You love your career and the work is fulfilling. But lately, you find yourself dreaming of the day you can walk away for good and live a life of bliss. Perhaps you envision traveling the world, spending your days lying by the beach, or doing whatever it takes to live life on your terms.
The problem is you don’t have enough saved to turn in your permanent resignation in the near or distant future. Or so you think. But what if you could join the F.I.R.E. (Financial Independence, Retire Early) movement and make your dream of retiring early a reality?
Even if the idea sounds a bit loopy to you, it’s possible to retire early if you’re willing to put in the work. Are you up for the challenge? If so, keep reading for a step-by-step guide to get started:
Step 1: Map Out You Retirement Plans
What’s Your Motivation?
Why are you interested in early retirement? For some, it’s a no-brainer: they hate their career with a passion and have no interest in pursuing another role or changing industries. Others desperately want to spend more time with family or travel the world. And you have those who’ve experienced health scares or lost a loved one way too young and understand that life is precious.
But why is it so important to pinpoint your motivation? Early retirement is no easy feat, so you’ll need a compelling “why” to keep you on track when you want to give up. Plus, there are hurdles that you may face when saving for early retirement that could be strong deterrents if you’re not all-in and disciplined enough to stick to the plan for the long haul.
How Do You Desire To Live During Retirement?
Simply put, what lifestyle do you desire for retirement? Does the idea of living life to the fullest without sparing any luxuries appeal to you? Or would you prefer to adopt a frugality mindset and do as much as you can on a tight budget?
Do you see yourself traveling around the world staying in the finest hotels, eating at the best restaurants, and flying first class? Or would you prefer to stay in hostels or AirBnbs, eat affordable meals, and score last minute flight deals? You get the drift.
It’s totally up to you, but deciding on a retirement lifestyle and how you’ll spend your time will play an integral role in determining how much you need to save for retirement.
How Much Do You Need to Retire?
Based on your desired retirement lifestyle, how much will you need to cover your wants and needs? The first step is to calculate your expected annual expenditures for the luxuries you’d like to enjoy, followed by the things you’ll need, like housing, food, automotive expenses, health insurance, and life insurance.
Once you have a rough idea of what these numbers look like, use a retirement calculator to help you determine how much you’ll need to sock away each year. A few options to get you started:
You can play with different scenarios and give yourself tons of wiggle room. Also, keep in mind that the cost of inflation will be factored in, so the amount you need to save may be much higher than you initially expected.
How Will You Fund Your Retirement?
Are you lucky enough to be employed with a company that offers a pension? Or will you need to make contributions to a 401(k), traditional IRA, or Roth IRA to build up a cushion that you can pull from for retirement?
Keep in mind that most retirement plans will penalize you if you begin taking distributions before 59 ½ years of age, to the tune of 10 percent plus ordinary income tax. So you’ll need to think outside the box and explore other investment options that you can tap into before you reach retirement age.
Quick note: there’s nothing wrong with retiring early and picking up a part-time job to fill income gaps. This gives you the flexibility to earn money and still have time to do the things you love most. And some employers offer insurance coverage to part-time employees, which could save you a ton of cash over time.
Step 2: Develop a Strategy
At this point, it’s a good idea to meet with an investment adviser to help devise a strategy that works for you. During the meeting, expect to:
- Discuss retirement goals, including wants and needs and the associated costs
- Run the numbers to determine how much you’ll need to save on an annual basis (with inflation accounted for), and discuss how you’ll fund your retirement.
- Address your spending plan to clean up any messes and place you in the best possible position to make the required contributions to retire early
- Develop a plan to minimize debt that’s eating away at your disposable income.
- Explore other ways to boost your earnings so you can reach your retirement goals.
- Decide on your level of risk tolerance.
- Review recommended asset allocation strategies.
- Analyze retirement options and select the plans and securities that you’re most comfortable with.
Before the meeting, the investment advisor will communicate what information you need to bring along. Be sure to jot down any questions you may have, and keep in mind that you may need to meet with them on several occasions to make adjustments if needed.
Step 3: Execute Your Strategy
All that’s left is to stick to the plan and in due time, you’ll meet your goal of retiring early. The journey will be filled with ups and downs, but here are some tips to keep you motivated and help you stay on track:
- Be realistic and live within your means.
- Always prepare for the unexpected.
- Be flexible and willing to make adjustments when needed.
- Map out an alternative in case things don’t quite pan out or you have to stay put at your job longer than you’d like to.
The Bottom Line
Early retirement takes hard work and discipline to pull off. But if you keep your spending in check by sticking to a budget, commit to your retirement saving strategy, and ignore the doubters, you will make your dream of turning in your final resignation as an employee early a reality.
