Early Retirement – What You Need to Know and Do in Order to Retire Early
While some people dream of retiring early, others make it a reality. What are the differences between those who are able to retire early and those who are not? There are several key strategies to implement that will improve someone’s chances of being able to retire early.
1. Take Advantage of all Employer Sponsored Retirement Plans
If your employer offers a retirement plan, consider taking advantage of pre-tax savings out of your pay checks. You can typically determine a percentage to have deducted from every pay check. If your employer offers a matching program, where they will contribute up to a certain percentage of your contributions to the retirement plan in addition to your own, take advantage of it. This money is free money and will enhance your ability to retire early.
2. Start Early
One of the most commonly overlooked concepts when it comes to retirement planning is the importance of starting early. The reason that this is so important is the power of compounding. Compounding refers to the reinvestment of dividends or interest into an account, allowing the account to earn interest on a higher balance each and every year. This method of investment can reduce your retirement by years when a person starts investing earlier. So, start saving for retirement as soon as you can, with whatever amount that is feasible.
3. Establish Non-Qualified Investments
In addition to qualified retirement plans, wherever possible, if you can save into non-qualified plans, this will assist in your ability to retire early. Also, if you have the option to select a tax deferred account over a taxable account, this can also increase your opportunity for an early retirement, as the dividends will continue to re-invest rather than being taxed on an annual basis.
4. Use Tax Free Investments
We are all expected to live longer, creating the need for additional retirement assets than in generations past. We have a few choices to consider in relationship to longer lives, including saving more money or saving more strategically. One of the most strategic methods for is to leverage the power of tax free investments. When compared to a taxable investment, the amount of money that you would need as an equivalent in a taxable investment is substantially more. By saving money into a variety of accounts that have different tax treatments, you will be taking advantage of creating an equivalent income stream in retirement without having to have as much in the way of actual assets.
5. Create Ongoing, Passive Income Sources
In addition to saving in order to improve your chances of retiring early, another method is to create passive sources of income. For example, millions of people every year are able to live very comfortable retirements from their investment property’s rental income. By creating these ongoing, passive streams of income, you can essentially replace your current pay check, allowing yourself to become retired early. In addition to real estate, there are several other possible passive income streams that you could create, including affiliate marketing income from online methods and network marketing businesses either offline or online.
6. Have a Plan
While this seems simple, most people do not have a plan in place designed to help them to reach retirement. Set out targets and implementation steps that you can closely adhere to that will enable you to reach your goal. Review your plan at least semi-annually and make adjustments as needed.
When looking to accomplish the dream of retiring early, take action and start early to make the dream a reality.