Setting retirement goals and planning for retirement is essential for any individual, but is particularly important when you need to retire at a younger age. By starting early and planning in advance, it is easier to reach retirement goals and plan for a realistic future.
Although the best plan of action depends on several factors, there are some simple ways to start the process of saving for an early retirement, and keep your finances safe throughout.
Set a Monetary Goal
Retirement planning often requires a specific figure that is appropriate for personal expenses for the rest of your life. Generally, an individual or couple should expect to withdrawal around 4 percent or more per year for their entire life, so the income from investments and savings must meet or exceed living expenses when around 4 percent is taking out throughout the year.
Set a final figure, and then identify appropriate savings for each year. Keep in mind that investments provide income that compounds over a period of several years. As a result, it is easier to reach the final goal when the extra funds are invested early.
Set a Savings Goal
A savings goal is not the same as the retirement goal. It focuses on the amount of money that is available each month and how much you are willing to save. If over-spending is a concern, then have the money removed before it is available for the bills and other expenses. For example, if an employer offers a 401K plan, then take advantage of the plan and put aside the company match or a higher amount.
For an early retirement plan, focus on saving as much as possible for investing. In some cases, it is necessary to set aside luxuries. For example, opt for a used car instead of a new one to reduce the costs and put aside more money in savings. Small luxuries, like a cup of coffee at a coffee shop, or impulsive purchases, are appropriate if they are only occasional treats.
Put Aside as Much as Possible
Putting aside a small amount of funds each year will add up if you start at a young age; however, putting aside a large amount of income will make it easier to reach a personal goal at a faster rate.
Early retirement requires a large amount of funds to last for a longer period of time. Even if it is only possible to set aside $5,000 in the first year, put the entire amount aside for retirement. If personal income increases due to a raise or bonuses, then take advantage of the savings opportunity. Maintain the same standard of living or only add small increases in overall monthly costs. Put aside the extra income for retirement.
Invest the Savings
Investing is essential for the growth of a retirement account. Avoid the idea that investing in a house is the primary goal; instead, put the savings into a diversified portfolio.
Never put the entire savings amount into one stock, fund or investment. Wait on a house until the retirement account is established.
Pay Off Debts
Although saving is a key part of retirement planning, debts add up due to the interest. It is particularly important to pay of high-interest debts like credit cards because the cost of the debt can drain any returns from personal investments. Do not carry debts forward into retirement; instead, work on a plan to pay off the full cost of mortgages, credit cards, student loans or other debts as early as possible.
Saving for retirement is not difficult, but it does require careful planning. Start saving at a young age by creating a realistic savings plan based on personal income and expenses. Setting aside money early will provide the chance to retire at a young age.
Nice tips! I agree that we also need to plan for the specific figure of the amount that we want to reach for our retirement fund. I enjoyed reading your post. Thank you so much for this tips!
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