The Dummy’s Guide to Early Retirement

Are you one of the 72 percent of American workers over the age of 45 who want to retire early?1 If so, you may face some serious challenges in the pursuit of your goal. Retiring early is possible, but it requires a substantial amount of planning, focus and discipline.

One of your biggest challenges may simply be the length of your retirement.

 Even workers who stop working at a traditional retirement age could face a retirement that lasts for several decades. If you retire early, it’s very possible you could spend more time being retired than you do saving for retirement.
You’ll also need to overcome challenges like inflation, medical expenses and more. That doesn’t mean your vision of an early retirement is a pipedream. It just means you may need to work extra-hard to make your dream a reality.

Below are four quick tips on how to achieve your goal. Follow these tips and you’ll be off to a great start on your path to early retirement.

1.  Max out your retirement savings.
Saving at a high rate is important for anyone who is planning for retirement. It’s especially important, though, for those who want to retire early. If you want to retire at a relatively young age, that means you’ll have a shorter career, which in turn means you will have a compressed savings period.

While most workers may have 30, or even 40, years to save for retirement, you will have to do it in a much shorter period. That means you may need a much higher savings rate than other workers in order to reach your goal.

You may want to consider maxing out your 401(k) or other employer-sponsored plans, as well as an IRA. In 2016, you can contribute up to $18,000 per year to your 401(k) plan, plus another $6,000 in catch-up contributions if you are over age 50.2

You can also contribute up to $5,500 to either a traditional or Roth IRA. Again, if you are over the age of 50, you can make an additional catch-up contribution of up to $1,000.3

2.  Eliminate debt.
If you retire early, your biggest challenge may be making your savings last the rest of your life. To do that, you may need to live on a carefully planned budget, and you’ll need to spend only on the most important items. Carrying debt into retirement could sink the entire plan.

Look for ways now to eliminate debt before you retire, if not sooner. Consider downsizing to a smaller home so you can pay off your mortgage faster. Pursue a plan to aggressively pay down credit card debt as quickly as possible. If you’re married, consider whether you could get by with one car in retirement, so you can eliminate a car payment.

Debt will be a drag on your budget and will limit your ability to stretch your savings. Work hard to eliminate debt as quickly as you can. If you do, you’ll improve your odds of successfully retiring early.

3.  Identify a health care strategy.
Another concern may be finding health care coverage after you retire. Most retirees don’t qualify for Medicare until they reach age 65. And, retiring at 45 also means you also won’t have the benefit of your employer’s health care plan.

That means you may need to find an individual plan to cover you between the time you retire and the time you start Medicare. You also may want to save today for future health care expenses. For example, you could fund your HSA as much as possible today. You can take it with you into retirement and then withdraw money tax-free to pay for qualified medical expenses.

4.  Add to your sources of guaranteed income.*
The earliest you can start Social Security is age 62. If you retire early and don’t have a pension, you may not have any guaranteed income until you start receiving Social Security benefits. That could be a problem. Guaranteed income can provide you with much-needed assurance to help pay your most important and urgent expenses.

Consider using an annuity to create a stream of guaranteed income. A single premium immediate annuity allows you to convert a lump-sum premium into a guaranteed stream of lifetime income.

Also, you could purchase a deferred annuity with a guaranteed minimum income benefit. That’s an optional feature allowing you to withdraw a certain percentage each year. As long as you don’t exceed the allowed withdrawal rate, the withdrawal is guaranteed for the rest of your life, no matter how your annuity contract performs.

The key to retiring early is having a strong plan in place. Talk to Jewels Harris about your early retirement goals. He or she can help you develop a plan and put it into action.

1http://www.cnbc.com/2016/01/26/want-to-retire-early-you-may-not-be-able-to.html
2https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-Limits
3https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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