The largest dream that anyone could ever have is retiring early; making such a dream a reality requires a strategic approach coupled with disciplined execution. Here's a step-by-step guide to get you going.
1. Set a High Savings Rate
The ability of a person to retire early is highly dependent on one's savings rate. The larger the portion of one's income that is saved, the quicker the wealth required for early retirement will be built up. Whereas the average American saves around 4% of his earnings, financial experts advocate saving between 10% and 15%. For early retirement, however, this has got to be much higher. Proponents of the FIRE movement-the Financial Independence, Retire Early-movement-oftimes save between 50% and 70% of their income. Reaching such a high savings rate requires significant shifting in both spending and saving habits. It is, however, a necessary one for achieving early retirement.
2. Maximize Your Income
While a high income is not required for early retirement, it undoubtedly makes life easier. In a survey conducted by Empower, the average American equates financial independence with an annual income of approximately $94,000. Obviously, the more one earns, the greater the potentiality for savings and investment. You can increase your income by working extra hours, looking for promotions, or shifting to higher-paying jobs. You can also take some supplementary incomes, freelance work, or investment in such instruments that generate income. For example, you may change part of your house for earning purposes, such as offering accommodation through Airbnb services, to supplement your incoming resources.
3. Keep Your Spending in Check
Spending control is as crucial as maximizing saving. Such slashes on discretionary expenses as dining out less, reducing streaming services, and canceling unused memberships will free more money for savings. Large savings may involve big expenditures, such as housing, which may be the largest expenditure a household will ever incur. Downsizing to or relocating to a more affordable living arrangement would result in large-scale savings. Living a minimalist life, as Joshua Fields Millburn says, can also do the trick: "Now, before I spend money I ask myself one question: Is this worth my freedom?"
4. Invest Wisely
Investment forms the very core of achieving early retirement. The strategic way to nurture savings is by investment. Put more money in 401(k), IRA, and HSA accounts to maximize retirement account contributions. Diversify investments across a number of asset classes such as stocks, bonds, mutual funds, etc. High percentage investment per month, or the earlier it starts, helps the growth of your savings significantly, hence making early retirement more achievable.
5. Estimate Your Retirement Expenses
Next, project your future expenses. Include necessary expenses like housing, food, utilities, transportation, insurance, and healthcare expenses. You would hope to retire without any debt, but if this cannot be the case, include any remaining debt payments. Don't forget those discretionary expenses for entertainment and travel. Having a more realistic idea of what expenses will be goes a long way toward helping you understand how much you must save to finance the lifestyle you imagine in retirement.
6. Determine How Much You Need to Retire
After you have some sense of how much money you will be spending on a monthly basis, calculate what you will need to save for. One rule of thumb in doing so is aiming for 25-30 times your annual expenses plus enough money to cover a year's worth of expenses in cash. If your annual expenses are $60,000, this means you would want between $1.5 million and $1.8 million to retire plus $60,000 in cash. Another way to do it is to divide your annual expenses by 4%-the safe withdrawal rate-which, for a $60,000 annual budget, would put your nest egg at $1.5 million. If you want a larger cushion, use a 3% withdrawal rate.
7. Adjust Your Current Budget
To make up for any shortfall between where you are now and where you want to be, you have three choices: spend less, earn more, or do both. Set up a budget to monitor where your money goes and where you can cut back. The simpler you can make budgeting, the better; consider budgeting apps. The more you can save now, the more you can earn, the earlier you will be able to retire and enjoy the freedom of early retirement.
8. Max Out Your Retirement Accounts
Contribute the maximum to retirement accounts: You can contribute up to $6,500 a year to an IRA ($7,500 if you're 50 or older) in 2023. For 2023, you can contribute up to $22,500 annually into a 401(k), $30,000 for those 50 and over. Take advantage of any employer matching contributions; after all, this is just free money building your retirement savings.
9. Work With a Financial Advisor
Given that planning for early retirement is both a complex and quite lonely process, professional support from a financial planner will be invaluable. The planner will be able to help with an individual investment plan, work out how much one needs to invest per month, and reduce the streams of income after retirement. A compatible advisor offering retirement planning expertise could make all the difference in your attempt to meet your goals and make your funds last throughout your retirement.
Follow these steps, and you'll be well on your way to creating a solid foundation for an early retirement-in other words, the freedom and flexibility of a work-free existence well before you could reasonably envision it.
Start Planning for Your Golden Years with Compound Real Estate Bonds
As you envision your golden years, it's crucial to make strategic investments that ensure a secure and comfortable retirement. Compound Real Estate Bonds offer an excellent opportunity to achieve this, providing a robust 8.5% annual percentage yield (APY) on your investment. This high return rate can significantly enhance your retirement savings, allowing you to enjoy the lifestyle you've dreamed of.
Investing in Compound Real Estate Bonds not only offers impressive returns but also comes with a range of additional benefits. Our bonds are backed by real estate assets and U.S. Treasuries, ensuring stability and security. You can start investing with as little as $10, making it accessible regardless of your current savings level. Plus, there are no fees associated with our bonds, and you have the flexibility to withdraw your funds at any time, giving you control over your investment.
Additional features include auto-investing options, which help you manage your investments effortlessly, and round-up features that allow you to invest spare change from your everyday purchases. These conveniences make it easier to stay on track with your retirement goals.
By choosing Compound Real Estate Bonds, you are not only securing a high yield but also gaining peace of mind with a flexible and user-friendly investment solution. Start planning for your golden years today and watch your retirement savings grow with us.
