind. Resolving a messy financial and real estate legacy is a complicated issue, and few will be interested in investing time and money in it.
What you need is an estate plan. This will include your finances and a strategy to set an apparent legacy. After you make up your mind about who gets what, it’s time you get affairs in order. You might need to prepare a will, a living trust, power of attorney, life insurance, etc.
Remember that this is not just about splitting your assets. It will affect your life and the life of your descendants. You never know what kind of old age is expecting you, so get prepared right away.
7. Start Saving Now
The best tip is to start economizing today. Surely, many things immediately come to mind on which you can save decent amounts. But if you wonder how, follow our ideas below:
- Invest time in DIYs instead of buying expensive gifts – Why don’t you draw a painting or make personalized jewelry instead of splashing out on hefty gifts? Buying Christmas presents beforehand, for example, can save you tons of money and time.
- Buy on sale – Refrain from hot buying when new collections arrive and wait for the sales. Look for discounts and promos. This is a particularly valuable piece of advice when you are planning to buy some home appliances.
- Plan and prepare your daily meals – Not only will you save cash but you will also eat more healthily and keep a balanced diet. Have a weekly schedule and make several meals at once instead of turning to the nearest restaurant or pizza service.
- Borrow or rent whenever you can – Don’t buy things that you’ll only use once or twice. This is particularly true for expensive sports equipment, baby gear, tools, and costumes.
- Regular maintenance – When you keep your appliances and vehicles in order, the chances that you’ll waste your money on pricey repairs are close to zero. Make sure your pipes and bikes are regularly serviced to avoid endangering your life as well.
- Save on makeup, hairstyling, and nails – With so many free tutorials nowadays, it’s high time you master some makeup and hairstyling skills. Consider doing the depilation at home, too. Bear in mind that beauty hacks are best done with friends.
- Alter socialization patterns – You don’t have to burn the plastic to have fun with friends and family. Invite them at home or have a picnic in nature. Believe us, you’ll have a whale of a time not constrained by the codes and rules of chic cafes and restaurants.
- Save on utilities – Use energy-efficient lights and unplug devices when not in use. Get your house adequately insulated and save water when flushing or showering. You can save lots of cash on utilities with the right strategy.
8. Maximize Cashback and Credit-Card Rewards
To realize your early retirement plan, you must fall in love with reward credit cards. This means you’ll have to learn to use your credit cards the right way to maximize the benefits of using them. Moreover, for this strategy to work out, never forget to settle credit card debts in full and on time every month.
Don’t underestimate the power of cashback cards and apps either. Consider cards that grant you the opportunity to transfer any cashback to your savings or investment accounts. Some cards offer discounts on specific products and services such as Amazon purchases.
Another idea is to register for travel cards and receive sign-up bonuses with regular spending. Then, you can use that bonus to travel instead of paying it straight from your pocket. While traveling, you can earn additional travel credit in the process. Registering for several cards can mean a lot of travel for free and setting the money intended for holidays aside.
9. Don’t Raid Your Nest Egg
We are humans and often succumb to moments of instant weaknesses. In such moments, you may be tempted to grab some of the accumulated resources and then feel sorry about that. Following this simple principle can do wonders for your money. Never raid a nest egg once you’ve built it. Refrain from spending collected money just to cater to your current lifestyle.
Experts claim that you should put maximum efforts to build the first small egg of at least $30,000 or $50,000. This financial snowball will move you faster toward wealth as investing it in the right place can get you great discounts on mortgage rates and the like.
The best thing about retirement plans is that you avoid taxes and still get to keep your money safe for when real emergencies come.
10. Get A Handle On Your Expenses
I have heard the complaint “I don’t know where my money is going” millions of times. That’s why I want to advise you on some aspects of limiting unnecessary expenses. First and foremost, make a detailed monthly list of your expenditures. You’ll spot the whims immediately, and if you don’t, we have some ideas that can help you in the process.
Did you know that you spend around $300 if you get your house cleaned? Next time, do it yourself. Investigate phone plans and switch to a more affordable package. Use technology to reduce travel costs and cancel any magazine or newspaper subscriptions that just keep stacking in your waiting room.
11. Plan For Healthcare Insurance
We are all aware that senior years require frequent medical checkups. You may also need money for specific emergencies. The paramount rule is to procure health insurance that can cover the increased costs of medical treatment in the later stages of life. Proper medical insurances will ensure you don’t have to dip into your funds for medical contingencies.
Self-insurance in the earlier stages of life before you can qualify for Medicare at 65 can be exorbitant. This is considered a drawback of retiring early, but with careful planning, it can be tackled. Anyway, you must find various insurances apart from healthcare, including long-term care, disability, and homeowners.
Filling the gap between early and traditional retirement age is a significant obstacle to overcome. What we can advise you on is to consider joining the employer’s healthcare plan of your working spouse, if any. Also, think about continuing coverage with the help of a former employer under COBRA. Private insurance seems to be the most feasible option, but also the heftiest one.
