How to Plan an Early Retirement

An early retirement is a dream that a lot of Americans have. Making that dream a reality will require a lot of careful planning and preparation. Planning will help you see what you will need to do to be able to retire early.

The first and most important step in planning early retirement is to decide how much money you will need. Sit down and figure out what your expenses will be including taxes, recreation, vacations, housing, food, insurance, medical costs and anything else you can think of. A good rule of thumb is to add 10% to this figure in order to compensate for inflation and unseen expenses. Then determine what your retirement income will be and subtract the expenses from the income. If the expenses exceed the income you probably cannot afford to retire early.

Income and Expenses

You will have to determine how to adjust your income and expenses so you will be able to retire early. This could involve reducing expenses by moving to a smaller home or a different part of the country. It could also involve increasing your savings and investments to give yourself a larger retirement income.

A method of doing this could be moving to a state with no income tax such as Wyoming or Nevada or a state where retirement benefits are not taxed such as Arizona or North Carolina. Another alternative would be to move to a state with lower living expenses, such as a warmer state where you would not have to heat.

Be Realistic in Your Planning

Be as honest and as realistic in your planning as you can be. This means to plan for every contingency including the worst case scenario. Do not assume that all of your stocks will always increase in value or that you will be able to sell your real estate for a high price. Instead devise a plan for what to do if these investments lose their value.

A good way to plan for falls in the value of such investments is to purchase fixed annuities that always pay the same amount or variable annuities. Some variable annuities even lock in higher rates of return. Another advantage to annuities is that they are tax deferred so purchasing them always you to save more for retirement.

Start Planning and Saving Now

If you want to retire early you must start planning and saving now. Start investing and saving for it now. Even if you can only invest a small amount do it and keep doing it. Also try and invest any extra funds you get in tax-deferred investments such as annuities. Variable annuities have a higher rate of return so they are ideal for this purpose.

Start planning immediately by gathering as much information as you can. The more research you do the better. Research everything carefully including investments, where you plan to live and what you plan to do. Then draw up a plan and start trying to follow it.

The retirement plan should also be flexible so it can be changed if conditions change. Plan for everything including the worst case scenario, such eventualities as falls in real estate value, job loss, bear markets and business losses should be figured in. The more flexible the plan is the easier it will be to change later on.

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