You’re plugging along the working treadmill and considering the question, “Can I retire early?” Maybe the job is getting a bit tiresome, or maybe you’re looking to move into the next stage of life.
If you have a decent nest egg started and are still socking money away in your 401(k) and IRA accounts, then you might be able to retire early. Check out these 10 ways to retire 10 years early.
Read: How to Retire Before 50
1. Evaluate Your Current Situation and Set Goals
As with any plan, an early retirement requires that you figure out your end goal. Before exploring how to retire early, tally up your current net worth and how much you’ll need to retire. That way, you have a concrete dollar amount to shoot for.
On Wall Street Journal.com, John Clements offered a clear explanation of factors to consider when calculating your net worth. With current finances in hand, use an online calculator to determine how much your money will be worth at your expected retirement date. Keep rate of return calculations reasonable.
2. Consider Where to Retire
Where to retire early also requires planning. Think about your priorities: What type of weather, location and activities do you prefer?
Find a place to retire that fits within your budget and interests. There are numerous low-cost places to retire in the U.S. and abroad. Consider not only housing, food, and entertainment expenses, but also the expected tax burden.
Think a beach location is out of reach? You’d be surprised at how affordably you can live in Corpus Christi, Texas, or Punta Gorda, Florida.
3. Plan for Part-Time Work in Retirement
Although retirement might seem like the perfect answer to all of your workplace woes, there is also a downside to retirement. You might lose self-esteem without your 9-to-5 gig. Some folks feel lost when they separate from their work pals. There’s even evidence to suggest that early retirees might suffer negative health.
“Those who work and are active are less likely to develop diseases associated with aging,” Paul Irving wrote on MarketWatch.com. “They have a greater possibility of living longer lives, mostly free from disability.”
The early retiree who works part time has more money and gains the chance for better mental and physical health.
4. Max Out Your 401(k) and IRA Contributions
This solid strategy can reduce your current tax liability and allow your money to grow tax-free until you take it out during retirement. On the surface, this strategy seems ideal, but watch out for potential pitfalls.
Except for special circumstances, if you withdraw retirement money before age 59½, you might be hit with the 10 percent early retirement penalty. To avoid the penalty, leave some money out of retirement funds to access before you hit 59½.
5. Develop Multiple Streams of Income Now
Whether you plan to use investment income — such as dividends, capital gains or other passive income — multiple streams of income can be a support for early retirees.
When investing, look to high-yield funds such as real estate investment trusts and dividend exchange-traded funds. Consider investing in rental real estate now for the future cash flow.
6. Get Into the Budgeting Habit Now
With money rolling in every month, you might avoid budgeting. But if you get in the budgeting habit now, you’ll be surprised at the extra cash you can add to your retirement nest egg. The more you practice a habit, the easier it becomes.
Plus, apps can make budgeting easier and fun. Check out this list of the best budgeting apps for retirees.
7. Pump Up Your Returns
Rick Ferri, a chartered financial analyst and founder of Portfolio Solutions in Troy, Mich., analyzed the payoff in retirement between saving a lesser amount at a higher return and saving a greater amount at a lower return.
It turns out that if you’re about 45 or older, you’ll end up with more retirement dollars going for a higher return — or taking a bit more risk to garner greater returns.
“If you really want to retire 10 years early and you had a choice between saving more or being more aggressive with your portfolio, you should be more aggressive,” he said. “That being said, doing both — saving more and being aggressive — is probably your best option.”
You might want to invest part of your savings a bit more aggressively to boost your returns, but as Ferri alluded to, a higher-return strategy might not pay off. With equity valuations a bit lofty at present, now’s not the time to plunk a lot of cash in stock markets.
8. Do a Values Deep Dive
Few people have enough money to buy everything they want now and later. Yet, you might be surprised to discover that if you figure out what matters to you, retirement will cost less than you think.
Ultimate Cheapskate columnist Jeff Yeager wrote about how he was able to retire at age 47.
“What I am is pretty smart about is figuring out what’s important to me in life, so I don’t waste a lot of money and time on things that I ultimately regret,” he wrote. “And while I might not be a very savvy investor, I am a very astute spender. I know the difference between ‘value’ and ‘price,’ and I know how to find the best value whenever I pull out my wallet and fork over some of my hard-earned cashola.”
9. Learn About Social Security Hacks
Social Security is the government’s wonderful safety net. If you learn how to maximize this precious resource, you can significantly boost your lifetime income. The trick is to create enough income until you claim your Social Security payments.
Consider delaying Social Security payments to maximize total retirement income. If you cobble together enough other income sources to bridge the gap between early retirement and age 70, then you can expect $100,000 or more between ages 70 and 85, assuming a $1,000 monthly full retirement age payment and $1,320 at age 70.
10. Live Cheaply Today
If you’re committed to retiring 10 years early, slash costs now and divert the savings into your early retirement fund.
Your home is your biggest expense. Transition from a three- or four-bedroom home to a two-bedroom home or apartment. Savings might top $1,000 per month. Ditch the luxury model ride and go economical. This tweak might save you several thousand dollars per year.
Add other cost savers to these two changes to sock away a total of an extra $20,000 per year. That extra money saved over 10 years can fund three years of retirement expenses in a low-cost area.
Retiring 10 years early sounds great, if you’re willing to make a few lifestyle changes and adopt the right mindset. First, assess where you are and where you want to be financially and personally. Then walk the path to make early retirement a reality.