Retirement is something that every working American looks forward to: and the earlier, the better. However, for most Americans, early retirement is an unachievable myth. Which is why it may surprise you to learn that early retirement may be achievable. You don’t have to become a professional athlete or a billionaire to reach this goal. All it takes is some financial savvy and an excellent savings plan.
The Key To Early Retirement
Early retirement is possible; however, it is important to keep in mind that, if you want to retire earlier, you may need to give up a few things – both now, while you are still working and in your retired years.
This is because safe means of retirement incomes (such as annuities and investments) are becoming more difficult to obtain. The market is doing well but interest rates are currently incredibly low, which means a low return on your investments. While low interest rates may not last forever, the unpredictability of the market means they could be around for a while and you should not rely solely on what you earn from low risk cash and bonds because it will not be enough.
The key for early retirement can either be to turbo-charge your savings or to learn to live on less money.
If you’ve paid off your debts, you can start to save more of you income. Putting roughly 15% of your income into a pension plan for roughly a decade may help you retire at the average age. However, to retire early, you might need over a quarter of your income. This means you’ll have to live frugally now, during your working years.
If you choose to save less for retirement, you will still need to tighten your purse strings now. Individuals who ease into living on less money have a more successful time during retirement – when their budget is smaller – than individuals who become accustomed to living a certain way.
Early Retirement Will Come With Compromises
If you are on the road to early retirement, there are quite a few other things you need to consider. Early retirement is a great option for many individuals, but it rarely comes without its compromises.
For one thing, you may find that you have to move. The housing market right now is in excellent condition. But, you cannot count on it to remain so, particularly if you are relying on it to contribute to your net worth. You want to be realistic about how your home can help you retire early, and that might mean you have to move.
If you sell your home now in a strong market and purchase a smaller home, you can continue to add to your savings and eliminate your debts. An added perk to this is learning to live on less; cutting your housing costs could save you big money for retirement.
Another option for those planning on early retirement is to relocate to an area with a lower cost of living. For a list of the best places to retire, check out our article “Where to Retire”.
A problem you may run into during your first years of retirement is spending too much. You already know that you will most likely need to lower your standard of living; however, you may find that now that you have the time to do the things you’ve always wanted – such as travel and invest in a hobby – you might be spending more money. In fact, according to the Consumer Expenditure Survey, those in their first decade of retirement spend almost 40% more than those in their later retired years. The younger you retire, the earlier you start to spend more.
To ensure that you aren’t over-spending in your earlier years, the answer is once again to learn to live on less in addition to being mindful of your portfolio withdrawals. You should also be continually reassessing your retirement plan. We recommend doing so annually.
The One Way To Make Early Retirement Happen
If you’ve saved a decent amount and are ready to walk away from your job, there is one way you can make it happen with less financial stress. Taking on a part-time job is perhaps one of the easiest ways to live worry-free during retirement.
It can be daunting to hear that once you retire you will have to pinch your pennies and may not be able to afford the lifestyle you want. Picking up a part-time job ensures that you have an income stream. It can support your savings while allowing you more financial freedoms.
If you’re considering this option, it is important to be realistic. A lot of part-time jobs don’t offer the fulfillment you may be looking for in your post-working years. Instead, try going for projects rather than jobs. Ask friends and old coworkers if they need help with projects in your field. Online resources such as elance.com are also a great way to find marketing and writing projects.
In some cases, you may be able to parlay your hobby into a part-time job. Searching for creative solutions can supplement your retirement income. This solutions can ensure that you retire early and have more freedom to enjoy your retired years.