Whether you have lost your job due to downsizing or you’re just ready to stop working, you can retire earlier than you expected. This will require additional planning since retiring early means stretching your savings further. It’s important to recognize that you won’t be working as long, and you won’t be contributing as much to your retirement accounts as you originally estimated.
Estimate Your Total Monthly Expenses
The first step is to estimate how much money you will need each month. You should have paid off a mortgage by this stage in your life, and you should be debt free. If you are still paying creditors, try to work out a way to pay those debts off first. Your retirement spending should include your utility bills, subscription services, and other financial obligations. It should also include money for medical care expenses, entertainment, and other random spending patterns. Creating a detailed and accurate estimate of your expenses will help you to better estimate how to ration out your retirement savings.
Calculate Your Retirement Needs
Now that you know how much money you will need each month, you can estimate the amount you’ll need to fund your early retirement. Multiply your monthly expenses by 12 to determine your yearly needs. That sum should be multiplied by 25 or 30 to calculate how much money you’ll need to fully finance your retirement. If you determine that your retirement savings are insufficient, you should look for ways to reduce your monthly spending. This might involve eating more meals at home, buying coffee in bulk, or canceling a cable subscription in favor of streaming content online. Start a spending diary to see where you are overspending or spending unnecessarily.
Max Out Your Contributions
The IRS limits how much you can contribute to your retirement savings accounts each year. If you’re under 50, you can only contribute up to $6,000 annually, so you should make sure to meet that limit. Once you turn 50, you can contribute an extra $1,000 on an annual basis. Meeting the maximum contributions for your age can help you save more for your early retirement.
It can also be helpful to consult your financial advisor before taking any action. They may present issues that you haven’t considered, and they will have solutions that will help you resolve any challenges to retiring early. Your advisor can recommend steps that will make it possible to enjoy your early retirement.