If you’re in the middle of your career, you’ve probably given some thought to retirement. Whether you imagine a post-career future of traveling or pursuing a particular passion or interest, or whether you simply dream of the day when you don’t have to commute to an office five days a week, you probably have a few ideas in mind about what your ideal retirement looks like.
But have you put any thought into when you want to retire? If you’ve always envisioned retiring early – say at age 60 or younger – it’s important to make sure that you’re doing everything you can to make an early retirement a reality. But how do you lay the groundwork for retiring early?
It’s not easy. Retiring early takes a lot of planning – and a lot more determination. It’s not impossible, though. With the right strategy, you can avoid some of the common obstacles that get in the way. And if you are dreaming of an early retirement, avoid these common obstacles:
• Not saving enough. Most people don’t save enough money, period. But if you want to retire early, saving should be your number one priority. And I don’t mean 10 percent of your paycheck, either – I’m talking 20 or even 30 percent (or more, if you can manage it). Of course, if you want to save more, you’ll have to learn to buy less junk, which leads to our next obstacle . . .
• Buying too much stuff. If you read this blog regularly, you know that I’m not opposed to the occasional splurge. There’s nothing wrong with treating yourself every now and then. But let’s face it: A lot of people have trouble limiting spending to “now and then.” And if you want to retire early, you have to be willing to give up a lot of extra spending in order to put more of your income in savings.
• Not budgeting. This goes hand-in-hand with the “not saving” and “buying too much stuff” obstacles. I’m a big fan of budgeting in general, and I think it’s the only real way to accomplish most financial goals, whether you want to pay down debt or bulk up your savings account. If your goal is early retirement, a budget is critical. Not budgeting? If you want to retire before age 60 or so, you need one. Pick a budget that you like and that you can live with — and stick to it. Already have a budget? Consider reviewing it to see if you can cut any expenses to save even more for retirement.
• Living above (or just within) your means. If you want to retire early, you must, must live below your means. This means not buying the biggest house you can afford or driving the fanciest car in your price range. It means saving much more than you spend, and being okay with not having the newest, flashiest stuff. It’s a trade-off, but if early retirement is your goal, it will be worth it in the long run.
• Not thinking enough about your ideal retirement. Most people who fantasize about retiring early have very specific ideas about how they want to spend their time. Do you want a condo in Hawaii? Do you want to fly across the country three times a year to visit your kids and grandkids? Do you dream of indulging in an expensive hobby like flying lessons or sailing? If your retirement plans include hobbies, travel, or anything else that costs a significant amount of money, you’ll need to make sure that you save up enough cash to do those things.
• Not considering the drawbacks of retiring early. If you’ve ever had a bad day at the office or just felt burned out in general by the daily grind, it’s easy to imagine walking away from it all while you’re still young enough to enjoy it. But don’t let the fantasy of early retirement get in the way of the realities. There are some definite downsides to not working until you’re a little older. One huge drawback? If you’re under 65, you probably won’t be eligible to collect Social Security benefits. Same goes for Medicare. And if you dip into your retirement savings early, be prepared to be hit with a pricey penalty. This is why detailed planning and careful budgeting are so important!
If you want to retire early, the best strategy is to start saving as early as you can, and to save as much as you can. Ideally, folks who want to retire early should start saving while they’re in their 20’s. But that’s not to say that 30-somethings can’t catch up – but they will have to work a little harder to catch up.
And if you don’t think early retirement is right or realistic for you, you may want to consider a compromise: Consider working a few more years (say, retiring at 63 or 64 instead of 60). Or, think about working part-time and spending a few years in “semi-retirement” – you’d have some time to pursue other interests but you’d still be earning some money, too.
Retirement may seem far away, especially if you’re still years away from it. But whether you dream of retiring early or working until you’re 75, it’s important that your budget, spending habits, and savings are working together to help you meet that goal.
Here’s to a happy retirement!