There are many factors outside our control that can impact our retirement timeline – economic volatility, new legislation, or even a global pandemic – all of which can throw us off course enough that even the most well-planned retiree must make changes. This is part of what makes early retirement so challenging, so it ends up being a dream that fewer and fewer people manage to achieve. In fact, polling shows that American workers are retiring at later ages than they have in the past three decades. Still, achieving early retirement is not an insurmountable task. With careful financial planning and discipline, it can become a reality. If you are dreaming of leaving the workforce early, below are ten strategies to help you with financial planning for early retirement so you can stay ahead of the curve.
Financial Planning for Early Retirement: Set Clear Financial Goals
The journey to early retirement starts with a clear set of financial goals. Begin by determining what early retirement means to you: How old do you want to be? How do you want your life to look once you retire? What it is you want to accomplish? Once you have a clear vision for your future, calculate how much money you will need to maintain your desired lifestyle during retirement. Don’t forget to consider factors like housing, healthcare, travel, and leisure activities. Set specific, measurable, and achievable goals, as these will become the foundation for all the rest of your planning.
Financial Planning for Early Retirement: Create a Detailed Budget
If early retirement is your destination, think of your budget as your financial roadmap. It will help you understand where your money is going, as well as how to allocate your income effectively. Start by tracking your current expenses for a few months to identify areas where you can cut back. This is where your clear goals will come into play. Use those goals to determine how much of your income should be directed into savings and investments to accelerate your retirement fund’s growth.
Financial Planning for Early Retirement: Maximize Retirement Accounts
As you think about your budget as a roadmap, your retirement savings accounts (such as 401(k)s or IRAs), are the vehicle that will take you from where you are to that final destination of early retirement. To retire early, you’ll want to be sure that you’re taking full advantage of these accounts. The reason these accounts are so beneficial is because they offer tax advantages that can significantly boost your retirement savings. Contribute the maximum allowed by law, and if your employer offers a matching contribution, strive to contribute enough to maximize that match. Over time, the compounding effect of these contributions can be substantial.
Financial Planning for Early Retirement: Diversify Your Investments
While investing money can be a great way to build wealth, it also comes with inherent risk. To help manage this risk, you’ll want to diversify your investment portfolio. Instead of putting all your eggs in one basket, spread your investments across different asset classes such as global stocks and bonds, and even alternative investments (such as real estate) ). Diversification not only helps protect your overall portfolio from market volatility, but it can potentially yield higher returns in the long run.
Financial Planning for Early Retirement: Minimize Debt
Debt can be a major roadblock on your path to early retirement. It’s imperative that you stay on top of your debt by prioritizing paying off any high-interest debt (like credit card balances and personal loans) as quickly as possible. The money you save on interest payments can then be redirected toward your retirement savings. Additionally, consider downsizing or refinancing your mortgage (in the right interest rate environment) to help reduce your monthly expenses.
Financial Planning for Early Retirement: Increase Your Income
While managing debt and expenses is essential, increasing your income can significantly accelerate your journey to early retirement. Look for opportunities to boost your earnings, whether it’s through a promotion, a side hustle, or passive income streams like rental properties or investments. It sounds simple, but the more you earn, the more you can save and invest for your retirement.
Financial Planning for Early Retirement: Stay Informed
Financial markets and economic conditions are constantly changing, so staying informed about these changes is crucial if you want to be certain that you’re making sound investment decisions. Read up on financial news and market trends, but also consider seeking advice from financial professionals. Staying proactive and adjusting your investment strategy as needed can help protect your retirement fund from unforeseen risks.
Financial Planning for Early Retirement: Plan for Healthcare Costs
Healthcare expenses tend to increase as you age, and with skyrocketing healthcare costs, early retirees need to have a plan in place. Investigate healthcare options such as private insurance, Medicare, or employer-sponsored retiree health plans. You may even want to consider setting up a Health Savings Account (HSA) to save for medical expenses in a tax-free manner. Having a healthcare strategy can prevent unexpected financial setbacks during retirement.
Financial Planning for Early Retirement: Develop Multiple Income Streams
Relying solely on your retirement savings can be risky, especially if you retire early. To protect yourself, develop multiple income streams, such as rental income, dividends from investments, or freelance work, to supplement your retirement income. These additional sources of income can provide a financial safety net, as well as reduce the risk of outliving your savings – a significant concern for early retirees who may enjoy many decades of this phase of life.
Financial Planning for Early Retirement: Continuously Review and Adjust Your Plan
Financial planning for early retirement is not a one-time task, it requires ongoing monitoring and adjustments – and an intentional commitment to smart money habits. Regularly review your financial goals, budget, and investment portfolio to ensure you’re still on track. As your circumstances change, (such as getting married, having children, or experiencing unexpected expenses), you’ll need to adapt your plan accordingly.
Master Your Financial Plan to Meet Your Retirement Goals
Achieving early retirement success is a rewarding endeavor that requires careful financial planning, discipline, and determination. With diligent planning and disciplined follow-through, you can stay ahead of the curve and turn your early retirement dream into a reality. Remember that early retirement is a challenge, but it is achievable with the right strategy and commitment to your financial goals.
Are you considering early retirement? Contact Wade Financial Advisory today, and let our experienced team guide you toward the financial future you aspire to. Your dreams, our expertise – together, we’ll make it happen. Reach out now to schedule a Discovery Call. We look forward to hearing from you!