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Many people say they want to retire early, and some even do. Want to join them? Here are our tips for grabbing that coveted early retirement.
Live differently—Save more
To retire early, you most likely have to save at a much higher rate than others.
Why? Because you have less time to save. And you’ll be relying on your savings for more years in retirement. This may mean saving 20% to 25% of your pay over most of your career. (Employer contributions can count toward this total.)
Can’t save as much as you’d like to now? That's understandable. Consider raising your savings a little each year. Do this after getting a raise, and you might not even notice the difference.
Why? Because you have less time to save. And you’ll be relying on your savings for more years in retirement. This may mean saving 20% to 25% of your pay over most of your career. (Employer contributions can count toward this total.)
Can’t save as much as you’d like to now? That's understandable. Consider raising your savings a little each year. Do this after getting a raise, and you might not even notice the difference.
To save big, think big
Many super savers get that way by living a thrifty lifestyle, often significantly so.
Research suggests that the key to living under budget is getting the big items in the budget right. Purchase a home you can easily afford. Try to avoid lengthy car loans. Don’t run up credit card debt.
This doesn’t mean you can’t have fun. You need—and deserve—to enjoy life now, not just in retirement. But have fun that fits with your goal of saving like a champion.
Research suggests that the key to living under budget is getting the big items in the budget right. Purchase a home you can easily afford. Try to avoid lengthy car loans. Don’t run up credit card debt.
This doesn’t mean you can’t have fun. You need—and deserve—to enjoy life now, not just in retirement. But have fun that fits with your goal of saving like a champion.
Consider a side gig
Some early retirees work part-time, and stay active, doing things they love. Dog walking. Freelance writing. Giving cooking lessons. Small streams of income can ease how much they rely on their savings.
Others top off their savings by downsizing. They might sell their house and buy a smaller one and pocket the savings for early retirement. And, if you’re up for a change, you could consider moving to an area with a lower cost of living and a cheaper housing market.
As you're considering early retirement, don't forget Social Security. You can file for retirement benefits as early as age 62. Or you can wait up until age 70. The longer you wait, the higher your benefits will be for life.
Others top off their savings by downsizing. They might sell their house and buy a smaller one and pocket the savings for early retirement. And, if you’re up for a change, you could consider moving to an area with a lower cost of living and a cheaper housing market.
As you're considering early retirement, don't forget Social Security. You can file for retirement benefits as early as age 62. Or you can wait up until age 70. The longer you wait, the higher your benefits will be for life.
Test-drive your budget before you retire
Many early retirees plan on living the simple life and cutting their expenses dramatically in retirement. If that’s your plan, take it for a test drive to make sure it suits you.
One good method is to draw up a sample budget for your retirement years. See if you can live on it for one or two years.
Some people find they can easily live on less in retirement. But others discover that costs are higher than they expected. Especially if they travel often or have health issues.
One good method is to draw up a sample budget for your retirement years. See if you can live on it for one or two years.
Some people find they can easily live on less in retirement. But others discover that costs are higher than they expected. Especially if they travel often or have health issues.
Consult a financial professional
Another way of finding out if you’ve got enough money is to double-check your figures with a financial professional before retiring.
Have a plan for health insurance
How will you get health insurance? Know before you retire.
Your insurance premium could be as much as a mortgage payment. But dropping coverage is a huge risk. Just one emergency could undo years of saving.
Your insurance premium could be as much as a mortgage payment. But dropping coverage is a huge risk. Just one emergency could undo years of saving.
Under age 65?
You can extend your employee health insurance for 18 months after you leave a job. This is possible under a federal law known as COBRA. Continuing your current coverage can be straightforward, but it may be expensive as well.
Many Americans under age 65 get group insurance coverage under the Affordable Care Act. The premiums may cost less than those for COBRA. But keep in mind they still present a big cost of early retirement, especially when you factor in copayments and deductibles.
Sign up for Medicare at age 64¾
The month you reach age 65, you’ll be eligible for Medicare. Medicare usually costs less than private medical insurance. But to obtain blanket coverage, most retirees combine several types of insurance:
- Medicare Part A (hospital).
- Medicare Part B (doctor and outpatient care).
- Medicare Part D (prescription drugs).
- A Medicare supplemental plan that pays some of the copays and deductibles that Medicare charges.
Take care of competing financial obligations
Pay off the mortgage
If you pay off the mortgage before you retire, your monthly living costs could drop significantly. (You’ll still have property taxes and insurance to pay.)
Wipe out other debts
There’s a peace of mind that comes from paying off your credit card balance or your car loan. When you’re debt-free, you can live on less. And that can help you afford an early retirement.
Have college costs covered
Will your loved ones go to college? That can be a huge expense. So it’s best to have it accounted for before you retire. That means having a clear take on how much you can—and cannot—pay, as well as making sure no one gets mired in debt earning a degree.