How to Retire at
Start early., Save more., Invest outside of your retirement plans., Keep a few additional key factors in mind., Buy a smaller house., Live in a low-tax state., Cut out excess expenses., Barter or trade when possible., Consider taking a job with an...
Step-by-Step Guide
-
Step 1: Start early.
Getting an early start on your savings will increase the likelihood of being able to save enough to retire on by the age of
50.
The ideal time to begin is as soon as you enter the workforce in your early 20s.
Simply put, if you get a late start on building your retirement savings, you will need to set aside more of your annual income than you would have to do if you started at the age of
25. -
Step 2: Save more.
The average savings rate in the U.S. is
3.7 percent, but if you want to retire by the age of 50, you might need to save as much as 75 percent, instead.In order to save more, you will need to live below your means.
In addition to the fact that you can save more money, another advantage of living below your means is that doing so prepares you to live on a lower amount during your retirement.
Instead of needing 80 percent of your current income to live during retirement, you will be able to survive on 50 percent, since you can already do so now.
By the time you reach the age of 50, you will need about 33 times as much money as you expect to spend during your first year of retirement, after subtracting Social Security benefits.
The amount of money you need to save to reach a sufficient savings level by age 50 will vary depending on how much yield or interest you are receiving from your accounts or bonds.
The amount of savings needed by yield percentage is estimated as follows:
You'll need $714,286 in savings with a yield of 7 percent.
You'll need $833,333 in savings with a yield of 6 percent.
You'll need $1,000,000 in savings with a yield of 5 percent.
You'll need $1,250,000 in savings with a yield of 4 percent.
You'll need $1,666,667 in savings with a yield of 3 percent.
You'll need $2,500,000 in savings with a yield of 2 percent. , If your official retirement plans have withdrawal penalties when you try to access your money earlier than agreed upon, you can avoid facing these penalties by investing in other areas and using that money during the early stages of your retirement instead of money from your official retirement plans.
You might be tempted to play it safe by sticking to tax-protected retirement accounts, but these will usually not be enough.
Look into investment opportunities like dividend stocks, rental properties, bonds, and peer-to-peer lending.Also look for investments in tax-deferred or tax-free assets over assets that can be taxed.
Make sure that your portfolio is large and diversified across asset classes.
This is your best way to ensure that your portfolio can withstand losses and survive a bad market.
Invest more conservatively as you get older.
The riskier your portfolio is during the later stages of life, the more you will lose if the market takes a sudden turn for the worse. , There are a few considerations outside of savings and investing that you will need to bear in mind when calculating how much money you need for retirement.Think about your life expectancy.
Plan for a long life.
There is a 45 percent chance that one person in a relationship will reach the age of 90, and a 20 percent chance that one will reach the age of
95.
Make sure that you have plenty of money to last a long time.
Also think about medical costs.
As you get older, your medical needs will increase, and so will your medical bills.
Pay attention to inflation.
You can expect inflation to cut your spending power in half over the course of 30 years. , Instead of buying the biggest, nicest house your money can get you, opt for a moderately sized house that only provides you with the basics you need.
On a similar note, live in an inexpensive neighborhood.
You do not need to live in the slums somewhere, but you should opt for a middle class neighborhood instead of a high class one, and move to a region that is statistically cheaper to live in.
Another way to cut housing costs is to switch to a shorter mortgage.
If you can pay off your house in 15 years rather than 30 years, you can save a significant amount of money that you would otherwise lose to interest.If you can rent out a portion of your home, seriously consider doing so.
This income can help you pay off your mortgage, allowing you to save more of your own money for your retirement. , Some states have lower rates on income tax, property tax, and sales tax.
Living in one of these states will allow you to save up more of your money and make it easier to live on less during your retirement.
A few options to consider include Nevada, Texas, and Florida. , Review your monthly expenses and determine if there are any you can cut out.
These might include a land line, movie channels, and expensive data packages for your cell phone.
Look for free ways to enjoy your hobbies.
