3 secrets to taking early retirement

Have you ever noticed those happy couples who leave the workforce in their early 60s and have a great retirement? How do they do?

While early retirement may seem difficult to achieve, the reality is that it is an easier goal to achieve than you might think. Here’s what a lot of people are doing to make it happen.

1. Save from an early age

Social Security will only pick up a small portion of your total retirement expenses. You should plan that most of your retirement income will come from your savings, and if you want to retire early, you will need to fund your IRA or 401 (k) from an early age so that you have the flexibility to quit. to contribute to your plan a few years ahead of your peers.

Case in point: If you start funding a retirement plan with $ 420 a month at age 22 and continue to do so for 40 years, you’ll end up with over $ 1 million in savings – assuming your Investments in this account generate an annual average 7% return, which is doable if you load stocks. Wait just five years to start contributing that $ 420 per month, and you’ll end up with $ 697,000 instead, assuming the same return.

2. Have a health care plan

Eligibility for Medicare begins at age 65, meaning early retirees are often forced to pay a fortune for private insurance once they stop working and abandon employer plans. If you want to retire early, you’ll need a way to pay for health care during those years when you’re not working but aren’t yet eligible for Medicare coverage, and a good bet is to fund an account. health savings plan, or HSA.

With an HSA, you contribute pre-tax dollars to healthcare spending, but any funds that you don’t immediately use can be invested for further growth. Since HSAs do not expire, you can contribute to them throughout your career, so if you are faced with, say, a three-year gap between when you retire and when you can enroll in Medicare, you will have a source of income to pay for health insurance out of pocket.

3. Avoid debt

Debt is a dangerous thing because it can monopolize a large chunk of your income, making it harder to fund your retirement plan or HSA. If you really want to retire early, be careful not to take on unsanitary debt during your working years.

That doesn’t mean you can’t or shouldn’t get a mortgage. Mortgage debt is healthy because it allows you to build equity into an asset. Rather, you should avoid credit card debt and other loans that do not benefit you financially. The less interest you earn on bad debt, the more money you will have available for early retirement.

While it is true that some early retirees have money from high-paying jobs or large inheritances, for many seniors, early retirement is about hard work, diligent savings, and careful planning. If you’re planning to retire early, fund an IRA or 401 (k) as early as possible, allocate money to healthcare, and avoid dangerous debt. And then go over there and enjoy the early breakout of the grind you have arranged for yourself.