Being able to take an early retirement may be a life-long dream, and achieving the option is a significant financial accomplishment. Building the nest egg involves a lot of good planning and wise use of money, both of which are habits that will keep you prosperous in the future.
These tips might pave your road to early financial freedom so that you can make choices about your life, not based on economic necessity, but preference.
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Can You Afford to Retire Early?
Start Saving Early
Financial planning for early retirement should start early and be more aggressive than if you were to wait for your pension social security income to kick in. If you can live on 50 percent less, financial planner Charles Farrell suggests saving 12 times your income by the time you’re 60. Up the savings to 17 times your income if you want a more generous lifestyle. Start early with frugal living habits to simplify both saving for retirement, and achieving it.
Aside from your retirement savings, your biggest asset is likely to be your home, especially if you own it outright. Selling it and buying something smaller and less expensive could net you a windfall. Moving from an expensive neighborhood or city to an affordable location saves substantial amounts of money, which might be your fastest path to early retirement.
When moving down, choose a home based on your current needs, and watch out for hidden costs. A low-maintenance town home or condo might appeal to you for lifestyle reasons, but most require monthly homeowner association (HOA) fees to pay for upkeep and amenities.
Investing some of the profits from your exiting home sale in another property as a rental unit could provide a secure, relatively passive income stream. Besides paying for itself through monthly rent payments, the property’s value will likely increase over time and give you tax benefits, too.
Make Lifestyle Changes Early
- Learn to eat cheaper. Assemble the equipment you’ll need to cook easily and successfully at home. Not only will you save a fortune, your health is likely to improve, especially if you cook from scratch.
- Stay comfortable for less. Maintain your HVAC system and water heater on a regular basis. These must-have appliances are expensive to replace and consume more than half of your monthly energy budget.
- Discover entertainment values. Thanks to streaming video, you won’t have to sacrifice TV time by cutting the high cost of cable or lose out on premium entertainment. Streaming sticks and smart TVs give you access to unlimited programming for less.
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Get Your Insurance In Order
- Before you leave your job, explore your health insurance options. At the time of this writing, the Affordable Care Act is still in place, and it offers coverage at rates based on your income, not your net worth. If you will qualify, you could receive a subsidy, which is different than the proposed tax credits.
- If you’ve been carrying higher liability limits on your car insurance, or the cost is based on your annual mileage, check with your agent. You may be able to qualify for a lower premium when you’re no longer commuting or need high liability for work.
Never Say Never
You may plan to quit your job and retire early, but unless you’re 100 percent sure you’ll never need an auxiliary income stream, be open to working as a consultant or on special projects. Instead of pulling the plug on all your contacts and professional memberships, stay involved and informed about the industry.
Talk to one of our investment specialists to learn how JWB can help you earn passive income through long term real estate investing.