3 Key Steps to Hitting That Magic Number for an Early Retirement
Written by
Laura Bogart
Edited by
Kristen Mae
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For many people, retirement feels like a distant dream — a goal you’ll achieve in the far-off future. But if you’re one of those people who long for a life outside the office earlier than most, the urge to retire early can be too strong to ignore. You’re ready to put the pedal to the metal on your retirement savings so you can hit that open road as soon as you can.
Naturally, everyone has a different number in mind when it comes to what they’ll need to retire early. While having more in your retirement coffers is always better, your “magic number” is generally the amount you’d need to live on comfortably for several decades — without the steady income of a traditional job.
Reaching this goal requires more than guesswork. Fortunately, financial expert and TikTok personality Amber DeLeo offers advice to help you identify and hit your magic number for an early retirement.
1. Know Your “Magic Number”
You can’t save to meet your magic number if you don’t know what it is. DeLeo advises that people new to their early retirement savings journey apply the 4% rule to estimate how much they’ll need to have saved to live on for the rest of their lives.
So, how do you apply the 4% rule? You calculate your annual expenses and multiply that number by 25. “That’s your target — that’s the amount you need to have saved,” DeLeo says.
The 4% rule is a widely accepted method of calculating your magic number for retirement. It’s so popular that there’s even an online calculator to help you determine your target number, complete with adjustments for inflation.
2. Get Into the Nitty Gritty
Still, DeLeo encourages a more granular approach to coming up with your own personalized number. While it’s good to have a general sense of the total sum you’ll need, you’ll want to drill down into specific expenses, like healthcare or other medical costs, to ensure you’re adequately prepared.
Taking stock of your family’s history, as well as your own personal medical needs, is essential — even if it’s uncomfortable. This assessment will give you a ballpark of what you should plan on setting aside for healthcare. You may also gain peace of mind, and financial protection, by getting long-term care insurance to help cover the potential costs of nursing home care or assisted living facilities.
DeLeo also wants you to assess your other financial obligations. Will your mortgage be paid off by the time you plan to retire? Do you have any lingering student loans or upcoming college tuition for your kids? Combing through these costs now will help you plan for a smoother transition into early retirement.
3. Consult a Tax Professional
Unfortunately, taxes don’t disappear when you retire. Understanding your potential tax obligations is crucial for ensuring you have enough on hand to cover them while still maintaining your lifestyle.
DeLeo recommends consulting with a tax professional who specializes in retirement planning. She noted that there are professionals who will offer a one-time assessment of your portfolio to help you plan.
Consulting with a trusted financial advisor about any money goal, especially one with such lasting implications as early retirement, is a good idea. If you’re serious about living that retired life early, expert guidance can make all the difference.
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