Can I Retire at 50?

You can retire even with kids in a high-income area.

Leaving the corporate world and retiring at 50 or earlier is not a "pipe dream" and probably doable for the average person. Unlike some romantic depictions of retirement involving play and golf and global traveling, you are more likely to live a frugal life and you may even continue working -- albeit part-time. The key to early retirement is saving, investing and avoiding debt like the plague.

Saving

The more you save and invest in your 401k or Roth IRA retirement plan -- which offers tax-free savings -- the sooner you can retire. Investing your money gives you passive income to live off of, but you will probably need $25 in an investment vehicle for each $1 you hope to earn in retirement, according to CNN. Calculate what you think you need for retirement and consider adding a cushion for inflation. Your employer probably offers a 401k calculator to help you estimate your needed retirement income.

Considerations

People who retire at an extremely early age often stay in the workforce, but at part-time work they feel passionate about, such as a home business, rather than a standard 9 to 5 corporate job. You will need to live in a cost-conscious way, such as forgoing depreciating, big-ticket items like large televisions and always shopping for bargains, even when saving and raises offer more disposable income.

Time Frame

Part of building wealth involves time due to the compounding nature of investing. Just $10,000 growing at 6 percent per year becomes $10,600 after year one, but because you earn interest on your interest, this turns to $42,900 in 25 years. Double the average rate of return to 12 percent and you have $170,000 off that $10,000 investment in 25 years. Thus, you can supplant a higher income by saving sooner.

Tip

When allocating your investment monies, avoid putting all of it in a single area of the market, such as biotechnology stocks. Herb Hopwood, president of Hopwood Financial Services in Great Falls, Virginia, suggests putting 70 percent of your investment stash into a diversified portfolio that returns 8 percent and not touching the balance. Taking money out of the balance destroys the earning potential of your retirement savings. Some extremely conservative and frugal early retirees suggest putting all of your money into CDs, which offer a lower return than stocks, but provide much more stable income.

References

• Bankrate: Dare to Retire Before 50
• CNN: 'Can I Retire by 50?'
• MSN Money Central: Retired by 50: What It Really Takes
• The Motley Fool: How to Retire at 50 -- or Soon After