How to Plan for an Early Retirement

Being ready to retire is an important part of planning the next chapter of your life.

Unfortunately, many people fail to adequately plan for their retirement, leaving them in a position to struggle when their working days are behind them. This often leads to seniors being driven back into the workforce, or not enjoying their retirement.

For many people, retirement is a dream that they hope to turn into a reality between the ages of 65 and 67.

However, it’s possible to get out of the workforce and start enjoying the fruits of your labor before that point. How different would your dreams look if you were able to add an extra decade to your post-work life?

Retiring early is a dream for millions of people, but turning it into a reality can be difficult. Saving for early retirement requires you to make some conscious decisions and probably some changes to your current lifestyle.

Here’s a look at some tips for retiring early so you can kick off your shoes and enjoy the fruits of your labor earlier than you expected.

Establish Your Goals

What do you want your life to look like after retirement? Your goals will largely dictate the rest of your working years look like when it comes to saving for early retirement.

Do you love the idea of traveling the world and visiting places that you’ve only dreamt of? Even if you don’t plan on jet-setting around the globe, you may have long-planned buying an RV and traveling the United States with your spouse or even on your own.

For some people, retirement is simply about putting their feet up and spending quality time with their loved ones.

Your goals are unique to you, but it’s important to determine what you want your retirement to look like now. One of the biggest mistakes that you can make, especially when planning your early retirement, is to wait until you’re closing in on your planned retirement date to decide what you’re going to do.

Today, spend some time thinking about what you want to do when you retire.

Obviously, if you want to spend your retirement relaxing at home, you won’t need as much money as you’ll need if you plan on spending a year traveling across Europe or purchasing an RV so you can crisscross the United States.

Having a plan in place now ensures that you can make your dreams come true.

Max Out Your Workplace Retirement Plan

Most employers have an employee-sponsored retirement plan known as a 401(k). The basis of these accounts is that you can put a certain amount of money into your personal account every time you get paid and your employer will match it up to a certain amount.

Based on national averages, this amount is anywhere between 3% and 5%. If you’re relatively new to the workforce or simply haven’t looked into this program before, find out how your employer has this program set up.

One of the best aspects of a 401(k) is that the money you put into the account comes out of your pre-tax income. This helps you build up your retirement account without ever really noticing that the money is gone.

If your employer offers a 5% match, take full advantage of that and contribute 5% of your pre-taxed income. While this may not be enough to fund your retirement alone, it can give you a wonderful nest egg.

Hypothetically speaking, let’s assume that you make $150,000 per year before taxes. If you contribute 5% of that to a 401(k), that’s $7,500 per year.

If that’s your employer’s maximum contribution, that means that you could be putting $15,000 per year into a retirement account. Over the course of 20 years, that comes to $300,000. Find out what your employer will match and take full advantage of it.

Be Smart With Your Money

Most people cannot afford to retire early while spending big during their working years. With that in mind, you’ll probably need to be smart with your money now so you can enjoy your money later.

Dave Ramsey, one of the leading names in the world of personal finance, often says, “Live like nobody else so you can live like nobody else.” What this statement means is that you live below your means now, while you’re making money, so you can truly enjoy life after your career is over.

This entire process starts with creating a budget. Obviously, you need to be realistic with this budget. If you get regular bonuses from your job, don’t put your bonus money in your budget.

Build the entire thing around making the bare minimum that you can bring home from your job. Once you have that number in place, create a monthly (or weekly) written budget that determines where every dollar goes.

When making this budget, make sure to focus on getting rid of debt. This doesn’t mean that you neglect to pay your monthly utilities, but if you can spend a few years hyper-focused on paying off your debts, you’ll be in a much better position to enjoy your retirement.

There are plenty of strategies out there for paying off debt, so you can choose the one that works best for you.

Paying off credit cards, student loans, car loans, and even your mortgage puts you in a position to truly live in financial freedom after you retire. However, you’ll also need to be mindful of any debt that you take on while you’re going through your working years.

While some debt may be unavoidable, try to avoid running up credit card balances and borrowing money indiscriminately. Instead, try to pay cash for anything that you purchase so the money that you save for retirement is there for you to enjoy.

It's also a good idea to work with a financial planner to identify some other potential investment options. While we’ve already established that you need to use your employer’s 401(k) program, there are plenty of other investment vehicles out there.

A financial planner will help you establish your retirement goals and choose the right types of investments to bring those plans to fruition.

Don’t Touch Your Retirement Accounts

Finally, and perhaps most importantly, don’t touch the money in your retirement accounts. In most cases, you can “rollover” your 401(k) if you switch jobs, or you can pay a fee and get the money out.

Other types of investment accounts can usually be accessed for a fee, as well. Not only does this mean that you’re paying to gain access to your own money, but it also means that you’re taking money away from your future to pay for your present.

When you put money into your retirement account, or when your investments start paying dividends, resist the urge to touch that money.

It’s incredibly easy to see a large sum on a monthly statement and think that you just need $1,000 to pay for a vacation or make a major purchase, but it’s not a smart financial move for your future.

Make a commitment to yourself that the money in your retirement accounts is not for the here and now, but it’s for the future.

Preparing for Tomorrow Today

Retiring early doesn’t have to be some pipedream that you hear about from others who manage to make it happen.

What’s even more encouraging is that you’re not precluded from early retirement, even if you didn’t get a start on saving for it while you were in your 20s.

While you may not be able to retire as early as you would like, there are still steps that you can take to ensure that you’re ready to enjoy your life when your working days are behind you. It simply takes a commitment to prepare for tomorrow today.