In the United States, the average person in their mid-40’s only has about $81,000 in savings for retirement, and that number only increases to about $125,000 for people in their 50’s, according to The Balance. A quick, back-of-the-envelope calculation reveals that their 401k will only consistently yield around $5,000 a year once they retire. For a normal retirement age, this clearly isn’t enough. For those who retire early, this is drastically short. So what’s the best time to start saving for an early retirement? Well, honestly, the best time is now.
How Much Do I Need To Retire?
You may be surprised at the number you actually need in order to retire. This number obviously varies depending on how long you plan to be retired for, but a rough estimate says you can live for 20 years if your initial balance is 14 times what you plan to draw from it annually. If you’re planning to retire 10 years earlier, you’d need 19 times that annual number, and 23 times if you’re planning to retire at 45. So, to retire at 45, if you currently live on $50,000 a year, you’d need $1.15 million in savings. Check out a retirement calculator for a more in-depth examination of how your savings will impact your retirement income.
If you can evaluate how much you’re making now, you can begin to estimate how much you’ll need annually in retirement. If you’re only making $25,000 a year now, estimate what you’ll need to have saved for retirement by multiplying it by 14 for 20 years, 19 for 30, and 23 for 40. It also helps to analyze what expenses won’t likely carry over into retirement. For instance, most people have paid off or nearly paid off their house by retirement age, which means you probably won’t need to include mortgage repayments in your budget.
Useful Tools To Help You Retire Early
Fortunately, there are a number of benefits you can take advantage of to help you reach your retirement goals. Obviously, you’ll want to take advantage of your employer’s 401k plan. Most employers have sponsored 401k programs that match contributions and don’t charge tax until the withdrawal date. Many plans even let you choose what you’re investing in if you want to take a shot at personal investing. Another trick you can use is releasing the equity in your house to make income available. Many times, retirees, whether or not they retired early, find that there are unexpected expenses, or that their investments didn’t grow as quickly as they planned. In these situations, a reverse mortgage can help take some of the burden off your shoulders by providing instant access to cash in your house. If you’re planning on retiring early, this could be a fail-safe option to consider in case something unexpected crops up.
The Simple Truth
Retiring isn’t always easy, and retiring early can be especially difficult. Ensuring that you’ve planned far enough in advance by saving properly and contributing to a 401k or IRA will go a long way to removing the stress from retirement. If that’s not enough, reverse mortgages and social security will also provide some flexible tools to navigate early retirement.
To read more on topics like this, check out the lifestyle category.