While the rule of thumb is to retire at the age of 65, here’s the truth: Most Americans retire at the age of 62.
In fact, in 2017 the average age of a living retiree was just under 60 years old. How to retire early? It takes real planning.
The sad truth is that more than 40% of all older Americans experience significant decreases in downward mobility past the age of 65.
Retirement incomes are usually not enough for elderly retired people to live on. According to studies conducted by the Economic Policy Research organization, more than 8.5 million people who reach the age of 62 will have post-retirement working incomes of about $23,000.
That number only rises to about $31, 000 once you take into consideration income in retirement from, say, working or investment.
These post retirement income statistics only get progressively worse as people get older.
The Pension Rights Center shows that the average income of a 65-year-old person in 2015 was about $18,700. Elderly people between the ages of 65 and 75 had a salary range between $17,500 and $18,800.
For a variety of reasons, many people of elderly age just can’t retire. Worse, they find themselves reentering the workforce after retiring.
That’s because many of they didn’t save enough or, in some cases, any money at all.
The lessons of these stark realities are not being lost on the Millennials and middle-aged workers today.
Many younger Americans are striving to learn how to retire early, even decades earlier than normal. Some have branded the movement with a name: FIRE, which stands for Financially Independent, Retire Early.
How To Retire Early
Whether or not you are a Millennial advocate of the F.I.R.E retirement movement or are just a middle-aged worker who wants to secure their retirement future, there are several ways that you can do this.
In fact, there are five to learn how to retire early:
- Save a dedicated amount of income every month
- Live below your means and pay your debts
- Invest
- Calculate your post retirement expenses
- Consult with professionals
Save money every month
You must decide how much money you can save every month to bolster your retirement future.
Can you realistically put aside 50%, 60% of every paycheck, or more, every time you are paid? If you want to retire early in life, then you must save a lot more money every time you get paid.
Imagine that you want to save $1 million for your retirement at age 65. Also imagine that you start saving for your retirement at age 25.
You would need to save more than $400 a month to accomplish this. If you wanted to have $2 million for retirement, then you would have to save about $800 a month.
The point is that the earlier that start, then the better off you will be in reaching your goal.
The older that you are when you start this goal, the more money you will need to set aside.
Live below your means, pay your debts
Do you spend every penny you earn? Are you saddled with outsized levels of debt? Then saving money to retire early and comfortably for an early retirement is not a realistic goal.
In fact, continuing such negative financial habits in your youth is a good way to end up working long past your retirement years.
What is your standard of living? Are you living above your means? Assess your daily, weekly and monthly budget. Prioritize what you really need over what you want.
Are you throwing money away on takeout or buying lunch every day? Do you really need a new $40,000 car as a status symbol when you can purchase a reliable used car?
If you live below your means, then you will save a lot more money as a result.
Finally, pay down all of your debts. The average American household is saddled with more than $137,000 in debt.
Yet the average income ranges between $60,000 to $70,000. Keep your debt-to-income ratio as low as possible.
If 40% to 60% of every paycheck is dedicated to paying off debt then you will never save enough money to pay off your bills, much less pay for retirement.
Invest
Unless you are dedicated to living as austerely as possible you should use investment as a supplemental financial growth strategy to retire early. Do your research and invest wisely in a broad stock market index fund.
Never invest on a whim or gut reaction. Prudent investments made decades before retirement could supplement your savings enough to enable you to retire early.
Cash is not an investment, thanks to inflation. Only by investing and compounding does money grow for the future.
Calculate post-retirement expenses
Retiring early is a great goal. Still, have you considered what it is that you will do after you have retired? Will you travel? Perhaps start a business?
Having an ambition is admirable, but you should also consider where you will live. The lower the standard of living, then the longer your retirement savings will last.
Have you calculated your post-retirement expenses? How much money will you live on every year?
Will it be $30,000 or $40,000 a year? Have you considered your healthcare needs? No matter how early you retire, you will still become 65 one day (if you are lucky).
An elderly couple is projected to pay on average more than $280,000 to pay for all post-retirement healthcare.
No matter how early, or late, you retire you need to keep to a budget so that your retirement funds last as long as possible.
Consult professionals on how to retire early
Solicit the help of a financial advisor or retirement planning professional. Make detailed plans, budgets and calculations to track your savings and investments.
Depending on your personal circumstance, and dedication, retiring early may be possible. Whether it is realistic or not depends entirely on how much money you make, how much you save every month and how early you start.
