The most common retirement age in the US is 62 years old. While retiring at the age of 62 sounds just fine for some people, others can’t imagine working decades upon decades before they retire.
Are you one of those people who think that waiting until you’re 62 to retire is too long?
If so, you should start planning now so you can retire young. Believe it or not, you don’t need to have rich parents or win the lottery in order to retire young.
All you need is to start early and to have the right financial smarts.
Check out this guide to learn the top financial tips that will help you retire young.
1. Define “Young”
“Retiring young” means something different to each person. For some people, this may mean retiring at 35, for others, this may mean retiring at 50.
So, before you start your financial planning, it’s important to pick a retirement age.
By picking an age, you’ll be able to set more specific financial goals.
When picking an age, make sure you pick something that’s reasonable. If you’re 24, it’s probably not reasonable to think you’ll be able to retire by 27.
Also, make sure you pick an age that still allows you to enjoy your youth. While it’s important to put away money so you can reach your goals, you don’t want to be putting so much money away that you have nothing left over for entertainment. That will just make you miserable.
2. Tackle Your Loans
Before you start worrying too much about saving, you’ll want to deal with paying off your debts.
For many people, this means credit card debt and student loans. In general, you should focus on paying off your credit card debt first. This is because credit card debt comes with a much higher interest rate.
Also, if your student loans are eating up all of your money, you can look into consolidating them or setting up a different payment plan to help you stay on track.
3. Follow the 50-30-20 Rule
Many people who’ve achieved early retirement swear by the 50-30-20 rule.
For those of you who don’t know, this rule means that you’ll put 50 percent of your income towards necessities (ie, rent, utilities, car payments, etc), 30 percent towards “wants” (ie, vacation, eating out, movies) and 20 percent towards your savings.
Of course, life is expensive and unexpected things come up. But, if you try to follow this rule as best as you can, you’ll be well on your way to an early retirement.
4. Start Investing, Even if You Only Have a Few Dollars
Thanks to the power of compounding interest, a dollar in your twenties is worth more in your thirties, forties, and fifties.
So, as long as the market rises, your investments will gain compound interest, no matter how small they are.
Think of it this way: an investment of $1000 with a 4 percent interest will be worth $1480 in 10 years. That’s $480 you made without having to do anything!
When investing, keep in mind that no amount is too little. So, invest with whatever you can, whether that’s through your company’s 401k or otherwise. And, if you need help figuring out your investments, you can always talk to a financial advisor.
5. Set Up a Roth IRA
A Roth IRA is a special type of savings account that allows you to bypass taxes, as long as you agree to keep your money in this account for a certain period of time. (Typically, you’ll be able to access it after you’re 59.5 years old.)
While you don’t have to keep all of your savings in your Roth IRA, you should certainly put some of it in there. This is because Roth IRAs come with many big benefits, including:
- You get to choose an investment plan for your money. In other words, instead of having your money just sitting there, it’s invested in a portfolio. This means that it can grow much more than if you were to put it in a savings account with a measly 1 percent interest rate.
- Roth IRAs gain compound interest. In other words, by simply letting your money sit for a while in your Roth IRA account, you’ll start generating huge amounts of interest that just keep getting bigger and bigger
- When you withdraw this money at retirement, you don’t have to pay any taxes!
6. Invest in Assets That Will Appreciate Over Time
Investing in assets that will appreciate over time is one of the best ways to ensure early retirement.
Appreciating assets include:
- Small businesses
You should also avoid investing in assets that depreciate, such as cars.
7. Create a Source of Passive Income
Creating a source of passive income is one of the best things you can do for your bank account.
When you’re first setting up your source of passive income, it’ll take a lot of work in time. However, pretty soon things will be running on autopilot and you’ll be making money in your sleep.
Here are some great sources of passive income:
- Affiliate marketing programs
- Rental properties
- Peer to Peer lending
- High-interest savings accounts
- Dividend stocks
- Youtube channels
- Cashback deals
- Selling goods online
The best thing to do is to choose one passive income stream, build it up as best as you can, and then start working on another one.
8. Enlist the Services of a Financial Planner
Planning for early retirement and figuring out your finances can be a huge headache.
That’s why it’s always a good idea to enlist the services of a financial planner. Not only can a financial planner help you get your finances in order, but they can also help you make a ton of money.
Good financial advisors understand the stock market, know how to diversify accounts to minimize risks, and know which types of investments are best for your risk portfolio.
Are You Ready to Use These Financial Tips to Retire Young?
By following these financial tips, you’ll be on the path to early retirement.
Just remember, every dollar counts, and the earlier you get started, the better.
Also, be sure to check back in with our blog for more financial tips and tricks!