6 Steps Towards Retiring Early
Date: December 9th, 2020

6 Steps Towards Retiring Early

If you are nearing your “transition” years, you have likely thought about retiring earlier than originally planned.  After all, the allure of the golden years is quite tempting, especially after spending several grueling decades in the workforce.  It is possible to segue into early retirement if you plan carefully and consult with a financial advisor for truly informed guidance.  

Let’s take a quick look at the steps that will help you reach retirement sooner than originally planned.

Step 1: Invest Some of Your Savings

Decades ago, it was somewhat sensible to leave savings in the bank.  However, savings rates have decreased, inflation is inevitable and we are in the midst of market volatility due to the ongoing covid 19 pandemic. In other words, it no longer makes sense to leave a significant amount of money in the bank.  The minuscule amount of money your savings will make while parked in a bank savings account will not keep pace with inflation.  Sadly, inflation is likely to rise in the aftermath of the federal government’s excessive printing of coronavirus stimulus dollars.  

If you want to retire early, it is time to put your money to work for you.  At Prime Wealth Advisors we work with our clients and their individual needs determine which type of retirement account is optimal for their unique situation.  Between IRAs, 401(k)s, mutual funds, and ETFs, there are all sorts of diversified investing opportunities available to those who would like their money to work as hard for them as they did for it.  

As an example, you are empowered to contribute upwards of nearly $26,000 to a 401(k) account if you are age 50 or older.  In fact, your employer might even match all or some of your contributions.  A financial advisor will walk you through the many different retirement account and investing options, providing helpful guidance in terms of risk, taxation, and other factors. 

Step 2: Pinpoint Your Target Goal

Though it might seem intimidating to put a dollar figure on your savings goal for retirement, doing so is prudent.  If you do not feel confident establishing such a figure on your own, you are not alone.  Most people have no idea how much money is necessary to retire comfortably.  This is precisely why it is in your interest to lean on a financial advisor.  

Establishing a target savings goal gives you a financial benchmark to strive for.  This goal is determined by your anticipated life expectancy along with your desired way of life.  If you are content staying at home, watching TV and reading the newspaper, your target savings goal will be comparably low.  However, most people want to be active in their golden years, meaning additional money will be necessary to live a truly enjoyable life highlighted by vacations, family trips, restaurant outings, etc.  

Once your target savings goal is established, it is time to factor in inflation along with an expected yearly rate of return on investments.  Your financial advisor will help you crunch the numbers to determine exactly how much you should save on a monthly basis to reach your specific target savings goal.

Step 3: Pivot as Necessary

Your career, the economy, and the stock market are dynamic rather than static.  This means change is the primary constant.  What matters most is how you respond to such changes.  Your financial advisor will help you make the adjustments necessary to protect your nest egg, increase your net worth across posterity and reach early retirement.  

This is not to say you should follow the stock market on a daily basis.  Rather, making alterations such as modifying your savings contribution rate, freeing up cash, moving your retirement date or altering your overarching investing strategy as necessary will help you stay on track to reach the golden years sooner rather than later.

Step 4: Consider Risk Tolerance in Relation to Your Investing Goals

 

Those who are still in their 30s and 40s should have more of an appetite for risk than those in their 50s and 60s.  The time to take chances with your money is when you are young.  However, it still makes sense to be risk-diversified at all ages.  Your financial advisor will help you determine the optimal level of risk for your age and target retirement date.  As an example, it is not prudent to invest the bulk of your money designated for retirement into stocks, even if they are value stocks.  Rather, your nest egg should be diversified across an array of investments ranging from bonds to mutual funds, ETFs, individual stocks, land, and cash. 

 

The worst thing you can do is micromanage your investment portfolio as a “helicopter investor” who makes knee-jerk reactions on a daily basis.  Instead, review your investments with the assistance of your financial advisor at specific intervals.  This is your opportunity to ask questions, obtain invaluable insight and alter your investing strategy as necessary.  Scoop up comparably risky investments in your younger years, opt for more conservative investments as you approach your target retirement date and you stand a good chance of reaching your goal.

 

Step 5: Be Realistic About Retirement Spending

 

Think long and hard about how much money you will need to retire comfortably.  However, if you are like most people, you do not know how much money is necessary for a truly rewarding retirement.  This is where the guidance of your financial advisor will prove quite important.  Sit down with your financial advisor to review your current investment strategy along with your anticipated expenses amidst retirement.  Your financial advisor will help you determine your monthly expenses amidst retirement based on anticipated inflation, cost of living increases, and your desired quality of life.  

 

In general, it is safe to assume the amount of money you spend in the current year will be reflective of what you will spend in retirement even if you spend 25% less than you did while working.  This spending similarity is likely to result from the fact that inflation will make your money worth less in the years and decades to come, meaning you will need more of it to maintain your current quality of life.

 

Step 6: Review Your Retirement Plan at Least Twice per Year

 

Take a close look at your retirement plan twice a year to determine if it needs to be altered.  Your financial advisor can help you decide if any changes should be made or if you are still on track to meet your goal of early retirement.  More often than not, these bi-annual reviews will lead to minor adjustments that make a meaningful impact in the years ahead.  After all, it is easier to make small alterations than to find a way to come up with thousands of dollars as retirement quickly approaches.  

 

Plan Accordingly and You Will be Able to Retire Early

The time to plan your early retirement is now.  Meet with a financial advisor, ask for guidance, develop a plan of action and you just might reach your goal of retiring before 60, 65, or another age you originally had in mind.  

The moral of this story is if you have the will to reach early retirement, financial professionals can provide you with the way.  Request assistance from these financial experts and you will be empowered to make truly informed and educated financial decisions that pave the path to your golden years sooner rather than later.

At Prime Wealth Advisors our three-phase approach to retirement helps pre-retirees, retirees, and beyond. We have the unique ability to assist our clients in all five areas of wealth management: planning, investing, insurance, tax, and legal. Contact us today, for a complimentary consultation.