One-third of the Americans believe they will not have enough to live off in retirement. Here are seven simple early retirement strategies you can use to make your retirement easy. You should plan your retirement in such a way that you get about 80% of your pre-retirement income. The actual amount can be higher or lower. You can expect health insurance to be expensive, or downsize by going for a less expensive home, pay your mortgage – thus making a downward adjustment. Once the income is figured out you can start making an investment portfolio that will give you the same income.
There is another handy method that of ‘safe withdrawal rate’. This is based on the idea that you can withdraw just 4% from your investment portfolio, each year, as income, never letting your portfolio run out.
This is probably based on the belief that the portfolio will be producing an annual rate of return which is somewhere between 6% and 10%. It means that there is enough money to withdraw as income per month from the portfolio and still there remains enough for the portfolio to keep growing. Keeping the 4% in mind multiply it by 25 this will tell you how much the size of your portfolio should be.
But this is not over. You have to keep in mind the inflation factor. Use the inflation calculator to calculate what you will require. The less money you spend the more you have to save. Keep the cost of living down – drive a less expensive car, avoid restaurants, costly entertainment, keep vacation home close. Move from a high-cost living area, move closer to family and friends, and medical providers.
When you have 25 times your annual spending invested you can quit working forever. When you become financially free and can – continue to work, play, or mix the two. Debt is another bad habit and will sabotage your early retirement effort. Debt reduces the cash flow; it will cut the amount of money you save. There’s also a toxic mindset associated with debt when it comes to retirement. If you get comfortable with debt, there is a chance some will come with you in retirement. This will raise your cost of living.
One of the most effective early retirement strategies involves not using your credit card too much. Credit card debt is wasteful expenditure and very expensive. Never spend more in a month on your card than you can afford to. Never make minimum payments it is financial suicide, Stop overspending and pay your existing debt. Redirect your investment for retirement saving.
Never buy a house that will make you poor. This is a house which will cost you more and leave you with less money. This is not good if you are planning an early retirement. The housing expense will have an impact on your cash flow, as it will require costly maintenance, utilities, landscaping, furniture etc. When it comes to homes and early retirement plans follow the doctrine less is more meaningless expense more savings. Do not limit yourself to the employer plan save money outside too for your retirement plans.
If you’re self-employed, set up your own 401(k) plan also called Solo 401(k) plan. The contribution limit on this plan is very generous. You can set up the 401(k) plans for a side business, and speed up your retirement savings. If you think that you will not be able to achieve your retirement portfolio till you retire. You need to increase your income, you can get a better working position or take on something part time or set up a side business.
You do not have to follow a single method. If you do not have to follow a single be locked into one method either. You can work a part-time, run a side business, or do side jobs. If you’re not sure how to get started, I created a list of 100 making money ideas. Be reasonable in your rate of return on investments. An unrealistic rate could lead you to save less thinking that you will make it up later.
If you really want to quit you have to put away maximum amount in tax-favored accounts. Married couples can file joint tax returns. This can fund the Roth IRAs if their income is less than $186,000. If you are 50 or over, add extra $6,000 to a 401(k) and $1,000 to an IRA.
If you have a job on the side as well as your regular job, use the retirement plan like SEP-IRA to save a part of that income. In 2017, you can fund a SEP with 20% of adjusted profit to $54,000. Another smart move will be to put as much into health savings account. The HSA can deliver a rich payoff more than your 401(k). Earnings added to HSAs are not taxed and can be withdrawn tax-free only if used to pay for the qualifying medical expense.