Published On: Fri, Mar 8th, 2019

Making Early Retirement A Reality

For Americans the average ideal retirement age is 61 — but what if you could retire even earlier? Although it may seem unattainable, early retirement at 55, 50, or even 45 is possible for many people. And as long as you start taking action now, early retirement can be a reality for you too. With a healthy dose of foresight, dedication, and careful financial planning, you can save enough money to retire comfortably before your sixties. Here’s how to get started.  

Devise A retirement Savings Plan

Use a goals-based savings approach to work out how much you’ll need to save to retire at 50. Start by looking at your current spending and subtract work-related expenditures, such as transport and meals out. Be as specific as possible. Maximize your contributions to retirement plans, including, workplace plans, individual retirement accounts, and health savings accounts. Saving 15% or more of your income for eight to ten years can provide enough savings to retire comfortably at 65. So if you want to retire earlier, you’ll need to save even more — possibly up to 50% of your salary (depending on how much you have saved already).

Consider Spending Less

If you find a way to live on less money, you’ll get away with saving less for your retirement. Take a close look at your lifestyle and thrifty changes you can make. For example, cut down on your cable and cell phone bills. Sacrificing luxuries today will enable you to live a more comfortable lifestyle in retirement. You may want to start living on roughly 70% (or less) of your salary to help cut the amount of savings you need by 10% to 20%. Alternatively, you could opt to work a few more years to make sure you’ll have enough for your retirement needs.

Release Equity From Your Home

In most cases, people’s homes are their largest retirement assets. If you’re 62 or over, you can release equity from your home, and tap into that money to retire early. The loan, known as a reverse mortgage, can be received as a one-time payment, set monthly payments, or line of credit (or a combination of all three). The size of your reverse mortgage depends on your age, current interest rate, and how much equity is in your home. So, assuming a 5% interest rate, a 62-year-old borrower can potentially qualify for an initial payout of about 42% of the home’s value. This is capped by the Federal Housing Administration limit of $679,650. A reverse mortgage isn’t paid back until the homeowner moves, sells, or dies — so there are no monthly loan payments.  

Finally, also consider increasing your current income with a side business. This will allow you to save more money and reach your retirement savings goal sooner. With careful planning and disciplined saving, you’ll be able to make early retirement a reality.