If you have been planning and saving for your retirement, but you are still lost about it, this is the article that is really going to interest you. Retirement plans are always going to hit you at some point of time, but if you do not how to take the right steps towards it, then it might hit you hard.
While we have a diversified retirement portfolio mix of Roth and Traditional IRA’s and a 401k, we have decided to get into another form of retirement investments. Real estate investment. As someone who has been engrossed in the real estate investment world with other investors for the past couple of years, I have learned a lot. So much so that we decided to take the plunge on our own. This is solely to diversify our retirement investments even more with the hopes of early retirement through passive income. However, we just made our first mistake!
This is the time of year where everything gets a little bit crazier and we all get a bit stressed out. The holiday’s can creep up on us, just like the end of the year, and when that happens we have a hard time deciding which way to turn. On top of the holiday madness, there is something even more important to think about. Our retirement accounts.
Many people, when they think about early retirement, think that it’s only an option for the ultra rich. I used to think that too, until a friend explained it to me this way.
“Think about it. Let’s say you need $4,000 in gross income per month to be able to retire. All you need to do is to own four rental properties that each net $1,000 a month.”
When my friend put early retirement in such simple terms, it got the wheels in my head spinning big time. I started to think about how early retirement could really be a possibility for Rick and I.
Your Early Retirement Plan
This friend/mentor of mine gave me some other tips for planning a route to early retirement too, and I’m going to share how we used his advice to make a plan – and how you can use his advice to make your own early retirement plan.
Any achievable goal has got to start with a step-by-step game plan to get you from where you are now to where you want to be. This is true with financial goals, fitness goals, relationship goals or any other goal you can think of.
So the first question you need to ask yourself if you want to retire early is:
When do I Want to Retire?
Early retirement means different things to different people. You can retire at 60 and be retired early. The general age of retirement is 65 and you can’t even collect Social Security benefits until 62, which means 60 is officially “early”.
Or maybe you want to retire at 55, 50 or 40. Whichever age you decide, you know that you’ve got the amount of years from your current age to your target early retirement age to work with. So if you’re 40 and want to retire at 50, you’ve got ten years to create and execute your early retirement plan.
Now that you’ve figured out how long you have to work with, you’ve got to create a plan by determining how much money you’ll need and how you’ll get that money.
How Much Money Do I Need for Early Retirement?
The answer to this question depends on a couple of things:
- What will your basic expenses be in early retirement?
- What kind of extras will you need to provide for in early retirement?
There are many things to consider as you search for answers to these questions. Things like: Will you still have kids to care for financially after you retire? Do you want to travel? Will you lead a simple life or an extravagant life?
Making a post-retirement budget is a great way to figure out how much money you’ll need per month in early retirement. Talk with your spouse if you’re married to make sure you’re on the same page regarding your post-retirement life.
Remember that you’ll be accounting for quite a few years of income needed if you plan on retiring early. Future potential medical expenses and other costs such as replacements for cars, etc. should be considered too as you decide on the appropriate amount of income and savings you’ll need.
Once you get a fairly clear estimate of how much money you’ll need, you need to figure out how you’ll get that money.
How Will I Get Enough Money to Retire Early?
If you read any of the early retirement blogs out there, you’ll find that most successful early retirees get their money from one or more of three different sources:
- Investing in the stock market
- Investing in real estate
- Investing in or owning a business
Although there are other options, these three seem to be the most popular among successful early retirees. Your goal should be to research these three options thoroughly and work to discover which one or combination of two or more is most suited to your personality, your risk tolerance and your interests.
That research obviously involves a whole lot more work than I could talk about in one article, but my friend and mentor that I mentioned earlier, Deacon Hayes, has just published a new book that outlines everything you need to know to determine the answer to that and other questions you might have about retiring early.
I can personally vouch for the book that it really will tell you every single thing you need to know about gaining enough money and income to be able to be financially independent and retire early.
This book has become a financial tool that I refer to often as I look over the goals Rick and I have to obtain financial independence.
