Most folks think that retiring early is an option for only the wealthy. Yet while the odds of retiring early certainly increase if you 1) created a successful Internet company or 2) became a star professional athlete, the reality is that the prospect of retiring early isn’t as far-fetched as it may seem. And while J.G. Wentworth does not offer financial advice, we do know a thing or two about the long-term value of every dollar and cent. With that in mind, here are our five things to consider when planning for an early retirement:
1) Minimize debts – and pay off unavoidable ones
Get into the habit of purchasing only those things you can immediately afford. And when a “big ticket” purchase is unavoidable, for instance such things as a higher education, house, or automobile, be fiscally responsible by paying down those debts to zero each and every month.
2) Begin saving at the earliest age you can
Here is a commonly used scenario that illustrates just how important retirement savings is for the young: if you begin saving for retirement at 25, and deposit, say, $2000 a year into a retirement fund that grows at 8% annually, at the end of those 40 years you will have around $560,000. However, if you wait until you’re 35 to start depositing $2000 a year, your 8% annual return for 30 years will yield only approximately $245,000. Those 10 years truly matter, and so the earlier you start saving, the greater benefit you will reap down the road.
3) Take advantage of retirement plans
401(k)s, and both Roth and non-Roth IRAs, are essential retirement tools. 401(k)s in particular will help you to save on a regular basis, and get you “free” money based on your employer contributions – a win-win on both fronts. And even if you can’t maximize your monthly contributions, definitely at least try to put something away each and every month – and do your best never to touch it.
4) Consider buying over renting
The buying versus renting debate is a complicated one, based on a wide range of factors that include not just personal salary and housing costs but also how likely it is you will remain in the area you live now. You should definitely consult experts in this area for further advice, but few would argue that if you truly are settled in an area and it is all financially possible, a property purchase is the sounder long-term financial strategy.
5) Have a plan for the “gap years” before Social Security kicks in
One of the biggest obstacles to an early retirement is what we call the “gap years” – those years that are both postretirement and before Social Security, when taking any money out of a 401(k) or IRA prematurely also leads to withdrawal penalties. The bottom line is that anyone considering an early retirement has no choice but to account for these years and have a solid financial plan that will enable them to reach the traditional retirement age with as much of their savings intact as possible.
Please remember again that J.G. Wentworth does not offer financial advice, and that any general ideas discussed here should definitely be investigated further with professional consultants that can chart your individual path towards a successful retirement. That said, we do believe that an early retirement is possible, and encourage you to educate and inform yourself as much as you can so you may turn even this “impossible” dream into a reality. And always remember that if you need cash now, and are interested in selling your future settlement or annuity payments, J.G. Wentworth has an excellent team in place that can help get that money into your pocket sooner rather than later. Call us anytime at 877-227-4713.
Nothing above is meant to provide financial advice. You should meet with appropriate professionals for such services.