5 Ways to Retire Early

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Getty ImagesCreating a detailed financial plan is an essential step to retiring early.
By Kelly Campbell

Retirement is thought of as the time to stop working, start slowing down and do nothing but relax. For many, however, it is becoming a time for more activity. In fact, many retirees are doing things they never thought possible, like training for marathons, traveling the world and even starting their own business. Retirement as we know it has changed.

And while our activities in retirement have changed, so has our retirement timeline. Many people see this new life as a destination. People thought of leaving their jobs with the sense of retiring from something. But with this newfound inspiration, people are now retiring to something, which means many want to get there as soon as possible.

But retirement still takes resources, and you must be prepared. And to pursue an early retirement, you must have a financial plan. You need to put numbers to paper, spreadsheet or retirement calculator. This is one of the most important steps you should take before you quit your job early.

The financial plan will look at all of the variables including rates of return, inflation rates, spending patterns, taxes and even unexpected expenses. Once you put all of this information into a retirement calculator, you can then adjust things to see if you will make it without running out of money. I suggest you run your plan as we do for all of our clients, out to age 95. That way, you will likely run out of air before you run out of money. That's an important part of your planning.

The beauty of the plan is you can forecast positive events, like having good investment returns, or some of the negative events, like a long-term illness. This type of planning should be done by anyone looking to retire.

When you have your plan, you can begin to take into account the things that may allow you to retire early. Here are five things you can do now to make that happen:

Downsize. Often, people's largest expense is their house. Going into retirement with a large mortgage payment is not a good idea, as you can use up all of your income on home expenses rather than travel budgets. If you downsize to a smaller home where you end up with a small mortgage, or better yet, no mortgage, you might be able to leave your job sooner than you think.

Relocate. Many of our clients have thought about moving out of the area as one of their retirement options. This is a good idea because Fairfax, Virginia, is an expensive place to live. Houses are expensive, services cost more and you will even pay more at the pump. Moving to a more rural and/or lower-cost area can definitely help you realize your retirement dream earlier.

Several of our clients have moved to Tennessee, North and South Carolina, Florida and Arizona. These areas tend to have a much lower cost of living, so their dollars can be spread over a longer period of time.

Before you make this move, consider choosing the area where you want to live and rent a place for several months so you understand the lay of the land.

Use home equity. Many of our clients have homes that are worth hundreds of thousands of dollars. Relocating and downsizing are both good ideas. But things become exceptionally better when they have cash left over after selling their old home and buying a new one. We see this all the time, where people will sell their home in Virginia for $700,000 and buy a new home in Florida for $400,000. This difference (likely somewhere around $200,000 to $250,000 after expenses) is like "found" money and can be used for monthly income for years to come.

Work part time. Having something to do after you leave work is important for mental stability, physical exercise and stress relief. Working part time can help. Finding a great job in retirement doing something you really like to do that also brings in extra income can help you leave your full-time job early. If that new part-time employment fulfills your passions, it also keeps you physically, mentally and emotionally stimulated, which is a positive in your retirement life.

Retire abroad. Living in the U.S. can be expensive, especially compared to other countries. Moving to another country can seem like an outrageous idea, but more and more Americans are choosing this option as they hit their golden years. Many choose their new location based on cost of living. But make sure you also take into account how friendly the locals are to American residents as well as what kind of health care you will have access to. Otherwise, you may really enjoy both the new culture and the lower expenses.

Changing your outlook on retirement can have a significant impact on your happiness, especially if you are able to do what you love. But this takes planning. As you plan to potentially retire early, keep these five things in mind. You never know ... you might be able to enjoy your new lifestyle sooner than you think.

Kelly Campbell, certified financial planner and accredited investment fiduciary, is the founder of Campbell Wealth Management and a registered investment adviser in Alexandria, Virginia. Campbell is also the author of "Fire Your Broker," a controversial look at the broker industry written as an empathetic response to the trials and tribulations that many investors have faced as the stock market cratered and their advisers abandoned their responsibilities to help them weather the storm.
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