What You Need To Do If You Plan to Retire Early and Rich

There are two ways to retire, to either retire rich or otherwise. There are a lot of new opportunities in the world today that can help you plan towards retirement. This is possible through personal savings, investments, and contributing to a retirement account—IRA and 401(k). The way and manner you decide to invest in your future would determine how well you retire. The perks to retiring early are numerous as it gives you the opportunity and liberty to pursue other interests, travel the world, go on vacations, and do other things you always wanted to do but never had the time to do. To conveniently do all these things you need a trusted financial backup. 

Key tips:

To retire early and rich you should

●    Save or invest a greater portion of your estimated annual expenses

●    Pay up any outstanding debts annually

●    Increase your sources of income

●    Lower your living style (if necessary)

●    Do NOT touch from your retirement savings

The thought of living a free and lavish lifestyle when you retire is quite intriguing, yet the process of getting there may not be quite easy especially for the average American. Saving for retirement requires discipline and commitment to follow through to the end. There are many ways to go about saving for retirement from securities investment to real estate investment and official retirement accounts 401 (k) which is employer-based, and IRA which is individually based. We’ll be considering to sides to this topic; retiring early and retiring rich.

Retiring Early

As earlier stated, retiring early has a lot of perks attached to it especially pursuing other interests. One mixed up idea about retirement is that you never need to earn a paycheck again and live off social security until you die. There are no fixed rules for retirement as people define retirement differently. However, early retirement requires that you have another source of income. You don’t want to retire at the age of 45, travel the world, go on vacations, spend all your money on things you like, and come back broke. It just defeats the aim of retiring early. The purpose of retiring early is to probably quit a corporate job and pursue other personal business ideas. Again, there are no fixed rules to retirement but before you consider going financial independent weigh all your options and remember that any money spent does not come back unless it’s in a profitable venture. Even if you decide not to do any form of business there are other passive sources of income you can invest in before and during retirement.

Tips to retiring early

●    Clearly define your retirement goals: What are your target goals? If you decide to quit your corporate job at an early age, clearly define your goals before quitting your job. You may want to start a new business venture that suits your preference or travel on a mission to “save the world” or spend more time with your family. Whatever the case may be, properly define it and weigh it. Would it be enough to sustain you and your family for the rest of your lives? And how would the decision affect you in the long run? 

●    Determine how much you intend to save: Your target amount will clearly help you determine the way you want to go after retirement. It is easier to write down an expected amount than to meet up to that amount in reality. Temptations to touch from your retirement account would definitely come up, sometimes, pressing needs or emergencies may arise and you may have to touch from your retirement. The point is that with little or no discipline you may get tempted to either touch out of your retirement account or reduce your contribution amount to settle other important needs at hand. Which in the long run would affect your initial saving goal. Other external factors that can have an effect on your retirement savings plan are recession and high taxes. On the other hand, your amount goal is still achievable if you do the needful. Grant Sabatier an early retiree and a self-made millionaire, in his book Financial Freedom: A Proven Path to All the Money You Will Ever Need, suggests that it is best to save or invest 25 to 30 times of your annual expenses in cash.  In essence, due to certain factors that may arise during the course of saving, you may not be able to exactly determine your target retirement amount but you can make a rough estimate of what you expect.

●    Get an extra source of income: This may not be applicable to all considering that some jobs are more demanding with high-pay compared to others. If your job allows you to work shifts or gives you some days off or perhaps, has a flexible time. You can always pick up a less demanding job (side hustle) that doesn’t interfere with your main job. Most people take up two to three jobs for many reasons and none is better than the other. A side hustle helps you diversify your income source, and it helps you quickly attain financial independence earlier than expected. The purpose of side hustles is to help you generate passive income, even if your job doesn’t allow you time to run other jobs there are other ways to generate passive income such as investing in securities, real estate, or trading forex if you properly understand how it works.

●    Cut your cost of living: This tip may not be applicable to all, but it is as relevant as the other points. Cutting your current cost of living does not mean putting aside the basic things like mortgage, rent, bills, school fees, home-upkeep, and all the necessary things that require money in your day-to-day life. It means cutting down on unnecessary extra expenses. It also requires that you maintain low expense to income ratios. Some people save up to 50% of their earned income while others are able to save up 70% of their earned income. This is not for everybody; the peculiarities are found in individual retirement targets. Do your paperwork and you’d realize a lot of “important” stuff you can save cash on. On the contrary, cutting your cost of living is only a short term solution to saving for retirement but increasing your income flow is a better way to go at it. (Carefully, consider tips 3 & 4 together)

●    Make adequate insurance plans: Of all the insurance plans, the most vital could just be health insurance. With retirement comes losing the privilege to employer-benefits which also includes health insurance. Since health-related emergencies are one of the most crucial types of emergencies it is best to have a backup plan for health insurance after leaving your employer.

Retiring Rich

Retiring rich has little or nothing to do with your current financial state. You could either be a janitor like Ronald Read who had saved over $8,000,000 in blue-chips stocks by the time of his death with an annual six figures income all through his life. Or an IRS agent like Anne Schreiber (retired) who had a generated enough wealth in 2016 that would be equivalent to $34,380,000 today. There are several other retirees out there who moved from humble livings all through their work-life to self-made millionaires by retirement. Retirement saving may be a long way to becoming a millionaire, but it is surely worth it at the end. Little drops of water make an ocean, right? So would your retirement savings if you start on time. 

