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5 Financial Tips for Early Retirement

By January 28, 2021Business Advice
early retirement

You may love your job and enjoy going to work every single day. Or you may just be going through the motions until the time comes to retire. Either way, most people don’t want to work forever. Even if you love what you do now, you will eventually want to relax and enjoy more leisure time. Making sure you can afford a fun and secure retirement requires careful planning.

Regardless of your age, if you are working now you should be planning for retirement. In fact, ideally, you should start saving in your 20s when you begin earning a paycheck. The sooner you start investing your money away, the more time it has to grow before you retire.

Reaching Your Retirement Goals

You may be surprised at how little you’ll need to save to reach your retirement goals, if you start early enough. Let’s say you want to have a million dollars socked away when you retire at age 65. If you start saving just $4500 per year when you’re 20 years old, you’ll achieve that goal.

Many employers offer matching contributions to 401K plans, so your investment could be much less than that, depending on the percentage they contribute. Just remember, that the earlier you start, the more you’ll have when you need it.

How to Retire Early (and Comfortably)

Early investing is key, but there are other factors that play into a secure retirement, especially if you’re looking to retire earlier. Let’s look at some ways you can capitalize on your investments to maximize your earnings.

  1. Estimate Retirement Expenses.

What do you plan to spend your time doing when you retire? This list can change over the years, but you should have some general ideas. For example, many people love to travel, but during their working years, they may not have the time to do it as much as they’d like. The cost of traveling can add up, depending on your mode and destination.

Ideally, you will be debt-free when you retire, with no mortgage, credit card balance, or student loans to pay. If not, you’ll need to factor in those bills until they are paid off.

There are two expenses that are often overlooked when calculating retirement needs: taxes and health care.

If you’re retiring prior to age 59½, IRA and 401K plans will tax you on withdrawals you make before you reach that age. Roth IRAs are an exception, allowing you to withdraw contributions (but not earnings) at any time.

Health care, especially, is a concern if you retire before the age of 65, when you’re eligible for Medicare. You’ll need to factor in the cost of a private insurance plan if you don’t have other options, like a spouse who can add you to their plan.

  1. Calculate the Amount You’ll Need.

Once you estimate the expenses you’ll have in retirement, you’ll need to figure out how much you’ll need to save. As an example, if your estimated expenses are $60,00 a year, multiply that amount by 25-30 (years of life expectancy after retirement). That means you’ll need to have between $1.5 and $1.8 million saved to retire comfortably.

  1. Budget Now for Higher Dividends Later.

If your current contributions to your retirement funds fall short of your goals, you’ll need to make some adjustments. The best way to do this is to set a budget and stick to it. There are really only two solutions to generating more savings: spend less or earn more income. You may need to sacrifice now to benefit later.

  1. Sock Away the Investments.

While you’re still gainfully employed, you should take advantage of long-term investments. Most employers offer 401K plans, often adding on a percentage to match your contribution. IRAs are another great retirement savings opportunity. Both are tax-deferred programs, so your net income won’t decrease as much as you’d think.

  1. Get Sound Financial Advice.

Most of us don’t have the knowledge or time to make the best investments that will accomplish our mission for an early retirement. It’s wise to see the advice of a financial expert to assist you in reaching your early retirement goals.

Small Business Owners Can Retire Early Too

If you own a small business, you may think you’ll be working for the long term. But you, too, can plan to retire early if you plan wisely. The steps to take are the same as for any employee, except for employer-matched 401K contributions.

The key is to always be aware of your financial status and getting the right help and advice. Orcutt & Company can assist you in these areas.

We offer customized financial services plans to meet your accounting needs. From tax planning, bookkeeping, and payroll processing, our staff are experts in managing all your financial and accounting needs. Our financial advisors take the time to understand your objectives and help you achieve them.

If you want to know more about how we can help your small business grow and profit, contact us today for a free consultation.