Retiring early seems to be the Holy Grail for many blue-collar workers these days. And it’s not very surprising if you were to observe how most office employees are stressed about their jobs and the hours they are putting in.
The way it’s going, it’s clear that many people will burn out long before they reach the retirement age. They are working themselves to exhaustion, putting in extra time at work. Most of them feel that even though they are earning money now, they aren’t able to spend it in a way that would make them happy.
If you are feeling like this, you might be considering early retirement to relax and enjoy life. Early retirement is something of a mystery to everyone. You might even wonder how can you save enough to last you the next few decades. But at the same time, you have also heard of people saving enough money to retire early. It’s true. Many have done it.
How to Retire Early
If you are all set on getting yourself financially independent to retire early, here’s what you should know:
The 4% Retirement Rule
The first rule of retirement is to save enough in your retirement funds to be able to live off the 4% save withdrawal limit. This means that if need $20,000 per year after retirement, you need to save at least half a million dollars in your retirement account. This way you can safely take out 4% every year and live securely.
While many experts suggest saving $3 million in your retirement account before you actually retire, early retirees claim that you need far less than that. Good news!
That’s because after you retire, your spending will likely go down. Many of your current expenses will disappear. For example, you won’t be spending any money commuting to the office. This means that you won’t need as much money as you initially planned.
If you haven’t already opened a retirement account, we suggest looking into the Best IRA Accounts for 2019.
Consider A Lifestyle Change
Let’s be honest. If you wish to retire early, you will probably need to change a few habits. Here are some things you need to reevaluate:
- Pay off your debts: Start by aggressively working on paying off all your debts. This includes your college debts and your mortgage payments. These debts will continue to take out a big chunk of your income. Once you pay off these debts, you will be able to put in more money in your retirement account. Another smart move is switching to debit cards, instead of credit cards.
- Consider an alternative income source: The internet has opened up many possible avenues to make some extra bucks. You can use these to get your hands on extra cash to put in your retirement fund. You can also consider investing in a side business.
- Cut off on the extra expenses: Start spending wisely. Avoid going off on spending sprees. Create a budget and stick to it. Think of it this way, the more you save, the earlier you will retire. This will give you all the motivation to cut down on your expenses.
Invest Your Money
You won’t be able to take out money from your retirement account early, unless you want to incur a 10% percent penalty. This means until you reach the age of 59 and a half, you need another source of income to get you through. This is why an investment plan is absolutely necessary if you plan on retiring early.
If your money isn’t making you more money, you aren’t really working towards early financial independence. Create passive streams of income. Get your money to make you more money.
This will happen when you invest your money wisely. Start investing your money aggressively. Look for lower cost index funds. Talk to a financial advisor. Explain to him your plans to retire early. Ask him to create an investment plan that will allow you to accomplish your dream.
Always remember to be cautious when you hire a financial broker. You should be looking for past reviews and recommendations. Review your investments periodically to keep track of your earnings and payments.
Have a Contingency Plan Ready
Retiring early doesn’t mean you sit at home doing anything. It means having more time in your hand to explore things you are passionate about.
Most people who have achieved their early retirement goals have realized that doing nothing is highly overrated. After a few months, you start getting this itch to go back to work. Retiring after a full-time job isn’t easy, and it isn’t for everyone.
Think of what you want to do after you retire. Think of how these plans can make you money. Many early retirees end up starting the blogs on early retirement. And they are earning a good side income for their blogs. Choose a side hustle that you will keep you busy and will earn you a few bucks on the way.