I’m a Financial Planner: 5 Tips That Could Help You Retire 5 Years Sooner Than You Planned
The goal for those in the working world is to be able to retire and have enough money to live a grand ol’ post-career life. Usually the age for retirement is somewhere around age 65, but what if you had the opportunity to cash in on your savings and dip out of work five years early? It sounds like a pretty sweet deal, though, it takes some initial planning and strategizing.
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“Retiring five years sooner than planned requires a strategic and disciplined approach during one’s working years,” said Daniel Morris, the founder of Senior Living Interviews
“By diligently saving, investing wisely, managing expenses, and planning for contingencies, individuals can position themselves to retire five years sooner and enjoy a financially secure retirement.”
GOBankingRates asked a few financial planners for the top five tips that could help you retire five years sooner than you planned.
Also here are three reasons you might regret retiring early.
5. Maximize Your Savings
If you have already set up savings accounts for retirement, you will now want to optimize them to make sure you are getting the best rate possible and growing your funds faster than you had originally anticipated.
“First, maximize tax-advantaged accounts like IRAs to reduce your tax burden in retirement,” recommended Marty Burbank, an estate planning attorney who has personally witnessed many clients able to retire earlier than expected by diligently planning ahead.
“Having prepared thousands of tax returns over the years, I’ve seen people make costly mistakes that delay retirement,” recalled John F. Pace, CPA and tax manager for Pace & Associates CPAs, citing that the key is planning ahead and being strategic.
“Maximize tax-advantaged accounts like 401(k)s and IRAs,” Pac agreed. “The sooner you start contributing, the more years of tax-free growth and compounding interest.”
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4. Eliminate Debt
The financial cloud that tends to hang over most people’s head is debt. It might be from a mortgage or student loans and while it might not be impossible to forever rid yourself of debt, you can work towards getting out of it sooner or minimizing the amount you are carrying in order to get to retirement five years faster.
“Pay off high-interest debts now since interest costs won’t decrease in retirement,” Burbank advised.
3. Carefully Watch Your Finances
If you do not have a budget currently and are not keeping all your expenses tracked, you might have a problem not just retiring five years early, but retiring at all.
“Track your spending and make a retirement budget to determine how much you need to save,” recommended Pace.
“Most people underestimate how much they spend,” Pace continued. “Look for ways to reduce spending by eating out less or driving an extra year before buying a new car. Small changes can add up to big savings over time.”
2. Passive Income Is Key
While you might have your sights set on not working full or part time any more, you will still need sources of income that are generated on a monthly basis. The trick is to find a passive income stream that takes little oversight and effort to maintain, yet comes with big paydays.
“Look for ways to generate passive income,” suggested Burbank, who gave the example of owning and maintaining a rental property.
Pace suggested that some other ways to generate passive income include investing in dividend stocks, real estate, or starting a side business.
“This provides income without having to work full time,” Pace explained. “Consider part-time work in retirement to supplement income. Many retirees work part time doing something they enjoy.”
“Even a few hundred dollars a month provides financial freedom. One client used her retirement fund to buy a duplex, living in one unit and renting the other. The rental income covered her living expenses, allowing her to retire 10 years early,” Burbank shared.
1. Get A Financial Advisor
It might come as no surprise, but financial advisors recommend you hire one of them to help you with your retirement planning. And with good reason, particularly if you want to clock out of the workforce five years early.
“Meet with a financial advisor to create a realistic budget and see if you’re on track,” said Burbank. “An advisor found ways for a client to trim $500/month from his budget by adjusting insurance coverage, allowing him to retire 3 years sooner.”
This isn’t just to cover things like savings and retirement plans, but coverage for the future once you are retired.
“Review insurance needs as retirement approaches,” Pace advised. “You may need life insurance for a surviving spouse or long term care insurance as healthcare costs rise with age. Meet with a financial advisor to develop a comprehensive retirement plan.”
“Retiring early requires strategic planning and the right mindset,” concluded Burbank, noting that with diligence, it’s achievable.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: 5 Tips That Could Help You Retire 5 Years Sooner Than You Planned
