Do you dream of retiring early? Enthusiasts of the FIRE movement (Financial Independence, Retire Early) are encouraging more and more people to achieve their dream of retiring before the commonly accepted retirement age. It’s not an entirely impossible feat if you plan ahead and invest your money wisely. Still, significant challenges remain that even the best-laid plans may be unable to account for.
The single greatest issue is running out of money. Within that single challenge lay many factors, such as the lifestyle you expect, where you live, and how healthy you are. With all other things being equal, you simply need enough cash to last until your final days to call your retirement successful.
Now, figuring out how much cash you’ll need is not an age-old question, as not until recently did life expectancies and retirements begin to lengthen drastically. Here are three factors that affect this greatest of retirement issues.
Unfortunately, most Americans don’t start saving for retirement on time, let alone early enough to be able to retire early. To save enough money for retirement, you must start young and be consistent. Let’s compare two people who started consistently investing at different ages and their account balances upon hitting 62.
Melissa more than doubled her savings (but didn’t get close to doubling the investment period). But what if Melissa hadn’t had an initial investment? We shouldn’t assume a 25-year-old has $10,000. Well, she’d still have $2,193,159.48! You don’t need much money to start investing; you just need to start! Even if she had put in only $5,000 a year, she would still end up with $1,096,000. Time is simply on Melissa’s side.
Time is your greatest asset – use it wisely!
The longer your savings are at the whims of the markets, the greater the chances it will take a hit from market downturns. Worst case scenario, you enter retirement the year before a recession, and your portfolio never recovers. Naturally, your investment portfolio should become more conservative as you age by placing a greater emphasis on less volatile investments such as bonds. But, as we saw in 2022, bonds did just as poorly as stocks. Sometimes, nowhere is safe.
We don’t want to sound all gloom and doom. We just want our readers and clients to fully comprehend the risks they are taking when opting for early retirement. If you do want to take the risk, below are some strategies you can employ that might boost your chances of success.
If you are determined to retire early, there are ways to increase your chances of success. Here are some strategies to consider.
Of course, getting rid of taxes would eliminate at least one of your portfolio’s three challenges in early retirement. But, while you probably can’t eliminate taxes entirely, you can at least max out your Roth IRA for tax-free cash flow in retirement. You can also convert to Roth during bear markets to lessen the tax blow.
The less you spend, the longer your savings will last. It’s as simple as that. You can always retire to countries with lower living costs, such as Central America, to help stretch out your savings. To reduce medical bills, try to live a healthy lifestyle full of exercise, fresh air, and a healthy diet, and cut out unhealthy habits such as smoking and excessive alcohol intake.
Are you considering retiring early? Do you feel that you are on the correct retirement path? We’d be more than happy to go over your portfolio and give our professional input. Just click the button below!