Retire Early: The 5 Step Guide to Relaxing Earlier
For many Americans, the idea of early retirement is pure fantasy — many surveys suggest that a good portion of us are convinced we’ll never be able to retire at all. But what if retiring early isn’t quite as insurmountable an obstacle as you think? Here are 5 tips to help you retire early.
1. Determine What Kind of Lifestyle you Want in Retirement
Before you start running the numbers on how to retire early, you need to know what you want to do in retirement. That dream will determine your budget. Do you want to travel the world? Then you’ll need a big budget. Want to travel to see grandkids? Open a business? Do volunteer work? Take the family on a huge vacation? Each of these dreams carries a different price tag.
Be realistic with yourself and try to envision what you want your life to look like and only after that, start budgeting how much you will need to get there.
2. Brainstorm Additional Income Streams
- Consider purchasing a rental property that pays a monthly income
- Become an investor in a business
- Write a book or start a blog that can be advertised across online platforms
3. Shift your Mindset on Spending Money
In this curse of consumerism, you buy something expensive, feel excited, and then scout for something else to purchase when the “new car smell” wears off. And it’s a huge trap if you want early retirement. Cutting expenses frees up more money to pay down debt and set aside for savings. This will also condition you to live on less money, which will come in handy during retirement.
- Review and cut any subscriptions you don’t need
- Don’t buy anything unnecessarily extravagant e.g., any designer brands or luxury items
- Do activities that aren’t centered around spending money. For example, instead of going shopping, go to the beach, for a hike, or a picnic.
4. Redefine ‘Comfortable Retirement’
Less spending later constitutes the flip side of less spending now. If you imagine comfy retirement as a vacation home and monthly cruise ship trips, revisit that vision so you don’t have to bleed cash — but can still retire in style. Instead of two homes, for example, why not live in your vacation destination and pocket the principal from selling your primary residence?
5. Pay off all your Debt Before you Retire
That’s right, all of it.
First: Is it time to pay off your home? You might not have the resources now to plunk down one huge check, but consider savvy alternatives such as switching from a 30-year to 15-year mortgage. Monthly payments aren’t much higher, but the principal payoff is much greater.
Second: Do the same with loans and credit cards, as high interest eats up income faster than termites chewing a log. A credit card balance of just $15,000 with an APR of 19.99 percent will take you five years to eradicate at $400 a month — and you’ll dish out a total of $23,764.48, the calculator onshows.