Retiring early is a dream many people share, yet relatively few are able to achieve. In fact, while half of Americans say they'd like to retire by age 60, according to a survey from TD Ameritrade, only one-third expect to be able to do so.
One of the biggest roadblocks to early retirement is a lack of savings, because the less time you have to save, the harder it is to build a hefty retirement fund. However, even if you have no savings at all, you may still be able to retire early if you take these three steps.
1. Determine how much you need to start saving
First, you'll need to set a savings target. Think about what age you'd like to retire, and use a retirement calculator to see just how much you'll need to save in order to retire at that age.
As you're inputting your information into the calculator, be sure your numbers are as accurate as possible. For example, rather than simply assuming you'll be spending less each year in retirement than you are now, create a rough retirement budget to estimate your future expenses.
In addition, be sure to account for costs like healthcare in your plan, especially if you're aiming to retire before age 65 because you won't have access to Medicare. You also won't be able to start claiming Social Security benefits until age 62, so if you plan to retire before that age, keep in mind that you'll have to rely primarily on your savings.
2. Invest aggressively (but not too aggressively)
Once you know approximately how much you should be saving each month to reach your goal, the next step is to think about how you'll invest your money.
More conservative investments like bonds may sound like the safest bet, but though bonds tend to be less risky, they also see much lower rates of return than stocks. And because you'll need your money to grow as much as possible in a relatively short period of time, it's a good idea to take a more aggressive approach and invest heavily in stocks.
That said, it's equally important to diversify your investments to limit your risk. Throwing all your money into just one or two stocks can be a recipe for disaster, so it's wise to spread your money across a dozen or so different stocks or opt for index funds or mutual funds instead.
3. Be prepared to make financial sacrifices either now or in retirement
Depending on how many years you have left before retirement, you may need to save several hundred or even thousands of dollars per month to afford to retire early.
If your monthly savings goal is out of reach, consider making some budget cuts to find some spare cash to put toward your retirement fund. You may need to make substantial cuts, but if you're determined to retire early, they may be worth it.
Sometimes budget cuts alone aren't enough, though, and in that case, you have a couple of options. You might choose to adjust your retirement expectations and find ways to live on less during your senior years, which will reduce how much you'll have to save. Or if you decide early retirement isn't worth all these sacrifices, you may simply decide to put off retirement by a few years.
Early retirement can be a dream come true, but it's a tough goal to achieve. It's not impossible, though, and with a solid strategy in place, you'll increase your chances of being able to enjoy an early retirement.