12. Create Alternate Passive Income Streams
The larger the slot between your income and your expenditure, the richer you become. Using your free time to enjoy things you love and earn cash sounds near perfect, right? Consider our proven passive income ideas to achieve financial stability and improve the quality of your life.
- Renting – Rent anything from your car or boat to your parking spot or flat. The best thing is that you earn money while you get to keep what’s yours for the future.
- Sell digital products – This can refer to photos, videos, music, and even eBooks. Making money out of royalties is an ideal passive income online.
- House, baby, or pet-sitting – With so many people working on the go, the demand for house-sitting is continually growing. Also, knowing that they can leave their kids or pets in good hands can quickly fill your wallet.
- Start an online course – If you’re experienced in a particular topic, creating an online course can be financially rewarding. Plus, you can generate passive income because you only do the course once and then resell it to different clients.
- Start or buy a blog – Don’t expect to earn money with the first posts, but if you’re good at writing and use SEO tools wisely, the money will soon start coming. Expect to boost the earnings when you have a solid fan-base and start publishing ads.
- Take paid surveys – Focus on filling out longer and more complicated surveys to earn more. Businesses are eager to find out what their customers like to improve their products and services. Writing product reviews is another great idea, too.
- Crowdfund real estate – Invest your money along with others in properties that will be later rented. In this case, you don’t have to spend time working, and you’ll have a steady passive income.
13. Maximize Your Savings Rate
When it comes to savings, we suggest you primarily focus on spending and not on income. Cutting down on expenses like daily cups of coffee and fancy sandwiches can save you several thousands of dollars a year. So, next time prepare your lunch and bring some home-prepared coffee when heading to the office. Because every dollar spent today makes a difference when the time for retirement comes.
To get rich and then stay rich requires a lot of sacrifices and self-discipline. It’s a game in which you have to learn to live below your income. If you learn this and tighten your belt, you can enjoy financial liberty, unlike people who like to show off their wealth.
Another hint for cutting expenses is to limit spending on monthly or yearly subscriptions that you don’t use. Relace that cable TV with a better alternative, for example. The same goes for services that you don’t need, regular dinners out, and expensive entertainment. Finally, track your banking fees and utility bills to bring savings to a reasonably acceptable level.
14. Sell Anything You No Longer Use (And Stack The Cash)
Like most of us, you probably have loads of stuff that you don’t need at home. What is worse, you don’t even know where to store it. If you need to make some free space and earn quick cash, try selling unwanted items online. Consider the following digital selling sites:
- eBay – Feel free to sell an unlimited amount of both new and second-hand goods safely and reliably. You’ll have to pay a 10% commission on every sold item.
- Amazon – The largest global marketplace will charge you only $0.99 per sold item. So if you want to sell fast and earn decent money, selling at the spot visited by millions of users make the most sense.
- Craigslist – Have you wondered where to sell your used clothes, home décor, and electronics locally? Well, Craigslist will match you with potential clients free of charge.
- Etsy – If you want to get rid of your clothes but also sell some vintage items and crafts, look no further. Etsy’s got all the answers as for a small listing fee your items are introduced to millions of prospective buyers.
- Swappa – Do you have some extra electronics like laptops, cell phones, and video games that you want to sell? Swappa is a 100% free and verified site that can assist you in getting the most money for your items.
- Poshmark – This is the bestselling site for wedding gowns, makeup, accessories, and shoes. Just insert a description and some photos, and for a small listing commission, you can get 80% of your sales.
Drafting financial plans for early retirement can be easy and take a short time, but can you live that plan? The thing that financial strategies require a lot of sacrifice and perseverance. So, before you begin the early retirement process, you must decide whether you can walk the talk.
One thing is to know the principles and the ‘to-dos’, but it is entirely different from putting all plans into action. That’s where our tips can make a difference.
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How do I prepare for early retirement?
Preparing for early retirement needs a solid plan that you must abide by. Often, it will include living below your income and penny-pinching. Be realistic about your retirement and how much luxury you expect in it. If you can learn to be happy with less, downsizing your belongings and property can positively affect your early retirement plans.
What is a typical early retirement package?
The early retirement payment can be easily calculated based on your work history. Yet, it greatly varies depending on the company and the time spent in employment. Usually, one year of employment means one or two weeks of pay. For example, if you earned $4,000 per month for 20 years, the company may offer you a severance package of $20,000.
How can I retire early with low income?
Even with frugal income, you can afford to retire earlier than usual. First of all, you must set priorities immediately and start saving. With modest income, generating a second income is crucial. Stay out of debt and get life insurance to get yourself protected under different circumstances. Consider some safe investments if an opportunity comes across your life path.
Should you take an early retirement offer?
This can be a tricky situation, so you must carefully examine both ends of the offer. Therefore, it’s best to make a financial plan outlining the impact of early retirement on your income and expenses. If refusing the proposal leads to a lay-off or reduced financial packages, you may have to accept the early retirement package. A decent retirement offer should include a severance payment, paid insurance, and wages proportionate to your time spent in service.