How can I Plan for Early Retirement?

Early retirement is the dream of many people. With the kids raised and the hours put in, many hope to finally reach a time in their lives where they can see the world or indulge in long-held passions without worrying about financial resources. There are many steps that can be taken to plan for early retirement. A retirement plan can be started at any point; even at age 20, a person can cultivate important habits to make early retirement a reality.

Avoiding and managing debt is an important part of an early retirement plan. A flourishing 401(k) will do little good if an enormous mortgage or student loan debt is still keeping a person working well beyond their desired retirement date. While debt may be unavoidable, it may be important to put as strong of an effort as possible into paying it down fast. If a heavy debt load exists, consider shifting savings efforts into paying off credit cards, mortgages, or student loans. Even paying 10% more than the minimum payment of a debt can help trim years off a repayment period, thus lowering the total amount paid by reducing the time interest has to accrue.

Some experts say that a traditional savings account is not the best plan for an early retirement fund. Savings accounts tend to have fairly low interest rates, meaning that money is not working very hard to multiply over time. Additionally, for those who have difficulty managing spending, a traditional savings account may be a bad idea because it is easy to make withdrawals, thus jeopardizing long term funds. Instead, financial experts recommend investing savings in mutual funds, retirement accounts, or even relatively safe stock market schemes. Though money may be inaccessible until maturation, interest rates can be much higher, giving a nest egg a chance to grow into an entire nest for early retirement.

When formulating an early retirement plan, think in stages. Many retirement accounts are inaccessible until the account holder reaches the age of 59 1/2, while pensions, railroad retirement, social security, and Medicare benefits usually become available between ages 60-65. For a person to retire at 55, he or she needs to have at least four and a half years' worth of funds available to survive until retirement accounts become available for use.

Early retirement is easier when costs are kept low. This doesn't always mean that a person must live a meager life if he or she chooses to take early retirement. Consider moving to a place where tax and cost of living rates are comparatively lower; for homebodies, this may mean moving to a rural area nearby or into senior housing developments where rents are cheaper, but for travelers, try spending a few years in the far less expensive but majestic places of the world, such as Bali, Thailand, or Belize.