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How to Plan for Early Retirement

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At some point, most people expect that they can stop working and enjoy financial independence while checking things off of their bucket list and living a life of leisure. A plan for early retirement doesn’t always mean that you intend to completely stop working to enjoy the finer things. This may mean that you can work part-time to cover your expenses or work in blocks while traveling in your off time. The earlier you want to lighten your workload, the more you need to be saving, investing, and ensuring your future expenses will be as minimal as possible.

Calculate Your Annual Spending

Within a day or so you can calculate your annual spending habits. This can usually be done by looking at your checking and savings account summaries and credit card statements. There are also apps you can download that will help you track all of your expenses over the course of a year. You will also want to determine your net worth, which is the sum of all the assets you own minus your loans, liabilities, and other obligations.

Determine How Much Money You Need to Plan for Early Retirement

If your strategy is to work some during your early retirement years, you should still save enough money to cover a whole year’s worth of expenses during that time. When you plan to stop working entirely, it’s best to save enough for at least double your annual expenses to be on the safe side. Annual expenses do change as prices fluctuate and recessions happen that can affect your investments. Finding this target number on your own can be difficult. Employing the help of a financial planner makes things much easier and they can help give you advice on a strategy for your future endeavors and plan for early retirement.

Save Aggressively

It probably goes without saying, but you need to make more money than what you are putting out for expenses every month. A sizable portion of the “extra” money should be put away into a savings or retirement account. Many companies will offer their employees sponsored retirement plans401(k)s, and IRAs as employee benefits. Some may even match the money you deposit into these accounts up to a certain percentage. These accounts can also offer tax advantages and investment growth opportunities. While you should be putting as much money as you can into these types of accounts, keep in mind that with most of them, you will be penalized if you want to withdraw money from your retirement account before you reach a certain age.

Limit Your Expenses

Cutting costs at every corner should be an everyday goal. Money-savvy people will choose to make smart decisions even in the smallest of places. For example, consider your weekly grocery store trips and the items you purchase. Deciding to buy generic items instead of brand name products may save you around $100 per trip depending on the size of your family. Other easy decisions to make may include less indulgence when shopping. However, you can only cut costs but so much. Focusing on increasing your current income will offer a better long-term solution as a strategy for increasing your savings and offsetting your expenses in your plan for early retirement.

Investing

To some, investing money is a foreign concept that they don’t comprehend well, likely due to inexperience. This is another instance where seeking the help of a financial planner can be greatly beneficial in your plan for early retirement. A certified financial planner will work with you on your investment options and help make them easy to understand. One type of good investment for beginners is low-cost index funds. They minimize risk and diversify where your money is invested, so as to not put all your eggs into one basket.

Pay Extra On Your Mortgage

If you have a mortgage loan on the average term period, 30 years, your interest is going to really increase the total amount you pay for your home. For example, if you bought your home at $200,000, making the minimum payments over the life of the loan could cause you to pay almost double that amount in the long run. Paying your loan off faster will reduce the amount of interest you end up paying. Also, the quicker you pay it off, the sooner you won’t have a mortgage payment to factor into your yearly expenses. This leaves you with more spending money on your budget to enjoy the little things you want to do in your plan for early retirement. Paying off your home is a strategy that gives you a great amount of peace of mind that you have a secure place to live with no mortgage payments to potentially miss.

Two wine glasses sitting on a table with a balcony and vista in the background

Health Insurance

You definitely don’t want to forget about health insurance when thinking about your plan for early retirement. Leaving a full-time job means you can say goodbye to your sponsored health insurance plan. Health insurance offered through your state can get pricey and Medicaid won’t kick in until you reach age 65. If your spouse plans to continue working, you will likely be able to stay on their health insurance plan. Some part-time jobs may also offer help with health insurance. Make sure to factor in these costs when determining your target amount of money needed to retire.

Life is Full of the Unexpected

Yes, saving for your golden years is a great early retirement plan, but don’t forget that life is unpredictable. The market can tank and your investments can be severely cut. Your health isn’t guaranteed for enjoying things like traveling when you’re older. Life can easily cut out on you early at any time. Don’t forget to enjoy the present, too. If you have kids and grandchildren, they won’t stay young forever and you might regret skipping that family trip to Disney World in order to save for retirement in your later years. Prepare for your future, while living in the here and now.

Saving money, cutting costs, and creating a nest egg is what every responsible adult should be doing to create a strategy to retire early and prepare for the unseen events life can throw at us. Many people don’t have a great grasp on what exactly to do with their savings, other than keep it in a savings or retirement account. Seeking the help of a certified financial planner can really help keep your wealth managed and properly invested.

Contact us at Maxwell Locke & Ritter today to start your plan for early retirement.

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