Retiring early is a dream for most of the working population. By the time we are 30, we begin planning for our retirement days. Pension plans are subscribed to an investment or saving options are explored.
Yet most of us are still finding it difficult to be financially ready for retirement at the pre-set age of 66 years old with some of us becoming increasingly worried about outliving their savings. For those looking to retire early, one of the most important factors in their decision is whether they can afford to do so. Unplanned medical emergencies and the bills attached along with living expenses can add up quickly.
Bankrate estimates that you will need approximately $46,811each year to retire in Ohio while retiring in states like Vermont would cost you up to $59,560 annually. Like all other plans, retiring early requires careful financial planning and a few savvy strategies.
#1 Get A Game Plan Early On
To be prepared, you need a retirement plan quite early on. Facing the realities of retirement before your actual retirement age means addressing and planning for issues such as accumulating the needed funds and estimating how much you will need.
The sad fact is that most of us do not begin to earnestly plan for our retirement until we are well into our careers and in our 30s. By doing this, we lose valuable years (and contribution) in which better finances can be established. In that lost time, you could start a side business and get it off to a solid start or reap the annual benefits from investing.
This is why it is a smart idea to get to planning your retirement as you are beginning your career. Plans are completely adaptable and can be amended as you go along.
Sit down and think of what kind of lifestyle and goals you hope to achieve after leaving the workforce, and form this you can work out the amount you will need to comfortably retire(and the options that can provide a return like this).
#2 Build Your Assets- Set Up Passive Income Streams
One of the smartest things you can do for your retirement finances is to build up your assets.
Given that your income is very likely to decline as you retire, setting up passive income streams such as dividends from investments, rental income or partnerships in businesses will become a much-needed source of income in those years after your working salary has stopped.
The earlier you set these up, the better it will be. This is because it means you will have more years to build up income from these streams which make early retirement more possible.
Once your income streams are operational and you begin receiving a steady income from them, you can then begin to decrease your hours at work or leave altogether.
#3 Make Saving A Priority
Comfortable retirement centers on the state of your finances and your savings play a large part in that. Therefore the better your savings are, the better position you are in to retire. For those that want to optimize their savings, timing, and sacrifice is key.
Saving a percentage of your paycheck each month from early on in your career allows you more time to build it up. It also gives you the opportunity to address the different needs that may occur throughout your life.
Establishing an emergency fund with the equivalent of at least 6 months of expenses protects you from debt and acts as a buffer in the event of job loss. After that, any savings are an added bonus to your retirement and goals.
#4 Snowball Your Mortgage
For most of us, our mortgage will be the largest debt we carry throughout our lives. It also requires the largest repayment each month which can take a large chunk out of the monthly income.
Making additional payments towards your home mortgage throughout means you can pay it off before the term expires and leaves you heading into retirement debt free. This is assuming that any other consumer credit is also repaid.
Once debt and mortgage repayments are repaid, you will find that much more of your income can be put toward retirement or building up your savings. This makes achieving your financial goals more possible and quicker.
Retiring early depends on both your planning and timing skills. If you want to begin life after your career earlier than normal then you need to begin preparing your finances early on in your life.
What are you doing to get financially ready for retirement?