How To Retire Early At 50 And Live Comfortably
Prices are rising at a record rate. This has put a damper on people’s current finances. But more so than that, it has also skewed their plans of early retirement. Many of you with early retirement plans may be getting increasingly worried about the lifestyle you can afford. So how to retire early at 50 living comfortably is the question. Let’s see how can we do that.
What many people don’t know is that inflation affects everyone differently. While there are headlines of the inflation number of 9.1%, your inflation might be different depending on what you buy and where you buy it from.
That means inflation will affect you differently depending on how you spend your money. This is good news because this means you can still make the right financial changes in your life to retire early.
Generally speaking, as you get older, you will spend less on food, clothing, transportation, and entertainment. You will spend more on healthcare services. Food, transportation, and energy are the biggest drivers of inflation.
Therefore, you may be less affected by inflation compared to your working friends.
However, the bad news is that inflation still impacts you in some way. It could be worse than usual, depending on where you live.
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Tips To Prepare For Retirement
No doubt, the current situation may have you worried about your retirement plans. I want to put some of those worries to ease. The tips below will help you regain some sense of control over your retirement plans.
1. Think About What Kind of Retirement You Want
The first step to retiring early is to decide what kind of retirement you want. Sadly, for many people, this may have changed in the last 2 years due to unpredictable circumstances. They may have wanted a comfortable and cushy retirement life. But due to recent circumstances are now thinking of a less glamorous retirement.
Whatever the case may be, think about the lifestyle you can easily lead when in retirement. Do you want to focus on keeping your retirement expenses low, such as somewhere around $40,000? This way, you can retire with less in savings, or do you want to retire early and still lead a cushier lifestyle with an annual budget of up to $150,000? Of course, in this instance, you will have to save up more now.
In the end, it’s all about your preference and priorities.
2. Figure Out How Much You Need to Retire Early
Some factors will boost your retirement journey and make it a whole lot easier for you. One of them is setting clear goals and knowing what you want.
This means you must figure out how much you would need annually when you are retired. You then need to calculate the percentage of your portfolio those expenses make up.
According to Trinity Study, retirees can withdraw up to 4% each year in retirement. They can do this without running out of money over 30 years. But, if you are planning to retire by the age of 50, you might be looking at a lot more than just 25 years of retirement.
If you want a longer retirement, target a lower withdrawal rate of, maybe, 3%. You can even go for a more conservative 2% annual rate if that is something you can handle.
To calculate how much you will need to retire, take your anticipated annual expenses. Divide them by your target withdrawal rate.
Let’s assume you plan to spend $60,000 per year in retirement and want to withdraw 2%. In that case, you will need $60,000 divided by 0.02 and you will get your resulting number.
Further reading: Money Management for Women: Grow Your Money
3. Save At Least Half of Your Monthly Salary
Saving for retirement is not easy. Nevertheless, it is still crucial. For most college graduates, salaries peak when they are in their 40s. This is not an ideal situation if you want to retire by the time you are 40.
If you work in a profession where the above is true, then you will be harming your savings by retiring at 40. This is especially true if your employer offers retirement contributions or a pension. In these cases, the more you retire early, the more you are giving up.
This also leaves you with less access to healthcare services. So, you suffer double the damage where medical expenses are more, but retirement savings are less.
All these saving roadblocks mean that you need to start saving earlier. That means saving at least 50% or more of your income, if possible. It sounds hard. Initially, it will be very difficult.
But when you look at what you are spending on, you will find there is so much stuff that you don’t need.
You can start by tackling the biggest expenses first. Generally, these are food, housing, and car and gas. If you start by managing these areas first in your budget, you can develop high savings.
Without Any Prior Experience, Financial Knowledge, or Needing a Huge Budget, And Best of All, Doing It From Anywhere.
4. Avoid Lifestyle Creep at All Costs
Lifestyle creep can be the enemy of your early retirement dreams. It is essential to keep your expenses down if you want to retire early. But lifestyle creep stops you from doing that.
Most of us let our income define our lifestyle and spending. For instance, if you get a $5,000 raise on your monthly income, there is a very good chance you will find additional things to spend on.
I encourage everyone to enjoy their life while also building their savings. But the problem is when people start inflating their lifestyle. Once you start adopting a certain lifestyle, it’s very hard to go back.
I suggest disconnecting spending and earning. What you truly need to spend your life has nothing to do with how much you earn. Keep lifestyle creep at an arm’s length. You don’t want to fall into its trap.
5. Invest to Retire Early
If you want to retire early, you need to start investing and trading. Early retirees need the compound long-term growth that investment gives. Without it, you are very likely to run out of money.
If you want to learn more about trading and investment, I have a book on it. In it, I make sure you know everything there is to get started as a trader. This book is written with beginners in mind.
I always recommend all my readers start investing as early as they can. The more time you give your investments to grow, the more likely they are to match the stock market’s long-term average return.
5. Invest to Retire Early
If you want to retire early, you need to start investing and trading. Early retirees need the compound long-term growth that investment gives. Without it, you are very likely to run out of money.
If you want to learn more about trading and investment, I have a book on it. In it, I make sure you know everything there is to get started as a trader. This book is written with beginners in mind.
I always recommend all my readers start investing as early as they can. The more time you give your investments to grow, the more likely they are to match the stock market’s long-term average return.
Further reading: Should You Trade Or Invest? Know the Difference
6. Minimize Your Expenses on Investment
While investing is great, you need to pay attention to how much money goes into it. Every penny that goes towards investment fees is not being used to grow your retirement savings.
For example, your mutual funds may charge a 1% expense ratio. In addition to that, your financial advisor might charge an additional 1%. Here, you are already spending 2% per year on investment fees alone.
You don’t want that.
The lower the investment fees, the better.
7. Have a Backup Plan
The best thing you can do for early retirement is to have a backup plan. You never know how life is going to turn out. Plus, if the current times have taught us anything, it’s that life is extremely uncertain.
Having a backup plan could look like building multiple sources of income. You can invest, rent out a property, and much more.
You can also learn skills that may come in handy when you have no other source of income. Or when you are short on money.
You should also try to minimize expenses by living in areas with low costs of living.
I understand that you can’t control all the risks of early retirement. But you can certainly control having a plan. Or multiple plans, for that matter.
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