Do you dream of early retirement? You may have other passions you want to explore, or maybe you’re concerned about health issues or dream of traveling while you’re young enough to enjoy it. Whatever the reason, you might be wondering if it’s possible. It is, if you take the right steps.
What are some steps you can take?
Step 1: Define Your Lifestyle
The first step toward early retirement is to define how you want to live when you retire. Where do you want to live? Do you plan to travel? If so, where? Do you want to start a business? What kind of car will you drive? The lifestyle you wish to have when you retire will determine how much money you will need. Once you’ve decided on your lifestyle, you’ll be able to calculate the annual income necessary to achieve it.
Step 2: Assess Your Current Financial Situation
Take a close look at how much money you’ve already saved toward retirement. Take that figure and compare it to the annual income number you arrived at in Step 1. Now, decide the age you want to be when you retire and you’ll know how much money you will need to invest monthly into your retirement fund.
For example: If you’ll need 1 million dollars when you retire, and you currently have $300,000 in your retirement account, that leaves a gap of $700,000. If you want to retire in 20 years, that means you’ll need to save about $2,917 a month in order to reach your goal.
Step 3: Make Necessary Adjustments to Your Lifestyle
The changes you decide upon and make today will have a huge impact on your retirement goals. Here are a few examples:
- Increase your savings rate. Many financial planners recommend saving 10 to 15 percent of your income for retirement, and the sooner you start the better. Pour your money into a qualified retirement plan where your income can grow tax-deferred.
- Eliminate debt. Debt is one of the biggest obstacles between you and retirement. By the time you retire, you’ll want to have paid off your mortgage, student loans, and even your car. The quicker you can begin eliminating debt, the more you’ll be able to save toward retirement.
- Reduce expenses. Take a close look at your current budget. Review everything you spend money on. Even if you’re doing a good job, there’s always room for improvement. How often do you eat out, visit Starbucks, or shop online? Even minor changes can add up over time.
Step 4: Plan for Healthcare
One area that is often overlooked when considering early retirement is healthcare. If you’re a resident of the United States, Medicare does not kick in until you are 65 years old. If you’re married, and your spouse will continue to work after you retire, then it’s possible you can be added to their healthcare plan. The sooner you can plan for this the better.
If you reside in Canada, there are still costs you should consider. Depending on where you live, everything from certain medications to long term care after the age of 65 may come out of your pocket. A little planning now can save you a lot of money later.
Step 5: Hire an Advisor
This is your life, money and future we’re talking about. Be as involved and proactive as possible every step of the way. Research and ask questions. There’ll be concepts and terminology that you may not understand. Before making big decisions talk things out with a professional financial advisor, or certified money coach who can combine financial advice with psychological coaching principles. The key is to be involved.
There’s a lot to consider if you want to retire at an early age, but it’s doable. Apply these five steps, and then go even deeper. This isn’t the time to cut corners, and hope it all works out. You can do this. Believe your goal is achievable and then take action. If it seems overwhelming, reach out and I will help in any way I can.
Send me a text or call me at 204-392-6406 or send an email to reception@cbfteam.ca.
