How to Invest for an Extremely Early Retirement

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To invest for an extremely early retirement, you must keep organized and be willing to take on some risk. There should also be an element of safety incorporated into an investment portfolio to provide stability in the event of market losses. Assess how much money is realistically necessary for retirement and account for inflation. Hire a financial adviser to help support investment decisions that will ultimately lead to the desired result of early retirement.

Introduce Experts

  • Ask a human resource professional at your job what the current retirement benefit will be worth based on market conditions. This professional should be able to perform a calculation that will provide an estimate.

  • Hire a wealth manager to advise on investment decisions if the retirement fund is a personal account, such as an individual retirement account, or IRA. A full-service stock broker will be able to provide support on investment decisions.

  • Tell either an employer representative or financial adviser at what age you want to retire, especially since it is likely to be soon. Clearly outline goals, such as travel or any anticipated health costs so that the professional can create a risk/reward profile based on your expectations.

  • Decide if monthly annuity payments or a lump-sum retirement benefit payment is desirable. If you prefer the latter, arrange conditions so that you can roll over an employer-sponsored pension to an IRA to avoid harsh tax charges.

Prepare

  • Create a budget as soon as you begin saving for retirement, Bankrate.com recommends. This will help you to determine how much cash you need to contribute to a retirement plan each year to reach your goals.

  • Contribute as much cash as you can into a retirement plan each year. The Internal Revenue Service, or IRS, sets forth limits as to what you can contribute. At the time of publication, however, the general contribution limit is $5,000 a year -- $6,000 if you're age 50 or over --- or your taxable compensation for the year; whichever is lesser. Your contribution limit depends on personal circumstance, such as your available deductions and your marital status. Take advantage of any programs in which an employer will make matching contributions to the plan.

  • Seize any tax savings that might be available to you. In a 401k defined contribution retirement plan, you receive tax benefits for making the maximum deposits allowed, according to Bankrate.com.

  • Assess your current age in relation to the age in which you hope to retire. You can roughly estimate prudent contributions to make based upon your age to retire early; the older you are, the greater the contribution should be.

Asset Allocation

  • Allocate an investment portfolio so that there is exposure to various asset classes. Equities, bonds and real estate are three such categories. Return expectations should vary for each category.

  • Incorporate risk into a retirement portfolio when in pursuit of an early retirement. Investing in hedge funds may be risky and lightly regulated, but they generate some of the highest returns that the financial markets have to offer.

  • Add safety to a retirement portfolio through government bonds. These conservative securities are dependable and will provide some steady returns.

  • Consult with an investment consultant to determine the precise asset allocation, or exposure to each asset class, that is appropriate based on market and economic conditions. You should expect to make investment changes as the economy goes through different cycles.

Tips & Warnings

  • In the event a retiree chooses to accept a lump-sum payment retirement benefit, health insurance coverage through an employer retirement play may be sacrificed.

References

  • Photo Credit Hemera Technologies/AbleStock.com/Getty Images
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