There are those who are planning to be working well into their 60’s or even beyond. That’s fine, but it’s important they not take their health for granted. We never know what might happen throughout our lives and, hopefully, nothing prevents us from being able to work and support your family—for as long as we choose to continue working. Retiring early may be simple but having the financial stability to keep going is the hard part.
Early Retirement Planning
Being prepared financially is an essential step in early retirement planning. To do so you need to figure out the exact amount of money you currently have. Once you have reached this number you will know your actual net worth. If there is some confusion as to what should be included in this number, remember to add the value of your home, cash on hand, assets and stocks, as well as any retirement accounts you may have. This would be a good time to check your credit score, as well, to focus on the important numbers and take care of any disputes or inconsistencies.
The next step would be to deduct any outstanding and recurring debt that you have which includes items like student loans, a mortgage, credit card debt etc. You then will have a clear understanding of how much money you will have for retirement.
Investing for Retirement
No one will successfully retire early if they do not properly invest their earnings! Whether you decide to partake in a 401(k) plan can greatly affect the amount of money you have towards your retirement. If a company is willing to match the amount you put into an account, do not pass that up. Over a number of years, it does accumulate quite a bit. Depending on annual investment returns the numbers may vary but it also depends on when you start saving for retirement, as well.
A major setback that should be avoided, if possible, is cashing out your 401(k) before it is time. You will lose an exorbitant amount of money and you may be charged penalties as well as be required to pay taxes on the amount withdrawn. This can be a great deal of money. If for some reason you will not be working for that company anymore, your 401(k) plan may roll over into a new company plan. If one is not available through your new employer, the account can be rolled over into a separate IRA account. IRAs are another option and can be held in addition to a 401(k) plan. There are no set limitations to start up an IRA account and the return rates on them may be generally high.
Social Security
The best thing that you can do for yourself to enjoy your retirement as much as possible is to wait to start collecting your social security benefits. The age at which you start collecting will affect how much money you will have for retirement. While you may begin collecting social security benefits at age 62, full benefits will not be available for those who have not reached the age of 65. The amount you will receive varies, and is dependent upon your current age.
Create a Budget
The earlier you can create a budget for yourself and stick to it, the better. It is suggested to save 10% of your income earnings and put it into a savings account. This will create a safety net and some sense of financial security for you. Whether you place some of this money into a regular savings account and some into an IRA is entirely up to you but keeping your eye on early retirement will ensure that you take the necessary steps to achieve your goal. It does help tremendously when you have a supportive family, spouse, and friends to help you follow the budget and plan that you have created.
Pay Off Debt
The worst position you can be in is still having a decent amount of debt by the time you retire. If your main goal is to retire early, you’ll want to check your credit score and credit report before making the decision. You may be asking, why should I check my credit score? For starters, your credit report and score will give you an idea about your overall credit picture. You’ll be able to determine what needs to be taken care of and then use the information to assist in creating your budget. Minimizing your debt to credit ratio will not only help you throughout your life, it will ease your ability to pay off accounts and become debt free by the time you retire. If your focus is to retire by the time you are 45, getting rid of student loan debt should be top priority when you are in college.
Everything is relative and goes hand in hand; happiness will come when you are able to create a plan and stick to it. There are many benefits of early retirement and while it is attainable, reaching that goal requires proper planning and investing, and that needs to start as early as possible.
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