In many cases, you might be able to find volunteer opportunities that allow you to do the things you love at no cost.
For instance, if you love horses, volunteer at an equestrian center instead of buying your own horse.
Sell your car.
Even an economy car can cost you twice as much as the initial price you paid for it when you take into account depreciation, fees, insurance, and maintenance.
Rent a car when necessary.
For everyday needs, take public transportation. , If you have special skills that can be of use to others, barter with people who have different skill sets instead of paying for services with money.
For example, if you have IT skills, you can offer to build a website or network for someone who can repair a broken sink or damaged door for you in exchange.
Trading can also extend to your vacations, if you opt for the luxury of taking one at all.
House swap when going on vacation instead of paying money for a hotel.
Connect with people who live elsewhere and set up house swaps every summer or so.
This will provide you with free lodging when you go on vacation. , Even though pensions are fairly rare nowadays, some high-risk jobs do offer early pensions.
The obvious disadvantage here is that you may need to risk your life on the job.
To take advantage of this option, you should consider a job as a police officer, firefighter, or military personnel. , Children do not make it impossible to retire early, but they do cost money.
If you have kids before you start saving and investing in your future retirement, you will be less likely to put aside enough money yearly to retire by
50.
Families that bring in $59,300 yearly will spend about $11,000 on each child under the age of 18 every year.
Families who make more spend even more.By investing before you have kids, you start from a different state of mind, which makes it easier to keep your investments and savings as part of your budget. , If you find yourself facing tighter financial conditions, you might feel tempted to take money from your retirement savings to help yourself out.
It would be wiser to look for ways to cut costs and earn more income, however, to avoid draining your retirement funds.
If you withdraw money early, you might lose the benefits of compounding interest and may even need to pay a penalty for your early withdrawal. , If you cannot pay an item off at the end of the month, re-consider charging it to your credit card.
If you have to pay your credit cards off slowly, you will lose a lot of your money to credit card interest.
That means you will have less money to save up for your retirement. , You should not have to live like a pauper while saving for your retirement.
If you make saving too difficult, you are more likely to fall off the bandwagon and break your budget apart.
Your current budget should include things that you enjoy.
The key is to look for cheaper ways to do the things you love, not to stop doing those things completely. , Determine this budget based on the amount of money you have saved up.
Try living off this budget for six months.
If you can do so without much difficulty, you might be able to manage to retire based on your current savings.This is, in effect, a trial run.
If you cannot live on this budget without depleting your savings or relying on your credit cards, you are not ready to retire yet.
You need to understand what your cash flow will be like after retirement when crafting this budget.
Figure out how much money you need every month, quarter, and year, while also determining how much money you can afford to spend from your savings each month based on how high that savings is at the current moment.
Factor inflation into your budget.
It could easily go up to 5 percent. , Medicare will not start until you reach age
65.
Since you will no longer have health insurance provided by your employer after you retire, you need to have your own affordable and reliable plan.
Keep in mind that health insurance costs rise faster than inflation, especially considering recent changes in health insurance nationwide.
Cheap plans will be harder to come by than they might have been a decade ago.
If at all possible, look for a policy with low deductibles and co-pays that cover prescriptions, doctor visits, hospitalization, dental costs, and vision care. , Kids are expensive.
If you have children who still rely on you financially by the age of 50, your savings may not go as far as you need it to.
The same applies if you have parents or other relatives who rely on you in any financial capacity. , If you still owe money to lenders or creditors by the time you reach the age of 50, you could end up blowing a significant part of your retirement budget paying these debts off.
Your home and car, if you have one, should be paid off.
If you have additional debt, like college loan debt, you might not be ready to retire at
50. -
Step 3: Invest outside of your retirement plans.
-
Step 4: Keep a few additional key factors in mind.
-
Step 5: Buy a smaller house.
-
Step 6: Live in a low-tax state.
-
Step 7: Cut out excess expenses.
-
Step 8: Barter or trade when possible.
