Top 10 Tips for Planning an Early Retirement

June 20, 2022 Posted by Hunaid Germanwala

Early retirement is the top financial goal of people who want to bid adieu to work stress and spend quality time doing the things they love. Achieving complete financial independence is essential for a comfortable and relaxed life after retirement. A carefully crafted retirement plan strategy can get you the option to retire early.

Here are the Top 10 Tips for Planning an Early Retirement

  1. Start Early with Retirement Planning

Start strategizing your retirement plan as early as possible to grow your retirement savings. Determine a financial roadmap that would show you how much percentage of your yearly gross income you need to save until you reach your preferred age for retirement. Planning many years ahead for retirement gives you the financial cushion to take calculated risks and stay on track with your income and expenditure goals, even if there are minor setbacks.

  1. Determine Your Cost of Living

Plan your retirement based on your current lifestyle and the lifestyle you want after retirement. Work out your daily expenses such as rent, fuel, groceries, leisure activities, holidays, and home improvements. Calculating your current lifestyle costs can help you determine the retirement savings you would need to maintain that lifestyle. You can live frugally now to save more for retirement or save just enough to have a minimalist lifestyle after retirement.

  1. Save Smartly

Increase your current income to save more for retirement. Calculate your current spending against your income. Create a monthly budget and stick to it. Keep aside 15% to 20% of your income towards retirement savings if you are in the ’20s if you want to speed up retirement. You can apply the 80-20 rule to manage your finance, business, and work life. One of the crucial life lessons concerning finances is the importance of saving.

Downsizing is the preferred option for many people who want to save more for early retirement, for example, purchasing a pre-owned car instead of buying an expensive new vehicle of the same model. It can help save more by reducing renovation expenses or moving to a less expensive neighborhood. You can bucket your saving by dividing them into three buckets. The first bucket is for unforeseen emergencies in the near future, the second for investments, and the third for retirement savings.

  1. Invest and Multiply your Savings

Invest a portion of your retirement saving to multiply the money. Keeping it idle in a savings account wouldn’t help especially considering the inflation. Have an investment portfolio and learn how to diversify your investments to generate wealth to secure early retirement.

  1. Create Sources of Passive Income

Look for opportunities to generate passive income. Think of any hobby you are good at that you can monetize to get side income. You can sell something homemade, earn royalties from the intellectual property by creating online content or get into silent partnerships. You can also rent out things people need for a short time, such as your equipment and tools, vehicle, parking area, or storage space. Building avenues for passive income helps maintain the desired lifestyle even after retirement.

  1. Limit Debt Exposure

High debt accumulation is the biggest hurdle for early retirement. Take every action to limit your debts and pay off your due as early as possible. Choose wisely before borrowing for a student loan, vehicle loan, or home loan. Understand the future financial implications of borrowing. Get rid of high-interest debts on credit cards as soon as possible. Negative credit history can be detrimental to your retirement goals.

  1. Consider Healthcare Expenses

Healthcare is a major concern during old age. Considering healthcare expenses during retirement is crucial for people at greater risk of chronic illness due to family history. Healthcare and paying for health insurance must be part of your retirement budget. A Long-term health insurance plan can help cover medical bills and nursing home expenses after retirement.

  1. Factor in Family and Marital Status

It would be easier to reach financial independence early with the contributions from your spouse. How much you need to save for early retirement would be determined based on household income, shared expenses, and assets. If you have children, then the cost of raising a child would also affect your retirement plans. Decisions such as getting married or divorced can impact your retirement savings depending on the state’s laws.

  1. Give your Super a Boost

To retire early, you need a healthy retirement fund and other passive income sources. Extra contributions to your super while you are still in the labor force can provide a safety net for you in the future. A part of your monthly salary or yearly bonus contribution towards super can get you the extra financial security you need for a fun life after retirement.

  1. Build Network and Connections

Build a powerful network of successful professionals with a good understanding of finance. Associate yourself with ambitious and hardworking people who encourage you to achieve your goals in life and help you stick to the plan.