Early retirement doesn’t have to be a thing of your dreams, but rather you can make some smart moves now to work towards that goal. If you put your mind and your finances to it, you can say goodbye to your job early.
Early Retirement Tricks
Downsize Your Living Expenses
Downsizing your home or living expenses is a strategy right out of the early retirement handbook. You might move out of your four-bedroom home to a two-bedroom, for example. If you can trade in your vehicle for a bicycle you can save on gas, insurance, and maintenance. You can also do smaller things like swapping your iPhone for a generic smartphone with a cheaper provider as well as canceling extra monthly subscriptions, like cable.
Ultimately, your goal is to live on about 50% of your income. That, in turn, frees up the other 50% for your savings.
Increase Savings
It follows since you are freeing up 50% of your income for savings to then begin saving. If you are looking to fund early retirement you will have to start radically saving. Traditionally, to retire on a normal timeline, you would have to save about 15% of your income for a few decades to comfortably retire. However, the traditional retiree will have decades to save for retirement and you are working on a tighter timeline. Essentially, this means you have less time to save more.
Avoid Withdrawing From Retirement Accounts
Though it may be sometimes tempting to take out a large sum from your growing retirement savings when the number is substantial. However, you should refrain from such withdrawals for a number of reasons, the first of which is a better potential for growth when it is left alone. Another reason to refrain is that the IRS will charge a penalty of 10% if you withdraw before 59 and a half. And finally, you will need to pay regular income taxes on the amount you withdraw. So, remember to keep focused on your goal.
Get a Health Savings Account (HSA)
When it comes to thinking about early retirement, health costs are one of the main concerns. Fortunately, HSA’s are an often overlooked option. HSA’s allow you to contribute tax-free funds to an account specifically reserved for medical expenses. If you can refrain from using these funds during your working years they can be used in retirement for your medical expenses.
As always, be sure to consult with a financial professional before making any serious decisions.
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