4 Tips on How to Retire Early

May 7, 2021

Growing up, you were probably taught with the mindset that you go to school, graduate, work, and then retire. Maybe you were raised to go to school, meet someone, get married, have children, and be a stay-at-home parent. Whatever was instilled in you as a child, it all leads to one thing: retirement. Most people work to retire. How else are you going to support yourself and your family after you can no longer be employed? If you have a good strategy set in stone, you can pretty much retire at any age. Whether that’s 5, 10, or even 15 years from now, whatever it looks like for you. Our team came up with the top 4 tips on how to retire early. Take a look!

Create a Timeline

According to a study from the Center for Retirement Research at Boston College, most Americans plan to work well into their sixties, but health and family issues often force early retirement. The first plan of action toward the road of retirement should be figuring out your timeline. What does “early” mean to you? Figure out at around which age you want to retire and if you can attain that goal. Then position your assets accordingly into “buckets” for every five years. Many retirement funds, such as Social Security, are not available until you reach a certain age; laying out your assets in each bucket can help you determine where you need to focus on being set for a successful retirement.

Calculate Expenses

Your goals, health, expenses, and the nature of the economy all play a factor in determining how much you’ll need in retirement. Online tools such as a retirement calculator can help you run some numbers to understand your needs better and estimate how much money you will need and when. Also, consider lifestyle expenses, taxes, current vs. future debt, inflation, health care, and charitable giving. Once you calculate all expenses, you should better understand how to save for the future.

Wants vs. Needs

Start organizing your “wants” and “needs” into buckets to help form your investment plan. To retire around the average age of 60 requires saving roughly between 15% to 20% annually, but the percentage increases to between 40% and 50% annually if you wish to retire earlier. If cutting back on unnecessary spending seems like a wise decision, now might be a good time to start. Begin thinking about the “wants” and the “needs” for the future by evaluating and adjusting your current financial strategy.

Strategize Now for Early Benefits

All retirees must pay taxes on Social Security and 401(k) plans, but if you plan on retiring ahead of the game, you might need to delve into additional tax strategies. One commonly used method is to convert your traditional IRA to a Roth IRA, but depending on which state you live in, it might not be worth it. Higher-tax states such as New York, Vermont, Maine, or Minnesota, you might be paying more money to the government than what it’s worth. Another strategy would be to let your tax-deferred accounts increase while you’re at a young age, meanwhile using taxable accounts. Other tax strategies might work for you to get the best benefits on early retirement. Speaking with a professional is always a great way to start.

You only retire once, so make the best out of your retirement plan. Start saving what you can, invest accordingly, and make the most of your income with wise advanced planning. RITA works with those ready to begin planning for retirement or those who are prepared to dive into their new chapter of life. Planning for retirement can be a daunting task, we get it. RITA provides free educational resources, a dedicated team of IRA custodians, and much more. Contact us today at rita@ritaus.org or visit our website for more information.