As of right now, the age at which someone can retire and receive full social security benefits is 67. However, you could retire as early as 62 and receive 70% of your social security benefits, because you are starting earlier than planned. Certain money moves to help you retire early are needed. Do you really want to rely on when social security tells you to retire? What if you want to officially retire by 50? You will definitely need a strategy in place if you plan on retiring early. I'm sharing 8 money moves to help you reach your goal of early retirement.
#1 Know Your Numbers
The first step to help you retire early is knowing what you will need when you retire. That may seem like light-years away and there’s no doubt that things could change before then, however a general number will help you plan accordingly. What do you think you will need to make annually to comfortably live while retired?
Experts typically recommend up to 80% of your current income, but if you’re young that number will change. You want to take into account that ideally your house, car and children’s tuition will be paid for or saved for separately before retiring. Once you have your annual retirement salary, you will know what you need to start saving now to reach that salary. Check out the Vanguard Retirement Calculator to see how much you need to save now to reach your annual retirement salary goal.
#2 Cut Back Unnecessary Spending
You should strive to save 10-15% of your income annually for retirement. Once you know your numbers, you can see where you can make cutbacks to ensure you truly can save enough to retire early. Get yourself on a budget plan that helps you allocate your income appropriately to help you reach your goals.
#3 Contribute More to Retirement
What are you currently contributing to your IRA or 401k plan? Are you taking advantage of the company match? As we mentioned earlier, you should strive to save 10-15% of your income. If your company matches 5%, then you should contribute 5%. This already gets you to that 10% mark. Company matches are very important because you can save significantly more.
#4 Consider Your Insurance Plan
Health care costs are a huge concern for people who retire, as they will be losing the security of low-cost insurance under their employer. Social Security is there to assist, but should not be counted on. Consider a high deductible insurance plan, especially if you’re young and healthy. With these types of insurance plans, you can contribute to an HSA to help with costs. Unlike FSAs, HSAs are money that isn’t lost after a year. If you contribute consistently but never use it, that money is just stacking up and could certainly come in handy during retirement. Do your best to live a healthy lifestyle now so it can resonate with you as you get older.
#5 Bring In More Money
Can’t seem to save 10% of your income? Consider bringing in more money to help you save more. There are all kinds of ways to make extra money that don’t require you to take on a second job.
#6 Get Rid of Debt
Nothing drains your money more than high-interest debt. Not only is that monthly interest payment costing you unnecessary spending, but it’s stopping you from saving that money towards retiring early. Create a plan that helps you get out of debt as soon as possible. Once you’re out, stay out!
#7 Live Below Your Means
Reduce your cost of living as much as possible, then do your best to live under that. When you have a high overhead because of the costs associate with the life you live, you aren’t able to save as much. See where you can make cut backs to help reduce that overhead. Do your best to keep your spending and expenses as low as possible, so you can make room for the important things in life.
#8 Rebalance Your Portfolio
The younger you are, the more stocks you should have in your retirement portfolio. As you get older, you should rebalance that portfolio so it’s not as volatile. If you aren’t sure what to do or where to start, seek guidance from a financial advisor. You can also consider Target Date Funds which automatically rebalance without you having to do a thing. Check out the articles How Much Should I Save for Retirement and The Beginner’s Guide to Investing With Little Cash for more details about how much to save and picking your portfolio.
Just like any goal in life, retiring early can be achieved if you plan accordingly and stay disciplined. These 8 money moves listed above will help your financial situation now and in the future. Think about what you can do to better your current financial situation, even if you can’t do it all. Small strides are better than nothing. Are you thinking about retirement? Do you want to retire early? What questions do you have about saving for retirement? Comment below and we will respond!
The CGS Team