Plan Early, Retire Earlier: A Guide to Retiring Early

For many people, retirement isn’t something on their minds until much later in life. However, for a select few, they strive to make the dream of early retirement a reality. There are many people who are willing to make sacrifices in order to retire early, but do you have to sacrifice anything at all?

Retiring early requires a solid financial plan to help you meet your retirement goals. Planning early for your retirements help you sort out your finances and enter the post-retirement phase of your life with greater confidence and financial safety.

Pros and Cons of Early Retirement

Like all things, early retirement has benefits and downsides. If you’re wondering whether early retirement may be the right choice for you, consider weighing the pros and cons to see where it lines up with your life priorities. Some of the points to consider include:

Pros

  • Potentially good for your health
  • More time for travel
  • Opportunity to start a new career

Cons

  • Possible decline in mental health
  • Difficult lifestyle transition
  • Less Social Security benefits
  • Need to find health insurance
  • Retirement savings have to last longer

How Early is an Early Retirement?

Defining what “early” means in the context of your retirement is important. This will provide you with a basis for your financial goals. To some people, early retirement is 60, while to others, it could be as early as 40. The rest fit somewhere in between.

It is reasonable to assume that the earlier the retirement age goal, the more stringent saving might be. Those who wish to retire on the earlier end of “early” will have to make some tradeoffs to make this lifestyle change.

What is Your Target Savings Goal for Retirement?

Understanding your target retirement financial goals is important. A baseline for retirement savings many people choose to follow is having 20 to 30 times their annual expenses saved or invested. However, for each individual, this could differ vastly based on how they expect their lifestyle to look like after retirement.

The 25X Rule Retirement Fund = 25 X Annual Expenses

John Doe

Some of these post-retirement expectations can be simple as travelling to see grandkids, or vast as travelling around the world each year. Some retirees could aim to do local volunteer work, or even open a business. Each activity in retirement carries a price tag, and your savings goals should reflect that.

There is no better way to set your target retirement financial goals than to speak with a financial advisor who understands your unique financial situations and can personalize your plan to your needs and wants.

Reaching Target Early Retirement Savings Goals: the Basics

It’s time to invest. A financial advisor can guide you through the process of choosing appropriate stocks and bonds as well as other financial moves that would help reach your pre-established goals. There is no one-size-fits-all approach to investing for retirement or meeting retirement benchmarks.

In order to rapidly put money into retirement investments, it is important to understand that there are ways to go about cutting costs in daily life. Some of these tradeoffs lead to living a modest lifestyle. 

Some tradeoffs to increase your retirements savings include:

  • Increasing your income with a second job
  • Cutting back on living expenses by doing things such as living with roommates
  • Taking that extra step to further your education or better your skills to advance in your current career
  • Saving “aggressively” – consider not spending beyond your necessities

In fact, in order to get a better grasp on funds for retirement, there are many resources online to create mock retirement budgets or even tools to use where you can calculate how much you need to save for retirement.

Financial Independence, Retire Early (FIRE)

A popular movement for early retirement is FIRE. The term FIRE stands for “Financial Independence, Retire Early.” FIRE originates from a program of extreme savings and investment that allows you to fast-track your retirement by dedicating up to 70% of your income to savings.

There are three FIRE categories: leanFIRE, fatFIRE, and Regular FIRE. These terms are defined as: 

  • LeanFIRE, when someone has saved up 25 times their annual expenses and lives on a “lean” budget, spending less than the average American. 
  • FatFIRE, in comparison, is someone who spends more than the average person.
  • Regular FIRE is someone whose spending is in line with the average US household, around $60,000 a year.

Finding out which FIRE category works for you is an important step in planning for your early retirement.

At the end of the day, saving is about keeping your expenses in check. It always benefits you to be financially prepared. This might mean not browsing shops or making spontaneous purchases, or it could mean not investing in long term commitments like pets.

Are You Ready to Retire Early?

As you look into your savings options, crunch numbers and put together your early retirement plan with your financial advisor, you should answer these questions to decide whether early retirement is truly the right choice for you.

  1. Is early retirement actually worth it? Are you willing to make the necessary lifestyle adjustments to be able to retire early? Thoroughly consider the pros and cons.
  2. How can you save money to retire early? Reassess your budget to find out where you can start saving today. It’s never too late to reevaluate your current financial situation.
  3. What steps do you need to take, daily, weekly, monthly and annually to retire early? A plan doesn’t just end in a savings goal. A plan goes through every aspect of your life and is a long term commitment.

So are you ready for an early retirement? Consult a financial advisor at Capital Growth Inc today to get started on your personal plan toward achieving your dream of early retirement.

So are you ready for an early retirement? Consult a financial advisor at Capital Growth Inc today to get started on your personal plan toward achieving your dream of early retirement.

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