How to Plan Your Early Retirement

Early retirement is not just for the wealthy or people who are in a career that offers a secure lifelong pension. The sooner you start planning for early retirement the better, and the tips below can help.

Visualize Early Retirement

Why do you want to retire early? It’s important to know this because you need to know how much money you will need. A lifestyle of living modestly in a small rural town will cost you far less money than living in a big city. Traveling might cost more, but not necessarily, and some people actually retire abroad because the cost of living is much lower. Don’t forget to account for the cost of health care.

Do you want to volunteer? Do you have personal projects you want to work on? Retiring early also does not necessarily mean never earning any money again. The difference is that you’ll be financially independent, so you won’t be reliant on that money. Your vision for early retirement is likely to change over time, but it’s good to have something solid to work toward. Once you have an idea of how much you will need annually, multiply that by the number of years you will be retired, keeping in mind that many people lead healthy, active lives well into their 80s and 90s.

Reduce and Refinance Debt

It’s good to head into early retirement debt-free, and one of the best ways to do this is to figure out how you can actually save money on your debt to have a more aggressive payoff plan. For example, if you have credit card debt, you can look into rolling the balance onto a low-interest or no-interest card. If you have student loans, you may be able to reduce both the rate you are paying and the length of the loan. You could potentially cut years off repayment through a refinance, and it only takes two minutes to find out what you are eligible for. Finally, your home should be fully paid off before retirement, so you should have a plan for this in advance and could include a refinance as well.

Update Investment Strategies

Investing toward early retirement should consist of a combination of maxing out your retirement savings with other investments. If you are young and have an appetite for risk, this could mean making some fewer stable investments that could mean big returns later on. However, low-cost index funds are often recommended by billionaire Warren Buffet, and these are a good, minimal-risk way to make sure you have a variety of solid investments. You may want to talk to a financial advisor about your choices and the best path for you.

Have Backup Plans

Entertaining too many what-ifs can leave you too paralyzed to plan at all, but you should consider some scenarios and what you will do if they come to pass. One reason to diversify your investments is in case the economy falters and your net worth plummets. You might also find that you don’t actually like all the free time and lack of responsibility you have when you retire early. Finally, be sure to have a solid plan for health care in place, including for the possibility of needing long-term care.