How to Retire Early

Early retirement is the dream of many workers, but it requires serious planning in order to prevent economic hardship 10 to 20 years down the line. There are several things you need to consider before you retire early.

Instructions

Difficulty: Moderate

Plan to Retire Early

1. Make a rough plan of your living expenses during retirement. In order to stretch out your savings, you may need to live on a tighter budget than you do currently.
2. Pay off any large loans or mortgages before your early retirement date. Spending hundreds or thousands of dollars each month to pay off your debt can ruin your retirement savings and plans.
3. Speak with a financial counselor to learn about benefits and losses of early retirement. Your social security payments will be heavily penalized if you spent less than 35 years working, and you receive a set deduction for each month between your retirement date and the day you turn 65.
4. Look over your options for receiving your retirement money. If you get it all paid out at once, there are some heavy taxes that you may have to pay. Ask your financial adviser about the possibility of putting some of your savings into short-term certificates of deposit and living off of the interest.
5. Invest your money aggressively during the 5 to 10 years leading up to your early retirement. Work with your stock broker to balance the risk of high yield stocks and secure bonds. At the absolute minimum, your portfolio should be aiming for a 10 percent annual gain.
6. Put any extra cash you get from bonuses or raises into savings or more stocks. It's a good idea to lower your monthly expenses and put the extra money away to increase your financial cushion for early retirement.
7. Consider partially retiring early and then fully retire once you turn 65. You can reduce your work hours or change to a different line of work while continuing to plan for your retirement and help ensure your financial security.

Tips & Warnings

• If you can't completely pay off your debt, see if you can make higher payments now to keep your monthly expenses low when you retire.
• You need to account for inflation when you plan your early retirement. Your monthly benefits will be worth nearly half of their current value in 20 years.
• Don't plan on retiring early if you are in the military. You'll likely forfeit any pension and benefits if you serve less than 20 years.