A lot of people dream of early retirement. However, according to findings from the Boston College Center for Retirement Research, the average age of retirement has risen to 65.7 years old for college-educated men, 62.8 years old for college-educated women, and around 62 years old for people whose highest level of education is a high school diploma.
FACT: Planning ahead is essential if you want to retire early.
Gaining control over your time is really what the early retirement dream is all about. Many people associate retirement with collecting Social Security benefits, but some Silicon Valley tech millionaires are retiring by age 40 or younger. Creating a financial plan can help you plan for early retirement. Decide how much money you will need in order to retire early by setting a target savings value.
Numerous online tools can assist you in building a plan and showing the outcome of different scenarios. Considering your current and future income, as well as your current and future expenses, can help you determine how much money you will need to retire comfortably and securely.
PROTIP: Consider establishing additional streams of income
In addition to maintaining your current job, we recommend looking for additional income streams to supplement your current income. Consider investing in income-producing assets like rental properties or small businesses. Start a side business or take on a part-time job to help cover your current living expenses. By saving more money, you can contribute to your retirement fund.
PROTIP: Prepare for the future now.
Think about both money and time. In exchange for the freedom to spend your time however you like, you are trading the dependency on a job that provides you with money. Remembering why you are taking measures to save money now can be very motivating.
Adhere to these 6 tips if you want to achieve an early retirement:
- Contributing to your workplace retirement plan means you’ll essentially earn free money if your company is willing to match your contributions. Surpass the value of your employer’s match and increase the value of your contribution by 1% every year at the very least. If possible, set up automatic deposits. Make an appointment with a financial adviser to seek advice about your best alternative option if you either aren’t eligible for an employer-matched retirement plan or a workplace plan isn’t offered. Your options could include saving in other ways, such as via an individual retirement account, a Roth IRA, or a simplified employee pension plan.
- Avoid making withdrawals from your retirement savings account. The longer you allow your assets to be invested, the greater is your long-term potential for growth. You’ll also avoid the 10% penalty from the IRS for withdrawals taken out of a savings account prior to the age of 59.5 years old. That way, you will not have to pay income tax on the amount that you withdraw.
- Pay off your current debt and avoid accruing more. Every long-term loan jeopardizes assets that could be used for retirement. You’ll increase your costs by having to pay interest, which is a completely unnecessary and avoidable expense.
- Start investing early, and make it a habit. Over time, your money will compound, so taking advantage of the growth offered by investments is crucial.
- Strongly consider opening a health savings account. Health care costs will become the main concern as you age, so don’t overlook the importance of an HSA, many of which are offered alongside high-deductible health care plans. You’ll be able to contribute to your HSA tax-free, your assets will grow in a tax-deferred manner and you’ll be able to make withdrawals for qualified expenses without paying taxes on the money you take out. Contributions carry over from one year to the next, even if you change employers. Refrain from withdrawing from your HSA as much as possible when you are still employed. The greater the amount of money remaining in the account when you retire, the more you can put towards qualifying healthcare needs.
- Take advantage of stock plans offered by your employer. If an employer stock purchase plan is offered to you, don’t hesitate to take it. You’ll either have the opportunity to purchase the stock at a discounted rate or receive a matching contribution from your employer.
Retiring early requires that you pay attention to your current spending habits and align your behavior with your long-term goals for the future. There are many finance-tracking services online that can help you create your own spreadsheet, which can be used to track income versus expenses. Other income streams can create more flexibility and allow you to reach your early retirement goals faster or more easily.
How Sandoval Legacy Group Can Help You
Decisions like these are complicated. Be sure you get the advice you need to make the choices that will provide you and your family with the financial peace of mind they need. If you have additional questions or concerns regarding your estate plan, elder or tax law, probate, or to learn more about our services, contact attorney Dennis M. Sandoval online or call our office at 951-888-1460 to schedule a consultation.
Southern California’s Premier Estate Planning Law Firm
No other law firm in Southern California has the knowledge and experience relating to estate planning, special needs planning, probate, conservatorships, business succession planning, tax planning, and trust administration as our lawyers and paralegal staff at Sandoval Legacy Group, A division of Holstrom Block & Parke, A Professional Law Corporation.
Our attorneys have over thirty years of professional experience representing clients across Southern California, with offices in Riverside, Orange, and San Diego County.