The average retirement age in the U.S. is 62. But that doesn’t mean you can’t manage to retire sooner if you have the right financial plan in place. Unfortunately, so many people are having to work further into their golden years because of poor financial planning, or even due to the strain on the economy over the years.
No matter what your current financial situation may be, there are things you can do to financially prepare for early retirement now. Start by developing a better understanding of what you consider to be wealth. Does it mean total financial freedom? The ability to do whatever you want in your retirement years?
Once you have a better idea of what you need to retire comfortably, you can start to put things in motion to save money, get out of debt, and create healthy financial habits that will make it easier to retire early.
How Much Money Will You Need to Retire?
Several components need to come together in order to retire early. One of them is an aggressive savings plan. It seems as though every financial expert has a different idea on how much you should save or how much money you actually need to have in savings to retire comfortably.
There are plenty of percentages to throw around. However, most experts believe that your retirement income needs to be at least 80% of what you would typically make in a year, pre-retirement.
You can learn more about what you might need to have in savings by using a retirement calculator. But keep in mind what you want your retirement to look like. Other factors can contribute to how much you’ll need in savings, including:
- Where you plan to live
- Whether you want to travel
- If you are taking care of other family members
- Any major items you want to purchase
It’s also important to consider any outstanding debts you currently have. Stepping into retirement can be nerve-wracking on its own, but if you have underlying debts, it can feel nearly impossible.
Getting Rid of Debts
So eliminating debts before retiring should be a top priority. One of the most common types of debt, especially for seniors, is medical debt. Some hospitals do offer medical bill forgiveness through an application process if you can prove your financial situation. This typically requires providing evidence like tax returns and pay stubs.
Being debt-free before your retirement is also possible by managing any existing credit card debt you might have. Make a list of all of your debts, and put them in order from greatest to least (or from the highest interest rate to the lowest). Focus on the highest amounts first and make extra payments if you can, until they are completely paid off.
Then, work your way down to the lower amounts. As your debts start to get eliminated, you can make larger payments on the other ones, and they will eventually be cleared. You can also use the “snowball method,” in which you pay off your smallest debts first, and use the extra money you’re saving to work on the larger debts.
In addition to eliminating your existing debt, change your financial habits if necessary to avoid getting into more. That might mean reducing the number of credit cards you carry or looking into different types of medical insurance that can help with bills in the future. Smart financial choices can quickly develop into healthy saving habits, which brings us to our next point.
Starting Healthy Financial Habits Now
The best way to financially prepare for early retirement is to develop smart saving habits now. Living frugally is a start, and making simple changes to everyday things like “date night” with your spouse or partner can make a big difference. Try some of the following switches to save money:
- Dine in instead of going out
- Try camping instead of vacationing in hotels
- Host small get-togethers at your home instead of renting large spaces
- Think of “free” activities to do around your neighborhood
You should also take a look at your budget and decide where you can cut back. Far too often, people are paying for things that they don’t use regularly. Are you signed up for any subscription services, including television packages or food delivery? How often do you use them? Are they absolutely necessary?
It might not seem like much, but cutting back on things you don’t use each month can end up saving you hundreds, or even thousands of dollars each year. You can put that money directly into savings, and see how quickly it will add up.
Early retirement is possible. No matter your current financial situation, making the right choices with your spending and knowing how to save properly can set you up to retire earlier than you may have thought you ever could, so you can enjoy your later years in life comfortably and securely.