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Would you like to learn how to retire early?
Learning how to save for retirement is the best way to prepare for your future. It’s important if you don’t want to work the rest of your life or you want to do other things with your time like travel, etc.
Our goal is to retire early, but it will require us to plan ahead and be prepared.
The benefits of planning ahead for retirement include:
- You won’t have to keep working forever.
- You can spend time trying new hobbies.
- Traveling more
- You won’t have to rely on others to take care of you.
In general, people are confused and stressed when it comes to retirement. In most cases, people feel they are behind with saving and investing or they don’t know where to start.
Most importantly, learning how to retire early requires a lot of work. It’s clear why most people have to work well into their 60s.
However, retiring early is not impossible and in this article, we will talk about the 7 best things you need to do in order to retire early.
Related reading: How to Invest for Retirement with a Small Budget
1. Determine what type of retirement lifestyle you want
One of the most important things when it comes to learning how to retire is determining what you think you’ll do in retirement.
Ultimately, this will determine your budget and help you prepare for the future. You could want to travel the world, open a business, or do volunteer work.
Whatever you determine you will do will come with a price tag. Some things will require more money than others.
Above all, it’s great to dream big now and then realistically create a budget based on your current financial situation.
2. Assess your current financial situation and make a mock retirement budget
To be able to learn how to retire early depends on your current financial situation. You will need to think about how much money you will need in retirement.
It’s a good idea to take some time and calculate how much you need to save for retirement from now until the time you decide to retire.
When you think about how to retire early, you want to think about certain bills you have now that you don’t want to have in the future. It’s best to try and retire with a paid-for house.
Creating a mock retirement budget can help you understand how much money is going out each month and how much you need to live in retirement. Remember, include what you want in retirement – hobbies, volunteering, traveling, a vacation home, seeing family, etc.
3. Make adjustments to your current budget
Now that you understand how your budget looks and what you want to do in the future, it’s time to make adjustments to your current budget.
In fact, a key factor on how to retire early means making changes to the current you so the future you can relax and enjoy life.
And, for most people, it means cutting out unnecessary spending and expenses. Many people who want to learn how to retire early realize they may have to live on 50% of their income (or less) and invest the rest.
You will want to get creative on how you can save money when it comes to your living expenses (food, shelter, transportation, etc.).
Also, it’s a great idea to find additional streams of income that can go directly to retirement savings. This will allow you to live a comfortable lifestyle and retire early.
4. Meet with a financial advisor to learn how to retire early
It’s important to keep an eye on your money and even more important to have someone to help you when you don’t understand something.
You should always be involved with your financial portfolio and remain 100% in control of it. Learning how to retire early from a professional is a great idea.
Most importantly, choose a professional who knows their stuff and can explain it to you in a way that you understand.
5. Estimate the total amount of savings needed
By assessing your current financial situation and creating a mock budget, you are already halfway there to estimate the amount of savings you need to see how to retire early.
A rule of thumb to keep in mind is to save 25 times your planned annual spending in retirement. That is to say, if you plan to spend $35,000 during your first year of retirement, you should have $875,000 invested when you retire early.
In fact, this is a great reason to get your budget in order now.
This rule of thumb assumes you are invested in good mutual funds that will keep your investments growing.
It’s important to note, this rule of thumb is not foolproof. You will need your financial professional to assist to make sure your results are accurate. However, this strategy is usually logical.
6. Invest aggressively
You need to put as much extra money you can towards investing that you can if you want to retire early.
For example, you can find extra money by cutting your grocery budget by $50 a month. That’s an extra $600 a year towards investing.
Or try cutting your $3,000 vacation in half. That gives you an additional $1,500 to invest.
Other ways to save money include:
- Cutting cable
- Getting rid of a gym membership
- Eating out less
- Cancel an unnecessary subscription
Just imagine how much money you would have for retirement if you cut just $20 a month from these categories. That’s an extra $80 a month and $960 a year!
The more money saved, the more aggressively you can invest.
7. Control your expenses
The toughest part to retire early is controlling your expenses and keeping them in check. You’ve done a lot of work to estimate how much you will need in retirement.
Most importantly, you will have extra time on your hands in retirement but that doesn’t mean go on a shopping spree or throwing yourself a huge retirement party.
You will have to make sure all of your spending fits in the budget and you stick to it. Each time you increase spending you are putting yourself at risk of running out of money in retirement.
Ultimately, running out of money will make you have to find another job so you have income.
Final words - learn how to retire early
When it comes to learning how to retire, it’s a lot to think about and understand. This is why it’s important to make sure your financial situation is in check and you work with a professional. Take your time and don’t rush retirement. The last thing you want to do is end up back at work.
Do you think you want to retire early? When do you think you’ll retire?