How to Plan for Early Retirement

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Daydreams of lying on a sunny beach or strolling through a country garden often invade our thoughts during the 9-to-5 grind. Many people work for more than 50 years before being able to retire. But for those who want their leisure daydreams to materialize sooner rather than later, an early retirement could be the key. You can develop a winning plan to hasten the day you will walk away from the workforce.

  • Calculate how much money it requires to maintain your current lifestyle per year. Use this as a gauge of what you will need in retirement. Figure in expectant costs for the lifestyle you plan to have after you finish your working career. Account for cost-of-living increases and increasing health care costs as you age.

  • Plan for retirement by putting money in low-risk investments, such as your pension, 401(k), annuities, Social Security benefits, Individual Retirement Accounts and personal savings.

  • Invest a small portion of your current income into mutual funds that are non-tax-sheltered. Locate funds that do not have custodial fees or commissions. These are referred to as "loads."

  • Invest a sizable amount of your income in 401(k) and IRA accounts. Take advantage of the tax benefits these investments offer and leave the money there during your entire working career. Don't be afraid of losing some of these funds due to early retirement; the 10 percent early withdrawal fee is generally waived once you reach 56 years old.

  • Place some funds in money market accounts with decent interest-earning rates. Invest in money market as well as your other investment funds regularly. Speak with an accountant about setting up automatic investments of 10 percent of your income.

  • Look for part-time employment in addition to your regular job to increase your savings. Apply for temporary jobs and/or find extra work you can do from home to put extra funds into your savings account.

  • Cut down on your lifestyle expenses now. Save in little ways, like decreasing the number of times you eat out in a month, trim your entertainment budget, reduce your shopping trips and wash your car yourself. Make a list of your general monthly expenditures and find ways to lower the total.

  • Move to a less expensive residence if you are really serious about an early retirement. Figure out what would be the most modest home to meet your family's needs and an area you can live in for that price.

Tips & Warnings

  • Consider living in a state with lower taxes, such as Alaska, Wyoming, Nevada or Texas. Save rather than spend windfalls like tax refunds, stimulus checks and inheritances.
  • Remember, there are risks to investing. Don't invest so much or in too many high-risk funds; you will need to have something to fall back on should disaster strike.

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