The average American retires at the age of 63, whereas the EU average is 64.3 years for men and 63.5 years for women. But what if you wanted to retire at the age of 50?
A generational change appears to be well underway: Many millennials do not want to retire in their mid- or late-60s, as their parents did. Instead, many professionals want to work for themselves or accept a lower-paying employment that is better aligned with their interests by the age of 50, according to studies and financial experts.
It’s never too late to start saving for early retirement, but the sooner you start, the more time your money has to grow.
Hard work and sacrifices are needed if you want to retire at 50
You must be willing to work hard and be inventive if you want to retire by the age of 50. You must be willing to take chances, manage your money wisely, and make sacrifices. The main point is that if anything appears to be too good to be true, it typically is. There are no shortcuts or simple alternatives that will get you there quickly.
Don’t panic if you’re already in your 40s and haven’t started saving. The main thing to remember is that now is the time to start saving as much as you can. So that by the time you reach 50 — or perhaps sooner — you’ll have enough for whatever life has in store for you after work.
Here are the concrete measures you’ll need to take to achieve your goal:
Calculate how much money you’ll need to retire
The amount of money you’ll need to retire comfortably at the age of 50 will be determined by a variety of factors. This includes your lifestyle and the cost of living in the location where you intend to retire. Begin by estimating how much money you will require each month in retirement.
What is an appropriate monthly retirement income?
What constitutes a healthy monthly retirement income varies according to the individual. Many variables influence what constitutes a healthy retirement income, including one’s present lifestyle, planned retirement lifestyle, dependents such as children or grandkids, outstanding debts, and health. In average, 70% to 80% of an individual’s last employment salary before retirement is considered a respectable retirement income.
The four percent rule
Using the 4% rule, you may calculate how much you can comfortably remove each year. This rule is based on the S&P 500’s historical returns, as well as inflation statistics and other considerations. It’s not a guarantee, but it’s a solid starting point for determining how much money to withdraw from your retirement funds.
To determine your safe withdrawal rate, multiply your saved amount by 0.04 (4%). That figure is the amount you should withdraw each year after retiring if you want to keep the same purchasing power for the rest of your life without having to work or earn extra money from other sources. For example, if you’re 40 years old and have $200,000 in savings, calculating $200,000 by .04 yields a yearly withdrawal of $8,000 – a reasonable figure for a first-time retiree.
Make a financial strategy
The next step toward early retirement is to develop a detailed financial plan that details your income and spending, debts, assets, and long-term retirement goals. This will assist you in determining how much money you need to save in order to retire at the age of 50.
Consider additional sources of income that might augment your savings, such as rental properties, passive income, or inheritances, and include them into your strategy. Consider future expenses such as college tuition and healthcare fees. Estimate how much you will need for each item and include it in your overall retirement savings estimates.
Savings should be your top priority
Once you’ve determined how much money you’ll require, work backward to determine how much you’ll need to save to attain your objective. There are two kinds of savings: emergency savings (sometimes known as “rainy day” money) and investment funds (like retirement plans). If something goes wrong with your bank account, save your emergency funds in a safe area where they can’t be stolen or misplaced, such as a high-yield online bank account or cash beneath your mattress at home. This money is set aside for unforeseen costs such as medical bills or travel expenses that arise when you least expect them.
Determine your retirement contribution capacity, taking into consideration any company match programs or tax breaks that may be available. You should prioritize retirement savings by putting money down each month in savings or investment accounts such as IRAs or 401(k)s. Consider boosting your contribution rates and ensuring that you are taking full benefit of employer contributions. Also, make sure to explore your alternatives and select the best one for your present financial condition.
Spend less
Cutting less on non-essentials and luxury things can help you save more money each month, which you may put towards retirement savings. Consider cutting back on eating out, using ride-sharing instead of having a car, and avoiding costly gym subscriptions if feasible.
Pay off your debts
Paying off any existing debt should be high on your priority list. High-interest rates may substantially diminish potential savings if left unchecked. So, prioritize paying them off fast while still investing consistently for retirement objectives. Before signing anything, make sure you understand all of the terms associated with each loan. This includes the exact payment amounts, interest rates, and length of repayment periods. This will prevent you from being caught off guard by unexpected fees down the road if you ever find yourself unable to make payments on time due to an emergency or other unforeseen circumstance.
Make sensible investments
It is critical to maintain a varied portfolio of stocks, bonds, mutual funds, and cash investments while investing for retirement. You should also consider your risk tolerance and make sure that the assets you choose align with your own goals and ambitions. One of the greatest methods to enhance your money over time is to invest in low-cost indexes or mutual funds. When investing, keep inflation in mind to avoid falling behind as prices grow over time.
Diversifying your investments is the greatest strategy to protect yourself against a market slump. This entails diversifying your investments among several asset types, such as stocks, bonds, and cash.
However, diversity is not a panacea. It’s vital to note that even if you’re well-diversified across all three of these asset classes, you’ll lose money if certain assets decline and others increase. Historically, no single category does exceptionally well or poorly in some years; they just tend to move together generally based on market circumstances throughout time.
Set up a budget
Making and sticking to a budget is an excellent method to keep on track with retirement savings. Keep track of your spending, create financial objectives, and evaluate your success on a regular basis. This can assist guarantee that you accomplish your retirement savings objectives while still living comfortably.
Regularly assess
Track your progress throughout your working life. Consider boosting your savings rate if possible, or alter your goals if circumstances change suddenly.
Retirement before the age of 50 is an ambitious goal, but it is attainable with the correct plan and perseverance. You will be able to attain this milestone by developing a detailed financial plan that details your income and spending. You’ll need to eliminate all non-essential things from your budget, and investing sensibly. While all of these measures may take some years to complete, taking the initial step toward retirement planning today can put you on pace to achieve financial freedom at a younger age than most people are accustomed to. Begin prepping today!
Consult a financial advisor
If you desire to retire early, you face two major obstacles:
1. You have less time to put money down for retirement.
2. You have more time to spend during the retirement.
Working with a financial advisor on a regular basis is a good idea unless you’re a rock star investor. An adviser can assist you in developing an investing strategy to help you achieve your retirement goals. They can also show you how much money you need to invest each month in order to attain your goal in a particular amount of years.
Once you retire, your adviser may assist you in managing your income sources to ensure that your money lasts. Dividends, mandatory minimum distributions, Social Security, defined-benefit plans, and real estate investments are all examples of income streams.
Take the time to locate an appropriate adviser; after all, you may be working with them for decades. If you are concerned about the expense of a financial adviser, keep in mind that you are paying for their skills as well as their time. If you locate the proper advisor, the cost will be more than offset by their knowledge.
Bottom line
Many individuals want to retire early, but few have the necessary financial means, planning skills, and discipline. To begin, estimate your retirement costs, select your desired nest egg, and then save and invest to make it a reality.
