If you are like most workers, you want to retire early and enjoy life after work. You can see visions of yourself relaxing on the beach with a drink in hand and not worrying about the world. But only if you start preparing as early as possible can you meet your retirement goals. Even if early retirement seems out of reach, it is possible if you prepare.
What is one of the best ways to ensure a healthy, happy, and early retirement? Personal finance expert Lynnette Khalfani Cox (aka The Money Coach) told The Cheat Sheet that having a solid backup plan is imperative. Even when you’ve figured it all out and you’re on your way to early retirement, life happens. So make sure you have a backup plan in place.
It is important to have a plan B and prepare for many unexpected challenges. For example, what would you do if you were fired from a job long before you retired? Likewise, if you had to become a caretaker, perhaps with an aging parent, how would you deal with it, and you ended your career prematurely as a result? What about your investments? Could you tolerate a sharp drop in prices on the stock market? If not, perhaps you should have a more modest investment portfolio and not one that is overly aggressive or overly invested in stocks. Overall, don’t just think that everything is going 100% smoothly and according to plan.
Are you itching to retire early? It could happen. Here are nine secrets to early retirement.
1. Move to a cheap city
When you live in a city with a high cost of living, it becomes harder to save for early retirement. And when you finally retire, you will likely have your money burned out in no time and be back to work. When the daily cost of living goes through the roof, it can quickly consume your money.
One of the best things you can do for your nest egg is to move to a city where you can enjoy a low cost of living, advises John Barnes, certified financial planner and founder of Annuity Assistant. That way, your hard earned money will go much farther and you can build your retirement savings with less financial outlay.
“This step can have a huge, positive impact on your ability to retire early. Of course, you want to make sure that there are adequate healthcare facilities and other resources in your new area, ”Barnes told The Cheat Sheet.
Next: How five years of waiting can cost $ 56,066
2. Start early
Start saving as soon as you start working. Every year you wait to give away money is a missed opportunity. Do not postpone your retirement plan until you get to it or until you make more money. Now is the time to think about your future. Because of the power of compound interest (this is when your income brings more income), saving earlier is more beneficial. Consider this example from American Funds:
They make $ 30,000 a year, receive a 4% annual raise, and plan to retire in 30 years. You save 4% of your salary per year and get an annual return of 8%. If you start investing today, you could have over $ 220,000 by the time you retire. If you wait five years before starting, you will have $ 164,878 (assuming the retirement date, salary, raise, savings rate, and rate of return are the same). Waiting five years could cost you $ 56,066.
Next: How much does the state allow you to save on retirement accounts?
3. Maximize pension contributions
Are you depositing the maximum in all of your retirement accounts? If you are looking to retire early, you should do your best to maximize your pension contributions. For 2018, the maximum amount you can contribute to a 401 (k) is $ 18,500. If you are 50 years or older, you can make an additional $ 6,000 catch-up contribution.
If you don’t have access to an employer-sponsored plan, Barnes recommends setting up an IRA. You can deposit a maximum of USD 5,500 for all IRA accounts for 2018 and a maximum of USD 6,500 if you are 50 years of age or older.
Next: Is your lunch ruining your budget?
4. Reduce extras
It’s a simple, but powerful, way to make sure you meet your early retirement goals. Often it is the small changes, not necessarily the big ones, that can whip up your finances. Track expenses for at least 30 days so you can see where to start fat loss. You may find that your lunch snack – and not your coffee habit – is really holding you back from financial freedom.
Take some time to evaluate your expenses. Remember, the key is to cut back on everything that makes you happy. That would just be a miserable existence. Eventually, if you deny yourself, you will rebel and spend even more. Do everything in moderation.
Next: Choose your friends wisely
5. Take care of your company
Just as certain habits can ruin your finances, so can certain people. If you are not careful with your financial decisions about the company you are keeping, your retirement plans could go wrong. Setting boundaries, being realistic about your financial situation, or cutting off certain people altogether could mean the difference between early retirement or no retirement at all. For example, neighbors and friends, boomerang kids and greedy employers could distract your retirement if you aren’t careful with your money.
Next: You don’t have to do it alone
6. Get a good finance team
The company you hold in relation to financial professionals is also key to your financial success. Hire a certified financial planner to help you create a financial plan and motivate you to stay on track. Also, contact a certified credit advisor if you are having difficulty with credit and debt management. Solid financial advice will help you identify and correct financial mistakes early on, before they become a major problem.
Next: It always helps to have more than one source of income.
7. Receive multiple streams of income
An important element that must be part of your retirement plan is multiple sources of income. That way, if your main source of employment goes off the rails, you have another flow of money. Don’t make yourself too dependent on your main employer. You could be fired or fired on short notice. However, if you have another source of money, e.g. B. a property or a part-time job, you will not be in such financial straits.
Next: Check in with your money
8. Check your progress
Don’t put retirement on autopilot. Check the performance of your retirement accounts so you can gauge whether it is time to realign your portfolio.
“The goal of rebalancing is to keep your overall portfolio in line with your risk tolerance and investment goals. Your portfolio could be out of whack if one or more of your investments do (or lose) particularly well, ”said Rich Rausser, senior vice president of Pentegra Retirement Services.
Next: Stick to it
9. Stay on track
At some point you may get discouraged. It’s important to keep cheering yourself on as you retire. In tough financial times, you might be tempted to raid your retirement account. Not.
Stay on course and keep motivated. Keep saving, even when things get tight. One tool that can help you stay focused is creating a vision board. Post pictures of your financial goals on the board and review them every night.
Are you ready for the next step? Early retirement is within reach. Here are some helpful resources to help you achieve your goal.
Follow Sheiresa on Twitter @SheiresaNgo.