If you are one of those people who are planning for an early retirement, maybe a good baseline would be to learn what it would take, and how to retire at 50. Understanding the various costs you’ll have to be ready for as well as setting realistic expectations that match your lifestyle and desires will help you to calculate how much you will need for an early retirement. Let’s take a look at the possibilities and needs for having an early retirement.
In this article:
- Be a Supersaver and Start Saving Early
- Make Investments That Will Give You Reliable Income
- Maximize Your Retirement Savings
- Consider Cheaper Retirement Destinations
- Stay Out of Debt
Your Guide on How to Retire at 50
1. Be a Supersaver and Start Saving Early
If you plan to retire earlier than most people, then you’ll have to increase the money you set aside in your monthly savings. The bigger your monthly savings, the sooner you’ll reach the goal you’ve determined will cover your retirement needs.
Another important piece of advice to consider is to start saving for your retirement earlier than most people do. Some people put savings for their retirement income on hold until they are 30. If you start at the age of 25, it becomes easier to accumulate your income requirement for your retirement. Also keep in mind the power of compounding interest as this allows your money to grow more the earlier you save or invest.
2. Make Investments That Will Give You Reliable Income
One of the best ways to build your wealth in preparation for retirement is by investing in something that allows you to have a reliable income. Look for long-term investments and start building a secure portfolio of investments that enables you to have passive income. This will be beneficial when you do retire. Some of these investments can include dividend stocks, index funds, peer to peer lending and real estate, among many others.
3. Maximize Your Retirement Savings
To help you retire at 50, you can also maximize your retirement savings by choosing the best IRA that fits your future financial goals. To help you save some money for your retirement savings, take advantage of tax deferments. Withdrawal of retirement savings from Traditional IRAs becomes penalty-free upon reaching the age of 59 1/2 and is taxed as an ordinary income. However, if you make withdrawals upon retirement, this means you’ll likely be at lower tax bracket and therefore paying lower taxes on the money. In cases of Roth IRAs, withdrawals are tax-free upon reaching 59 1/2 years. Since this is 9 years beyond our desired retirement age of 50, in order to avoid penalties from pulling money out early, ensure you have alternative forms of income that are not solely dependent on IRA savings. Then when you do reach the age of 59 1/2 you’re able to plan for a boost in income, providing another layer of financial security.
4. Consider Cheaper Retirement Destinations
If you think you’re low on retirement savings and yet you still want to retire early, consider looking for cheaper retirement locations. Retirement destinations with low-cost housing, a more affordable cost of living, and low-cost health care will allow you to make a comfortable life. One of the cheapest places to retire in the US is Savannah, Georgia where the cost of living is 14% below the national average. Additionally, it is also one of the most tax-friendly states in the country.
5. Stay Out of Debt
We all know crippling debt can be, especially over time with interest rates. If you’re trying to achieve a financial goal like retiring early, you should try to avoid acquiring loans. Loans require monthly payments, and if you are trying to save a big chunk from your paycheck, then it becomes harder to reach your goals. It is also not ideal to pay loans that have high-interest rates when these interest payments are better off allocated for your savings account or investments.
If you’re wondering how to retire at 50, and if it is even possible, the answer is completely dependent on your actions now. Some necessary adjustments to lifestyle and financial management are in order, but it is definitely possible. By following the tips mentioned above, you increase your potential to achieve retirement sooner than you expect.
Do you know of any effective strategies on how to retire at 50? Share your thoughts and experience in the comments section below.