There are a lot of moving parts to the American dream. A college education, a great job with even better benefits, socking away money for retirement, buying a home. The cherry on top is retiring early.
What, exactly, is early retirement? For Social Security, the full retirement age is now a lofty 67.
Medicare coverage begins at age 65. Millions of Americans work until that age simply because health insurance is otherwise unaffordable.
A Bankrate survey found that on average, though, Americans believe 61 is the ideal retirement age.
So which age is best for retirement? That depends on countless financial issues that differ from person to person.
What is known is that the earlier you begin taking steps toward retiring early, the more likely you’ll be able to. If early retirement is your goal, here are four tips to get you there.
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1. Invest in Real Estate
Real estate can be a great investment if you plan to retire early. That is, if you’re smart about the way you do it and get the right help to make it successful.
Wholesale investment properties often come with prices low enough to buy, renovate, and flip at a solid profit. The key is to work with someone who understands the market and has access to unlisted properties. Knowing how much to put into your renos depends on comparable neighborhood values.
Cash is king in an investment property world. You’ll need money for down payments, taxes, insurance, interest, and renovation capital. If you have good credit, you can get a loan, then use your profits to keep investing in flips.
If you prefer to hang on to property rather than flip it, you can purchase properties for rentals. Pay it off before you retire, and the rent will be extra monthly income. Having a steady passive income stream to add to your savings and Social Security benefits will make retirement a lot more comfortable.
2. Start Cutting Expenses
Most of us spend our working years acquiring a lot of stuff we really don’t need. Sure, some of it was for kids who are no longer at home or are on their way out. But a lot of it was really just clutter.
Channel your inner Marie Kondo and declutter your life. Once you do, you might discover you don’t need as much square footage. Consider downsizing to a smaller home with less upkeep and lower operating expenses.
Also examine what may seem like minor monthly expenses to see what you can cut or eliminate entirely. Do you need that big-box discount store membership or the highest internet speed now that the kids are gone? Numerous small costs add up.
Look at bigger expenses, too. Will you need to trade in your vehicle every two years when you’re no longer using it for work? Holding on to the same car for longer could mean an end to loan payments and lower insurance rates.
Of course, you’ll want to keep credit cards paid off so you’re not paying interest and fees. This should be easier to do when you’ve cut back on unnecessary spending.
3. Calculate What You’ll Need in Retirement
How much you need to retire is a matter of opinion. Many financial experts believe people need 70%-85% of their pre-retirement income. So, if you earn $75,000 a year when you retire, you’ll need roughly $52,000 to $64,000 a year for retirement.
Of course, calculations will vary widely from individual to individual for many reasons. One of them is age. If you’re currently in your 30s, you have no idea how much you’ll be earning when you’re ready to retire.
Your calculus is also going to depend on what you plan to do when you stop working. If you want to travel, you’ll need significantly more money than someone staying home to putter in the garden. Budgeting the cost of your retirement lifestyle rather than a percentage of employment income might paint a more accurate picture.
Also consider the Rule of 25. Figure out how much you want to spend per year in retirement based on what you want to do. Multiply that amount by 25 — the average length of retirement — and try not to be shocked.
There’s no single magic formula for calculating what you’ll need and no assurances it will be enough. You might benefit from talking to a certified financial planner to get a better grasp on the issue.
4. Have a Health Insurance Strategy
It’s rarely a good decision to ever be without health insurance. This is certainly true as you get older and become more prone to having health issues. Unfortunately, the cost of health insurance in the U.S. keeps a lot of people working until they’re eligible for Medicare.
Letting go of that employer-provided coverage is cost-prohibitive for many people. As one of the most significant costs of retiring early, health insurance must be part of the calculus.
Before resigning yourself to working until Medicare kicks in, look at your options and develop a strategy. Some employers offer retirees health insurance benefits. Because you’re still part of a group, premiums might be reasonable even if you’re paying them on your own.
You may find a reasonably priced plan on the Affordable Care Act’s marketplace. If you’re near age 65, learn what it would cost to use COBRA continuation coverage to stay on your employer’s plan. Or check out short-term health insurance options if your state offers them.
If travel is one reason you want to retire early, consider moving abroad. Healthcare is far less expensive in other countries with top-notch health systems. Not only do you get to start your retirement adventure, you won’t have to worry about healthcare costs.
Get Your Moving Parts Moving in the Right Direction
No matter how old you are, it’s never too early to start thinking about retirement. Moreover, it’s never too early to begin saving and investing for that future.
The possibilities for how you’ll come up with the money you’ll need are endless. That’s a good thing, as one person’s feasible options may be totally out of reach for someone else.
Step one is to devise a plan and anticipate adjusting it over time, keeping the wheels in motion. Forget about the gold watch and look forward to putting your third act in high gear.