Many people share the dream of retiring early. In order to achieve that goal, workers must often begin saving very early. You may wonder if your early retirement plans are doomed if you haven’t saved much money in your career, and it’s good news that they’re not.
It is better to start early retirement savings as soon as possible. If you’re late to the game, the goal doesn’t have to be abandoned. You may need to be aggressive with your savings efforts, align the right income streams, and be reasonable with your spending.
1. Make sure you contribute the maximum to your retirement plan.
Over the past 15 years, you might have barely contributed to your IRA or 401(k). That’s obviously not ideal. Wealth can still be built in your late 30s and retired in your late 50s. It’s a smart idea to max out your IRA or 401(k) from now on.
Let’s say you max out your IRA at today’s levels between the ages of 39 and 59. Also, let’s assume you load up your IRA with stocks to generate an average annual return of 8%, slightly below the stock market average.
You will end up with a total of $287,000. Although that’s not a lot of money, you can make it work if you have other income sources. Your extra money can be deposited into a brokerage account so that you might have another several hundred thousand dollars by the time you retire if you can save more than an IRA allows.
On the other hand, a 401(k) plan offers a much higher contribution limit than an IRA. In today’s market, if you max out a 401(k) between 39 and 59 and earn an average annual 8% return, you’ll have just over $1 million. That’s enough to retire early and enjoy it as well.
2. Create a passive income stream
You can fund an early retirement with the money you pull from your savings. Additionally, setting yourself up with a sustainable income stream once you leave your career is essential.
There are many benefits to considering real estate in this regard. The value of an income property may rise over time, allowing you to sell it at a profit in the future. However, your monthly rental income can help you cover your retirement expenses.
Dividend stocks, bonds, and REITs (real estate investment trusts) are other income-producing assets. With those assets, you could have a predictable income to look forward to regularly.
3. It may be time to reset some expectations
Traveling to Europe three times a year and living it up in a big city might be your dream retirement. Getting a late start on saving may signify that you need to rethink your plans. You may not have the income to travel frequently and live somewhere expensive. But that doesn’t mean you can’t retire early and enjoy local trips, low-cost entertainment, and the freedom of not having to follow a schedule.