Note: As I mentioned there are other ways to amass wealth for financial independence than the three I mentioned above, but do be careful as many of the other ideas you’ll find on the Net and in books are very, very risky.
The three ways mentioned here are tried and true paths to wealth that experts such as Warren Buffett and many others have worked successfully.
Am I Willing to Make the Sacrifices Needed to Achieve Long Term Goals?
This is probably THE most important question you need to ask yourself as you plan a path to financial independence and early retirement.
Most of you will need ten years or longer to make your plan work. Are you ready to give up instant gratification spending for the sake of reaching that goal?
Are you willing to keep your nose to the grindstone day in and day out for ten years or more when those around you are buying new and shiny things and living large on credit?
Recommended Reading: How We Broke the New and Shiny Cycle
It’s not going to be easy. Temptations will come, especially as your income and net worth increase. The more money you amass as you work toward early retirement and financial independence, the more tempted you’ll be to start to coast in terms of saving and spending.
If you really want to retire early, you’re going to need to avoid those temptations like the plague. If you don’t, you won’t reach your goals.
The truth is that retirement isn’t an age, it’s a number. What number? The number of the amount of dollars you need to sustain your lifestyle for an indefinite amount of years.
For instance, if you need – like we will – $4,000 a month in gross income to survive on, and you have an investment account worth $1,000,000 that is earning a 5% return each year, you’ll make enough money to cover expenses and taxes for decades to come.
Now, saving that $1,000,000 or creating a rental property portfolio that earns you $4,000 a month isn’t going to be easy but it can be done.
With the right plan and the willingness to take the steps needed to reach your plan’s goals, you really can retire early.
Have you thought about early retirement? If so, have you made a plan to start reaching your goal?
**Disclaimer: I am not a health care professional – I am simply sharing my experiences and opinions here.
One of the major fears for people in retirement is the fear that health care costs will devour their retirement savings long before they can afford to live on Social Security alone.
With the average American having a median retirement savings balance of just $5,000, not having enough money to cover health care costs is a realistic fear. Read more
Today’s financial experts will tell you that we’re not saving enough for retirement. With only 32% of Americans being involved in a workplace retirement plan and the average couple having only $5,000 saved for retirement, I agree: there is work to do.
The numbers are dim, indeed. Investment giant Fidelity tells us that a 50 year old should have six times his or her salary saved in a retirement account and a 60 year old should have eight times their salary saved. If you are worried about your retirement situation, there are things you can do to change it, even if you’re getting up there in age. Read more
This week, in honor of Financial Literacy Month, we’ve been focusing on retirement savings. I talked on Monday about how to balance retirement savings and debt payoff while helping your kids out with college costs, and on Tuesday Brad from over at Maximize Your Money shared an awesome post on why and how you should start saving for retirement now. In Monday’s post, I shared that nearly 1 in 3 Americans have no money saved for retirement, and that 56% of Americans have less than $10,000 saved for retirement. If you fall into one of those two categories and are in your 40’s, 50’s or beyond, no worries. Today’s post is for you. Today we’re going to talk about what you can do if you’re late to the retirement savings game. Read more
Everyone wants to have a comfortable retirement. The reality though is that only a small percentage of people are achieving that goal. But it doesn’t have to be that way. There are surprisingly easy steps to take, especially when starting young, to achieve an enjoyable retirement. But you have to get started, and you really need to get started now. Here’s why and how to start saving for a fantastic retirement. Read more
I realize that this post might get me in hot water with some, but I recently read another article about the dire money situation of Americans and how it’s not their fault. Being an American who for many years took little responsibility for my own money situation (along with my husband) and being one who is digging out of a dire financial situation, I know whereof I speak. Read more
Being we have four kids, the subject of college and how to avoid student loan debt is near and dear to my bank account, er, I mean heart. As entrepreneurs and big believers in self sufficiency, two of the main things we’re working to teach our kids about money is how to earn it without depending on a job and how to avoid debt. Read more