Prepare for Early Retirement

Retiring early requires a lot of patience and the plans should be implemented from a young age. To prepare for early retirement the plans need to be broken into 2 separate stages, namely before retirement and after. This allows the person to analyze how much money will be needed before he or she can retire and how that money can be accumulated.

Steps

Calculating Cost of Retirement

  1. Find out how much money you need to retire. Take the following factors into consideration to calculate your retirement expenses.
    • Inflation rates: What is the predicted cost of living for the age when you plan to retire? The US Bureau of Labor Statistics and other governmental organizations publicly present annual reports to help you predict this cost.
    • Location: Living cost varies greatly due to differing tax rates, housing and daily household purchases depending on where you live after retirement.
    • Continuing Work: Do you plan to work after retirement? Having a part-time job after retirement not only helps you manage retirement costs but also gives you a healthy daily routine to fight boredom and lethargy.
  2. Add up your predicted retirement expenses to come up with an estimated annual budget that will need to be met in order to retire.

Early Retirement Planning

  1. Start to plan early. Many retirement plans take time to mature and early investments will yield more benefits. Here are some options you can consider to save or invest money for retirement.
    • Pension plan: Ask potential employers if they offer a pension plan that will pay for certain benefits after you retire. Give preference to accepting jobs that offer a pension plan.
    • Employer's retirement plan: Explore retirement plans offered by your employer such as a 401(K) plan. Your employer will contribute a share of the money that you invest towards retirement, which will lower taxes for you and your employer. You will only be able to access the money after retirement but you will end up getting more than what you contributed.
    • Banking: Invest money in bank accounts with high interest rates. The more money you invest, the more you will earn as interest. If you can make long-term investments, you may want to open a Roth IRA (Individual Retirement Account) that can accrue interest over a long period of time and you are not required to pay taxes on any of the earned income as long as it is not withdrawn before retirement.
    • Real estate: If possible, buy a house that you can live in after retirement. Purchasing a home when property values are low will help you cut down your monthly living cost considerably after retirement.
    • Social Security: Pay taxes regularly before retirement. This will help you earn Social Security points and you can apply for Social Security benefits after you retire. On average, Social Security pays approximately 40 percent of what you earned before retiring as benefits to help you manage your cost of retirement. Applications can be filled and submitted online through the official website of the US Social Security Administration.

Tips

  • Consider getting life insurance if you plan to retire with a spouse. The life insurance will pay you in case something happen to your spouse.
  • Most retirement health plans do not include optical and dental coverage. Try to get your dental and optical needs taken care of at an early age when optician and dentistry services may be covered by your employer's health insurance.
  • Retiring early, whether it is in your 30s, 40s, or 50s requires commitment and persistence. After you have made plans to prepare for early retirement you must prioritize and focus on the goals that you have set for yourself. If you plan to retire early, you must also start saving and investing at an early age.

Warnings

  • Retirement accounts can charge penalty fees if you withdraw funds before you retire. Make sure you understand the policies and penalty fees of an account before signing up.

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References

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