Retiring early is a dream that may seem impossible, but proper planning and action may make it a reality. Penalties for early retirement fund withdrawals and too little money in retirement accounts create financial stumbling blocks for many people hoping to retire early. Still, clear goals with an action plan can help you achieve an earlier departure from the working world.
Define Retirement Plans
Breaking down the general goal of early retirement into specific plans helps you determine how to get there. Define the type of activities and lifestyle you want to sustain during retirement. For example, some retirees want to travel frequently, while others choose to stay close to home or pursue hobbies. Working part time is another option. The job can generate enough income to cover living expenses during early retirement. Outline how you want retirement to look so you can define the steps needed to achieve the desired lifestyle.
Analyze Current Retirement Savings
An evaluation of your current retirement savings funds gives you an idea of where you stand and how much money you'll have coming in when you retire. The early withdrawal penalties vary based on the type of retirement plan so you need an understanding of how much you'll pay if you're younger than the minimum withdrawal age.
Calculate Retirement Expenses
When retiring early, you extend the number of years your retirement funds need to cover since your regular paychecks will stop earlier. A realistic estimate of your yearly expenses during retirement help you determine how much you need in retirement funds. Health care coverage is a major expense for those too young to qualify for Medicare. Calculate how much you'll spend each month on housing, car payments, loans, utilities and basic living expenses to plan your early retirement.
A decrease in spending immediately helps you achieve early retirement faster. Simply cutting back on extras like dining out frequently or buying expensive items frees up money in the budget. More drastic options like downsizing to a cheaper home give you an even bigger boost toward retirement goals. You can put more money toward your retirement accounts, and you reduce your financial burden once you actually retire.
Debt can interfere with early retirement plans by eating up money that could otherwise go toward your savings plans. When you leave your job, the debt payments consume a large portion of your retirement income and savings. By eliminating those debt payments before you retire, you save more money for other expenses and retirement activities.
Set a Timeline
A timeline for your retirement enables you to define specific steps to achieve your goal. Give yourself a set number of years or a specific age at which you want to retire. This allows you to calculate how much you need to put into retirement plans each year to have enough savings to retire.
Increase Retirement Savings
A strong push toward increasing your retirement savings accounts sets you up for financial stability after you leave your job. Contributing the maximum amount to your retirement funds gives you a jump on early retirement. Matches from your employer boost your retirement money even further.