Want to Retire Early? Tips to Make It Happen

Did you go on vacation this summer? Perhaps to the beach or maybe even overseas? Summer vacation is a great time to leave your worries behind and relax. Of course, eventually vacation ends and you have to return to the working world.

But what if you didn’t have to get back to work? What if you could retire early and spend your time as you wish? You could travel, pursue a favorite hobby, or spend time with family and friends.

Early retirement may be difficult, but it is possible. It takes strategy, focus, and financial discipline. Below are some tips to help you achieve early retirement. These tips alone won’t guarantee that you can retire early, but they’ll certainly help you make progress towards your goal.

Become a prolific saver.

Saving money is always important, but it’s even more so if you want to retire early. It’s possible that you could live into your 90s or even beyond. If you retire in your 50s, you may need to plan for a retirement that lasts 40 years. It will take a substantial amount of assets to fund a comfortable lifestyle over that period of time.

There are a few ways to save. One option is via qualified retirement plans like a 401(k) or IRA. These vehicles are tax-deferred, which means you don’t pay taxes on your growth as long as the funds stay in the account. That tax deferral could help you accumulate assets at a faster rate than you would in a taxable vehicle.

In most tax-deferred accounts, you can’t access the funds until age 59½. If you take a withdrawal before that age, you may face a 10% early withdrawal penalty. If you’re planning on retiring early, you may need access to funds before age 59½, so it could make sense to save money in a taxable account as well. That account could be used for income until you’re able to access your 401(k) and IRA.

Use a budget.

Do you use a budget? If your answer is no, you’re not alone. According to a recent study, only 41% of Americans use a budget to guide their spending. ¹ A budget is one of the most useful financial tools at your disposal. You can use it to make informed spending decisions and stay on-track to hit your savings goals.

A budget can be of extra importance if you retire early. Again, you could be retired for several decades. You’ll have to make smart spending choices to make your assets last over that period of time. You can use your budget to preserve your assets and avoid overspending in the early years of retirement, so you have enough assets to live comfortably in the later years.

If you don’t have a budget, now may be the time to start using one. You can use apps, software, or even a simple spreadsheet. A financial professional can help you get started.

Plan for healthcare.

One of your biggest expenses in retirement may be healthcare. According to Fidelity, the average 65-year-old can expect to pay $285,000 out-of-pocket on healthcare in retirement. ² Keep in mind, those are costs for someone retiring at 65 and on Medicare. If you retire early, your healthcare costs in retirement could be even greater.

Also, you can’t file for Medicare until age 65.³ Again, if you retire early, like in your 50s, you’ll need to have some kind of health coverage until you reach eligibility for Medicare. You may want to explore individual coverage options. Also, consider funding a health savings account so you can cover healthcare costs in a tax-efficient manner.

Minimize risk.

If you’re going to retire early, that means you have a shorter time horizon to save and invest until you reach retirement. You may need to take a risk averse approach, so you minimize your exposure to market loss.

Fortunately, there are vehicles that can help you protect yourself from risk. For instance, a fixed indexed annuity can offer growth potential without exposure to market volatility. You earn tax-deferred interest based on the performance of an external market index, like the S&P 500. If the index performs well, you may earn more interest, up to a limit. If it performs poorly or declines, you earn less interest, but you won’t lose money due to market loss. An annuity could provide stability to your retirement income strategy.

Ready to plan your early retirement? Let’s talk about it. Contact us today at Protecting Your Retirement LLC. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. Our Telephone number is 913-648-2700.

1 | https://money.cnn.com/2016/10/24/pf/financial-mistake-budget/index.html

2 | https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

3 | https://www.hhs.gov/answers/medicare-and-medicaid/who-is-elibible-for-medicare/index.html

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

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19152 – 2019/8/19