Top Tips for Reaching Early Retirement
The ultimate goal is to reach financial independence at a young age and have a stable income that will set you for life.
Commonly known as the FIRE movement or Financial Independence, the Retire Early plan inspired many debates, especially about how to achieve it.
First of all, we have to determine what is early retirement means for you. Most mistake the FIRE plan for having millions of dollars in their bank account and never working again. If that is your financial goal, awesome! You should go for it!
However, the idea of reaching early retirement is more about living your best possible life and without being controlled by money.
For some people, being financially independent means to get rid of their debt and others have an exact number in their mind that they want to reach.
There are few tips for reaching early retirement, and we are going to cover all in this article.
Obviously, if you want to retire early, you need to start working on your financial plan at an early age. Being financially stable requires knowledge, which means that your first step should be to learn more about the subject.
Once you know your goal it is time to make a financial plan. The earlier you start your retirement planning, the easier it would be to reach your goal.
First of all, you’ll need a stable monthly income that can help with your financial priorities. Once you start working and getting paid, it is time to calculate how much money you should spend and save.
Most experts recommend saving 20% of your income every month. Some people even decide to follow the 50/30/20 rule, where they reserve 50% of their budget for essentials like food or rent, 30% for discretionary spending, and they save at least 20%.
You can optimize this strategy to work for you but try to save as much money as possible.
Here is the expected income you should save by age:
|By Age…||You Should Save :|
|30||1 x your income|
|40||3 x your income|
|50||5 x your income|
|60||7 x your income|
|70||9 x your income|
|80||11 x your income|
Invest Your Savings
All the money you saved is no good if they are just sitting in your bank account. That’s why saving money is one of the most important tips for reaching early retirement. You have to find a way to invest your money and make them work for you. Otherwise, your savings will be destroyed by inflation and in the end, you’ll end up with less buying power.
Fortunately, few investment opportunities promise a stable annual return, much higher than the average inflation rate of 2%.
Open a Retirement Account (Roth IRAs)
Dedicating a portion of your monthly income to your retirement account can contribute a lot to your early retirement. This is where opening a Roth IRA account comes in handy. Apart from saving money, the retirement savings plan also offers tax advantages that can help towards your financial independence.
Just to get a better idea, here is how much money you can save if you allocate a portion of your budget. The example is taken from an average annual salary of $68,703 with an annual return of 6%.
If you open a retirement account at 25 years of age:
-5% of your annual income, you’ll give $531,607 by 65
-10% of your annual income, you’ll give $1,063,261 by 65
-15% of your annual income, you’ll give $1,594,896 by 65
If you open a retirement account at 35 years of age:
-5% of your annual income, you’ll give $271,565 by 65
-10% of your annual income, you’ll give $543,153 by 65
-15% of your annual income, you’ll give $814,732 by 65
High-Yield Savings Accounts
The most secure way of saving money and letting them work for you is by investing in a high-yield savings account. Most banks are government-insured up to $250,000, so your investment will be safe even if the bank shuts down.
Stocks are a much riskier option than a standard savings account, but they do come with many benefits. First of all, dividend stocks are best for passive income and you can make a lot of money.
Generally, dividend stocks are less riskier investments than growth stocks.
On the other hand, growth stocks have a bigger potential to jump up in value.
Either option is great for reaching early retirement, and if we look at history, the average return rate of the S&P 500 is 7% annually.
Many benefits come from real estate investing and you can build a real estate empire that will set you up for life. Real estate assets go up in value over time and the rate statistically is much higher than inflation.
On top of that, real estate investors enjoy other benefits such as cash flow, excellent returns, diversification, tax advantages, and much more.
With that said, it is really hard to invest in real estate without a loan. This means that even if you retire you’ll still have a debt to pay. However, this wouldn’t be a problem since you’ll already have enough income from renting property.
The not-so-new electronic-only currency is becoming more and more popular investment among people. According to a recent survey, one in ten people in the U.S has already invested in cryptocurrencies.
The future of currencies, as many people apply to it, has become more popular especially after Bitcoin, Etherium, and others reaching more than %300 return rate in the past year.
With that said, crypto-investing is probably the riskiest investment of the bunch.
By following these tips for reaching early retirement you can establish financial independence and never work again. The most important thing for making enough money to reach early retirement is clever money allocation.
You have to start at a young age and let the money work for you. That way you’ll build up your portfolio of investments, which will help you to retire early.