Many dream of retiring early. If your career and investments have been kind to you, then this kind of luxury might be within reach.
But what is retirement, individualized to your person and personality? Is it staying at home and tending your garden?
Traveling the world? Or jumping headfirst into more frenetic adventures, such as your own startup– but simply without worrying about who gives you your next paycheck.
Whatever the case, it takes work, patience, and a strategy that involves both common sense and planning. Here’s what you need to consider if you truly want to pursue an early retirement.
1. Save Aggressively
It’s simple. If you want to retire earlier, you have to be putting away more cash. Most people aim for saving 10 to 15% of their income — you should be thinking more along the lines of 30%.
In practicality, that means that simply avoiding small-ticket items isn’t going to work. The currency of big savings is concerts, vacations, or even vehicles — be very thoughtful about how you make big purchases.
When your tax refunds come around, put them straight into your savings.
At the same time, as your dollar expands, don’t mindlessly let your spending match how much you’re earning. While you shouldn’t be engaging in asceticism, it’s important to mindfully spend.
2. Live Well Within Your Means for Housing
Housing’s expensive. It’s the biggest item in the budget. And simply making a decision to stay in a starter home rather than upgrading just because you can afford the mortgage can save you tens of thousands of dollars over the course of ten years.
3. Of Course, Maximize Tax Savings Through Tax-Favored Accounts
There’s no simple catch-all solution here: that’s why accountants and financial advisors exist. But the general piece of advice remains: learn the nuances of your savings account to minimize taxes.
For example, maxing out your 401(k)s is simple enough. Meanwhile, if you’re a married couple who files a joint tax return and your income is less than $186,000, you can fully refund Roth IRAs.
Consider Health Savings Accounts too. Not only are they not taxes, but neither are withdrawals from HSAs if they’re used to pay for certain types of medical expenses.
The point is that these systems are designed to work for your individual situation and help you save money pragmatically. Figure out the systems and maximize savings.
4. Figure out How You’ll Be Covered, Medically
Find out how you can have access to medical insurance. Is your spouse still working? Does a former employer still provide coverage? When you hit 65, you’ll be able to take advantage of Medicare — but until then, you’ll need to find a way to cover.
Barring these options, find out what premium you can get through a broker.
5. Portfolio Safety Matters More Than You Think
The phrase ‘sequence of return risk’ might seem obtuse, but it describes a very real scenario where a short run of bad luck can heavily affect your portfolio.
Even if your overall returns are good for your portfolio, having your portfolio initially damaged by a few years of losses undermines its ability to grow in the long run.
The older you get/the earlier you plan to retire, the more you should be changing the ratio of your portfolio’s stocks and bonds.
6. Set up Part-Time Income Streams Ahead of Time
You might think that your years in the work force qualify you to transition to part-time work or gig-based work. You might be right — but that doesn’t mean you’re necessarily signalling that.
Start setting up the connections now that can provide work later on, as you need it, and do so while you’re network is thriving and you’re in constant contact with the people who might need your help.
These are some of the main steps you can take to making your retirement a good one.