Everybody imagines retiring early, but few people manage to do it. A recent Willis Towers Watson survey reported that far more working Americans are planning to retire after age 65 (46%) than before it (30%)*. Here are five steps you can take to jump start the process.
Set realistic goals — and time frames
Start by forecasting how much money you’ll need to live on each year.
• Some planners suggest 80% of your current income, others think 100% is more realistic.
• Decide on your preferred lifestyle. Do you plan to live modestly, or do you envision traveling more, or buying
a second home?
• If you’re planning to live on $40,000 a year and assume that you can safely withdraw 4% a year from your nest egg, you multiply $40,000 by 25 to get to a $1 million savings goal.
• Factor in higher healthcare costs than you currently pay. People who retire in 2018 at age 65 will need upwards
of $280,000 to pay for health care and medical expenses through retirement, according to Fidelity.**
• Pick your preferred retirement age. If you have 20 years to save up your $1 million goal, you can calculate your monthly savings needed to reach that number using a compound interest calculator.
Put the brakes on spending
Reducing spending could be as simple as giving up eating out one night a week, or as significant as relocating to a less expensive area of the country.
• Consider signing up for a free Mint.com account to keep closer track of where your money is going. Mint.com shows your past spending patterns and alerts you when you are in danger of going over your budget.
• Other money-saving tips include packing your lunch; cancelling cable TV; and taking public transit or riding your bike to work.
Turbocharge your savings
The more you save out of your current income, the sooner you’ll be able to retire.
• If your employer offers a 401(k)-matching contribution, make sure you’re contributing enough to get the full match.
• Traditional and Roth IRAs are another great way to sock away more dollars.
• If you’re planning to retire before age 59½, you may want to consider building a taxable account that is not subject to early withdrawal penalties, to bridge the gap until you can tap those accounts without those rules kicking in.
Boost income
Earning more is a great way to enhance savings.
• Pick up a part-time job
• Ask for a raise
• Move to a higher-paying job
Just be sure not to increase your spending when your income goes up!
Caution sign: debt
Paying off — even avoiding — debt is one of the best ways to reduce your expenses and spending.
• Buy cars used, and drive them longer
• Pay off your mortgage early
• If you’re contributing to your children’s college education, make sure that you’re not taking on more debt than you can afford (that goes for the kids, too).
Retiring early is an achievable goal if you create a robust plan and stick to it.
*“The Most Popular Ages to Retire,” U.S. News & World Report, June 16, 2016. https://money.usnews.com/money/blogs/planning-to-retire/articles/2016-06-10/the-most-popular-ages-to-retire
** Source: www.fidelity.com https://www.fidelity.com/about-fidelity/employer-services/a-couple-retiring-in-2018-would-need-estimated-280000
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