Want to Retire Early? These Are the Three Financial Goals You Should Aim for
Have you been taking your retirement savings seriously? Most Americans haven’t. In fact, statistics show that almost 74 per cent of the country’s working population is falling behind on its retirement goals.
This means that most people expect to work way past their retirement age in order to make ends meet. 2017 Gallup poll suggests that 25 per cent of Americans think that they’ll never stop working. The dream of retirement is slowly getting out of reach but with the right planning and determination, you could even retire early!
Of course early retirement isn’t an easy feat, because you’ll be working for fewer years and relaxing for more. This means that you’ll need to build a bigger nest to cover the expenses including healthcare, since you won’t be eligible for Medicare until you’re 65. You’ll have to make some sacrifices for an early retirement, but if you aim for these three goals, your dream is definitely within reach.
Make at least 20% Contribution Towards Retirement Fund
Vanguard’s data from 2017 shows that average Americans contribute almost 6 per cent of their paycheck towards a 401(k) plan. But if you’re eyeing an early retirement, you’ll need to up your contributions by at least 20 per cent in order to supercharge your savings.
If you are already enrolled in a 401(k) plan offered by your employer, try to max out on your contributions so that you get the full employer match. Currently you can contribute up to $18,500 annually if you’re under the age of 50. People older than that can take advantage of the catch-up feature that allows them to make an additional $6,000 in annual contributions. If you have any money left over, simply put it in an IRA account.
If you don’t have a 401(k) plan, start saving for retirement by maxing out on an IRA plan. Since these plans have much lower contribution limits ($5,500, or $6,500 for people above the age of 50), you’ll have plenty of money left over to invest in a brokerage account. Brokerage accounts can be beneficial if you retire early since 401(k) and IRA plans often charge 10 per cent penalty if you withdraw funds before the age of 59.
Balancing Risk with Reward
Most people stick to conservative investments such as CDs and money market accounts which has lesser risk but an equally less potential to earn reward. If you want to retire early, you may have to go big and add riskier investments to your portfolio. An aggressive investment approach doesn’t necessarily mean that you need to put your money into one sector and hope that it works out. You’ll need to take a strategic approach in order to make big returns on your investment.
One strategy to balance risk with reward by investing some of your money in less risky low-cost funds and the rest in stocks to make higher returns. Your risk to reward ratio should depend on how quickly you want to grow your retirement fund and how comfortable you are with taking risks.
Work a Second Job
A recent report from Bankrate shows that almost 37 per cent of the working population in America has a side hustle to bring in extra cash. This extra income can amount up to $700 per month or $8,000 per year – which means that you can put even more money towards your retirement fund.
A side hustle can be anything from working for Uber or Lyft to selling homemade goods online or even finding a freelance gig suited to your job skills. If you have some extra space in your home, you can even rent out a room on Airbnb for additional income. Your side business won’t make money instantaneously so don’t get discouraged if you’re only make a couple hundred dollars in the beginning – every little bit counts when you’re saving for retirement.
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