-
Step 9: Consider taking a job with an early pension.
-
Step 10: Avoid having kids before you start investing for your retirement.
-
Step 11: Try not to dip into your retirement fund before the time comes.
-
Step 12: Do not build up credit card debt.
-
Step 13: Stop yourself from turning saving into a chore.
-
Step 14: Figure out what your post-retirement budget needs.
-
Step 15: Make sure that you have reliable health insurance.
-
Step 16: Wait until your children are financially independent.
-
Step 17: Pay off your debts.
Detailed Guide
Getting an early start on your savings will increase the likelihood of being able to save enough to retire on by the age of
50.
The ideal time to begin is as soon as you enter the workforce in your early 20s.
Simply put, if you get a late start on building your retirement savings, you will need to set aside more of your annual income than you would have to do if you started at the age of
25.
The average savings rate in the U.S. is
3.7 percent, but if you want to retire by the age of 50, you might need to save as much as 75 percent, instead.In order to save more, you will need to live below your means.
In addition to the fact that you can save more money, another advantage of living below your means is that doing so prepares you to live on a lower amount during your retirement.
Instead of needing 80 percent of your current income to live during retirement, you will be able to survive on 50 percent, since you can already do so now.
By the time you reach the age of 50, you will need about 33 times as much money as you expect to spend during your first year of retirement, after subtracting Social Security benefits.
The amount of money you need to save to reach a sufficient savings level by age 50 will vary depending on how much yield or interest you are receiving from your accounts or bonds.
The amount of savings needed by yield percentage is estimated as follows:
You'll need $714,286 in savings with a yield of 7 percent.
You'll need $833,333 in savings with a yield of 6 percent.
You'll need $1,000,000 in savings with a yield of 5 percent.
You'll need $1,250,000 in savings with a yield of 4 percent.
You'll need $1,666,667 in savings with a yield of 3 percent.
You'll need $2,500,000 in savings with a yield of 2 percent. , If your official retirement plans have withdrawal penalties when you try to access your money earlier than agreed upon, you can avoid facing these penalties by investing in other areas and using that money during the early stages of your retirement instead of money from your official retirement plans.
You might be tempted to play it safe by sticking to tax-protected retirement accounts, but these will usually not be enough.
Look into investment opportunities like dividend stocks, rental properties, bonds, and peer-to-peer lending.Also look for investments in tax-deferred or tax-free assets over assets that can be taxed.
Make sure that your portfolio is large and diversified across asset classes.
This is your best way to ensure that your portfolio can withstand losses and survive a bad market.
Invest more conservatively as you get older.
The riskier your portfolio is during the later stages of life, the more you will lose if the market takes a sudden turn for the worse. , There are a few considerations outside of savings and investing that you will need to bear in mind when calculating how much money you need for retirement.Think about your life expectancy.
Plan for a long life.
There is a 45 percent chance that one person in a relationship will reach the age of 90, and a 20 percent chance that one will reach the age of
95.
Make sure that you have plenty of money to last a long time.
Also think about medical costs.
As you get older, your medical needs will increase, and so will your medical bills.
Pay attention to inflation.
You can expect inflation to cut your spending power in half over the course of 30 years. , Instead of buying the biggest, nicest house your money can get you, opt for a moderately sized house that only provides you with the basics you need.
On a similar note, live in an inexpensive neighborhood.
You do not need to live in the slums somewhere, but you should opt for a middle class neighborhood instead of a high class one, and move to a region that is statistically cheaper to live in.
Another way to cut housing costs is to switch to a shorter mortgage.
If you can pay off your house in 15 years rather than 30 years, you can save a significant amount of money that you would otherwise lose to interest.If you can rent out a portion of your home, seriously consider doing so.
This income can help you pay off your mortgage, allowing you to save more of your own money for your retirement. , Some states have lower rates on income tax, property tax, and sales tax.
Living in one of these states will allow you to save up more of your money and make it easier to live on less during your retirement.