Tips to Retiring Rich

# Start saving early: This is the first step to retiring rich.  A person who begins work at an early age of 20 with the hope to retire between 55 to 60, would have about 35 to 40 years of working. Since most businesses and organizations encourage their employees to participate in the 401(k) retirement plan, such a person would have over thirty years of saving. Assuming this person earns $100,000 annually and gets to contribute the allocated 10% pre-tax income contribution limit provider by his/her employer (10% of the $100,000 is $10,000). By retirement, such a person would have $350,000 - $400,000 in savings. The maximum contribution limit for the 401(k) plan changes annually but is currently $19,500. Having a retirement account target of $350,000 - $400,000 may be sufficient or not based on your needs; however, you are still able to double the amount by diversifying your income source and saving in an IRA or savings account. (There is a general 401(k) contribution, but employers have the right to set a lower contribution limit for their employees based on the nature of the job.) Younger people with an early start and opportunity to save for retirement may be at an advantage over older people who just began saving for retirement.

 If you belong to the second category, not to worry, you are still likely going to reach your target if you save right. Other options to meeting up with your retirement savings goal with a little amount of time include; taking advantage of your 401 (k) or IRA “catch up” contribution which allows you to contribute an extra $6,500 on your initial contribution. If that’s not achievable for you may want to consider diversifying your income sources to meet up. There’s also the part of cutting down on excess expenses. Assuming you are already 40 with an unstable or no retirement account you must still remember that time is of great essence. Make use of the little time you have to meet up with lost times. Assuming you are already 40 and you are able to save up $20,000 annually you’d still be able to meet up with one who started investing at 20 in no time at all.

# Take full advantage of contribution limits: Both 401(k) and IRA have official contribution limits that cover all categories of contributors. The contribution limits may cover for a single year or two years at a stretch before increasing. Though 401(k) limits can also be decided by individual employers, you can also take advantage by maxing out your employer’s contribution limit, and employer match on your 401(k) plan. If your retirement saving target is above your employer’s limit, and you are still interested in making more contributions you can create an IRA account which has an annual contribution limit of $6,000 and $7,000 if you are 50 and above. IRAs also comes with a lot of tax benefits—tax-deferred or tax-free growth.

# Rollover your retirement savings when changing jobs: The average American is most likely going to change quite a number of jobs during their lifetime. A lot of people are not quite sure what to do with their 401(k) retirement accounts when changing jobs. The last thing to consider is to withdraw your entire retirement savings just because you are no longer with your former employer. You can either rollover the money into your new employer’s 401(k) plan or rollover into an IRA. That way, you don’t have any physical contact with the cash, and you don’t incur extra taxes and early withdrawal penalties. 

# Invest in Productive Assets: We earlier mentioned that your retirement contributions may not be sufficient alone to help you hit your target amount; therefore, diversify your income. Another relatable useful tip is using your excess funds to acquire productive assets that would yield a good profit over time. You can acquire a real estate property or equity stakes that meets your preference. Preferably, one with long-term benefits. This is one secret of great investors, the ability to spot a profitable venture that has the capacity of generating wealth long-term. Before making any investments or buying shares of any company carry out proper research on your selected area of interest first.    

Tip: Because long-term investments may take time to actualize fitting investments into your early retirement plan may not fetch you the expected returns you desire. Especially if you have a shorter time left to retire. Investments can still be considered as a passive income source after you retire.

# Settle all outstanding debts: It would do you a whole lot of good to settle all outstanding debts if you intend to retire early and rich, especially consumer debt with high-interest rates. If you also have a mortgage, it is best to pay it off before retirement. Going into early retirement with outstanding debts would not only quickly run you dry but also defeat your purpose of retiring early. Therefore, making you come out of retirement against your will. Although it doesn’t always end up at coming out of retirement, it would still have an effect on your retirement plan.

Financial Independence after retirement. What’s next?

How you spend your investment cash is equally as important as your planning towards it for years. It is expected that people who retire the traditional way—at age 60 or 65—tend to spend less money due to a drop in their activity level. Simply put, the way you spend cash as a younger person may likely not be the same way you spend cash as an older person due to change in interest over many of the things that once fascinated you. This excludes health insurance and other emergencies. With early retirees, this is not always so. In fact, there is a great tendency of spending more during retirement for the early retiree, unless such a person deliberately decides to cut down on excesses. In order to gain stable financial independence after retirement, an early retiree has the option of either making huge contributions to their retirement account or have other passive income sources to support their retirement income.

There’s also the issue of social security. Traditional retirees who retire at the right retirement age have access to social security which can also function as part-passive-income. What comes from social security is definitely not enough to afford half of the dream retirement lifestyle you desire but it can still be used to meet your basic day-to-day needs. An early retiree has no access to social security until they reach the right age and qualify for it. Not that it may matter much to you as a rich retiree, but no cash is ever wasted. Unless you voluntarily turn down the offer.

Conclusion

There are several great tips to share about retiring early and rich. However, one key thing to note is do not exchange living in the present for the future. Retirement plans are a great way to live a good life once you become financially independent, but you really shouldn’t outdo yourself beyond your capacity and miss out on all the amazing things you can do today. Always have a backup plan towards your early retirement as there are instances where the economy may take a different turn and you may be forced to come out of retirement or worse, go broke. When it comes to retirement it is good to retire well than to retire early. But it’s even better when you retire well and early.