Many Americans have the ambition to retire early. Still, this ambition can only be met when they plan correctly. Your aim to retire early may be a fulfilled dream or a mere nightmare. These seven steps will assist you in fulfilling your dream of early retirement. It will also inform you about the requirements for early retirement.
Evaluate the total amount of income you will need during retirement.
The major mistake many people make when they are planning for their retirement is coming up with a certain number. You’ll hear people mention things like, “I can retire once I have $1 million in my investment account.” People often experience difficulty because what they need during retirement is the amount of income that they can generate from their present savings, and not the money they have in their bank account.
For instance, someone with the assurance that he will receive $5,000 from reliable fixed income sources per month does not need to save as much as someone who will receive just $2,000 from fixed income sources.
The point is that when you retire, you will need about 80% of your income before retirement to live a comfortable life. This means that if you earn $200,000 as your present salary, you will need approximately $160,000 in income per year when you retire, although this amount can vary depending on your circumstances after retirement. Suppose you plan to live an expensive lifestyle…you should know that this amount will be above 80% of what you earn. But if you plan to live a cheaper life during retirement, you can cope with any amount less than 80% of your pre-retirement income.
Determine the amount of money that your reliable fixed sources of income will generate.
When you have a target income in mind, your priority should now be how much of that target goal will come from Social Security and other fixed sources of income that are reliable. Suppose you want to retire before you are eligible for Social Security. If that’s the case, you need to leave your Social Security payment out of your budget. But suppose you have other fixed sources of income such as annuities and pensions. You can count on that money because those sources will bring in some amount of money immediately.
For example, you determine that you will need $72,000 yearly after retirement ($6,000 monthly). If you’re confident that you will receive a $3,000 pension every month, you only need $3,000 from your savings to meet your target.
Evaluate your number.
Evaluation of risk helps you to know the total income that you must generate from your savings. When you know the income you need to make your goal feasible, it will be easier to know the exact amount of savings you need to target.
The majority use a variant of the 4% Rule to plan for their retirement. The rule states that during the first year of retirement, you can make a withdrawal of 4% from your savings with the guarantee that you will not be out of funds even if your cost of living rises in the following years. This rule serves as a good idea when planning for your retirement, and you can calculate your 4% by subtracting your yearly income needs during retirement from your total savings. You will multiply that amount by 25.
Assess the feasibility of early retirement to know where you stand.
Be honest with yourself if you want to know your savings’ current worth because this will eventually determine if you will retire early or not. If you are 47 years old now and plan to retire at 55, but your current retirement savings are $20,000, you’re probably not ready. Conversely, suppose you have $500,000 in your savings, and you still have ten more years to fund the account. In that case, you can retire because you will meet your target savings before you retire.
Build a good retirement plan.
You’ll need the guidance of a financial advisor if you want to make a good retirement plan. The advisor will guide you on how much money you need to save or invest so that you can achieve your target income. The financial advisor will also tell you the status of your investment strategy and how far your current savings will take you during your retirement. You may not need the service of a financial advisor if you have attained your target savings.
Consider your healthcare costs and related concerns in your retirement plan.
Many people want to retire early, but they don’t consider what may happen to their health after retirement. Also, they don’t consider how well they use their time after retirement, whether they will be working on a part-time job or exploring the world. Failure to put these factors into consideration is the leading cause of financial instability after retirement.
It might be best if you planned for your healthcare costs because you are only eligible for Medicare when you are 65 years old. This age is independent of when you retire or when you claim your Social Security benefits. Public sector jobs will cater to your healthcare after retirement. Still, if you don’t work in the public sector, you need to consider how you will pay for your health insurance.
Maintain your retirement plan.
When you’re planning for retirement, you shouldn’t just make your retirement plan and abandon it. You need to maintain the plan. You can maintain your retirement plan by funding your investments and savings automatically.
Retiring earlier is a lifetime ambition, but you can achieve it by making the right plan now. The above steps will help you in achieving financial independence earlier than the average retirement age for Americans.
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Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.