A few options to consider include Nevada, Texas, and Florida. , Review your monthly expenses and determine if there are any you can cut out.
These might include a land line, movie channels, and expensive data packages for your cell phone.
Look for free ways to enjoy your hobbies.
In many cases, you might be able to find volunteer opportunities that allow you to do the things you love at no cost.
For instance, if you love horses, volunteer at an equestrian center instead of buying your own horse.
Sell your car.
Even an economy car can cost you twice as much as the initial price you paid for it when you take into account depreciation, fees, insurance, and maintenance.
Rent a car when necessary.
For everyday needs, take public transportation. , If you have special skills that can be of use to others, barter with people who have different skill sets instead of paying for services with money.
For example, if you have IT skills, you can offer to build a website or network for someone who can repair a broken sink or damaged door for you in exchange.
Trading can also extend to your vacations, if you opt for the luxury of taking one at all.
House swap when going on vacation instead of paying money for a hotel.
Connect with people who live elsewhere and set up house swaps every summer or so.
This will provide you with free lodging when you go on vacation. , Even though pensions are fairly rare nowadays, some high-risk jobs do offer early pensions.
The obvious disadvantage here is that you may need to risk your life on the job.
To take advantage of this option, you should consider a job as a police officer, firefighter, or military personnel. , Children do not make it impossible to retire early, but they do cost money.
If you have kids before you start saving and investing in your future retirement, you will be less likely to put aside enough money yearly to retire by
50.
Families that bring in $59,300 yearly will spend about $11,000 on each child under the age of 18 every year.
Families who make more spend even more.By investing before you have kids, you start from a different state of mind, which makes it easier to keep your investments and savings as part of your budget. , If you find yourself facing tighter financial conditions, you might feel tempted to take money from your retirement savings to help yourself out.
It would be wiser to look for ways to cut costs and earn more income, however, to avoid draining your retirement funds.
If you withdraw money early, you might lose the benefits of compounding interest and may even need to pay a penalty for your early withdrawal. , If you cannot pay an item off at the end of the month, re-consider charging it to your credit card.
If you have to pay your credit cards off slowly, you will lose a lot of your money to credit card interest.
That means you will have less money to save up for your retirement. , You should not have to live like a pauper while saving for your retirement.
If you make saving too difficult, you are more likely to fall off the bandwagon and break your budget apart.
Your current budget should include things that you enjoy.
The key is to look for cheaper ways to do the things you love, not to stop doing those things completely. , Determine this budget based on the amount of money you have saved up.
Try living off this budget for six months.
If you can do so without much difficulty, you might be able to manage to retire based on your current savings.This is, in effect, a trial run.
If you cannot live on this budget without depleting your savings or relying on your credit cards, you are not ready to retire yet.
You need to understand what your cash flow will be like after retirement when crafting this budget.
Figure out how much money you need every month, quarter, and year, while also determining how much money you can afford to spend from your savings each month based on how high that savings is at the current moment.
Factor inflation into your budget.
It could easily go up to 5 percent. , Medicare will not start until you reach age
65.
Since you will no longer have health insurance provided by your employer after you retire, you need to have your own affordable and reliable plan.
Keep in mind that health insurance costs rise faster than inflation, especially considering recent changes in health insurance nationwide.
Cheap plans will be harder to come by than they might have been a decade ago.
If at all possible, look for a policy with low deductibles and co-pays that cover prescriptions, doctor visits, hospitalization, dental costs, and vision care. , Kids are expensive.
If you have children who still rely on you financially by the age of 50, your savings may not go as far as you need it to.
The same applies if you have parents or other relatives who rely on you in any financial capacity. , If you still owe money to lenders or creditors by the time you reach the age of 50, you could end up blowing a significant part of your retirement budget paying these debts off.
Your home and car, if you have one, should be paid off.
If you have additional debt, like college loan debt, you might not be ready to retire at
50.
About the Author
Brittany Scott
Committed to making lifestyle accessible and understandable for everyone.
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