Retirement Planning

How to Retire Early

If you're dreaming of an early retirement, this article offers tips on things to consider to make that dream come true. There's no magic formula, but you can develop a realistic plan.

Three Considerations for Planning an Early Retirement

For many Americans, early retirement is just a dream. In fact, according to a recent study by Wells Fargo, 37 percent of Americans don't ever expect to retire.¹ But retirement- even early retirement - is achievable with a plan, and there are things you can do to get that much closer to living the lifestyle that you want. The following are three points to consider when planning for an early retirement.

1. Determine when you can retire

For some, early retirement means leaving the job at age 40; for others, age 55. Whatever the number, your target age or date should be based on how many years of retirement income you'll need. In other words, you need to do the math. For example, if you plan on retiring at 55, will you have enough to live off of for the next 20 plus years?

And there are other income and expense factors to consider. For instance, do you plan on taking Social Security early to help supplement an early retirement? If so, keep in mind that drawing Social Security before age 70 means you'll have less income to work with. And leaving your job early means you also need to consider that you might be footing the bill for your health insurance until you're eligible for Medicare at age 65.

2. Know your numbers

Use a retirement calculator or meet with a financial advisor who can help you estimate what you might need in order to retire early based on your target age/date and existing assets. The idea is to know what the differential is so you can see if retiring on your target date is feasible.

For example, if you planned on retiring at 55 and the gap is wider than expected, it may still be possible to retire early. However, you may need to supplement your income by working part time. But if doing any type of work isn't your idea of retirement, you may need to revisit your target age/date. This would also be a good time to review your investment portfolio (and even your household budget) to find additional sources of generating more retirement income and better ways to save more.

3. Make a retirement plan and invest wisely

Creating a retirement plan will reveal the actions you need to take to prepare for a financially secure future. This could be something as simple as creating a household budget. And while it's not always easy to pay the bills and still save for retirement, a budget can help you look strategically at where you can be smarter about your investments.

For example, are you maxing out your employer-sponsored 401(k)? Yes, it means you'll have less take-home pay, but the tax savings benefits will partially offset that figure. And if you're age 50 or older, you can take advantage of catch-up contributions so you can save even more. Does your employer have a matching program? The money your employer is matching is essentially free money, so the more you put in, the more they'll match/contribute up to a predetermined limit.

When setting your sights on an early retirement, there really isn't a magic formula to follow. But what you can do is determine a realistic target date, know how much you'll need to live on, and get smarter about where you should be saving by creating a plan and working within a budget.

 

1. Wells Fargo Middle Class Retirement study conducted by Harris Interactive of 1,000 middle-class Americans between the ages of 25 and 75, 2013.

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. Financial planning alone will not ensure an early retirement. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

How to Retire Early

Everyone dreams of retiring early but how do you make your dreams a reality? Simply saving isn't enough anymore. Through this article you will discover how to retire early by determining when you can, working the numbers and planning early so that you may utilize your money wisely. For more information, visit our learning center.

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