Whether you're in your 20s or already in your 50s, it's possible to set yourself up for an early retirement. All you need to do is figure out how much money you need to retire and determine what you're willing to do to hit the mark. It often boils down to planning and discipline.
If you've been dreaming about early retirement and have no idea how to get the ball rolling, start with these four tips.
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1. Save more money
Saving money may not be the most glamorous goal on your early retirement checklist, but it's a surefire way to achieve your goals. If you're used to saving 10%, you might want to take your savings up a notch -- say, to 30% this year.
Let's say you earn $100,000. Instead of saving $10,000, you can aim to save at least $30,000 and tuck that money away in a high-yield savings account. You may have to shift a few things in your life to make this happen, such as trimming unnecessary expenses or cutting back on fancy dinners. But if those adjustments can get you to the finish line faster, the savings goals are worth it.
On the other hand, if you're not earning enough money to save more, this is a good time to learn new skills or take on a side gig. Take a look at the in-demand skills in the marketplace, look into training opportunities, and start the networking process. A boost in income can make it easier to save more if you live below your means.
2. Contribute to your retirement accounts
While you're still working, you want to make the most of employer-sponsored benefits, like a 401(k). For 2024, you can contribute up to $30,500 if you're 50 and older. But if you haven't hit that age yet, you can contribute up to $23,000, which is still a good chunk of money to put toward retirement this year.
Retirement accounts at work are special because your employer may throw in a 401(k) match, which is essentially free money that your employer will put toward your retirement plan when you contribute money to the account. If you're 50 years old, it isn't farfetched to say you can build a six-figure 401(k) in three years if you count contributions, employer matches, and investment growth.
Contributing to your company's retirement plan can help you speed up the retirement-saving process, but it's not the only account you should consider. Depending on your income, you may be able to stash away up to $7,000 ($8,000 if you're 50 and older) in an individual retirement account like a Roth IRA in 2024. With this account, you contribute after-tax dollars now in exchange for tax-free withdrawals after you've reached 59 1/2 and met the requirements of the five-year rule.
If you withdraw money from a Roth IRA before you hit 59 1/2, you won't be penalized if you've contributed at least that amount to the account. Let's say you've contributed $50,000 over the last 10 years and your account balance is now $150,000. If you withdraw $40,000 during early retirement, you won't be penalized because you've contributed that much to the account. But if you touch the earnings in your Roth IRA before your time, you may be on the hook for taxes and penalties.
3. Open a brokerage account
If you plan to retire early, it's important that you open a brokerage account. This account will give you the freedom and flexibility to buy and sell assets of your choice. You'll just have to pay taxes on any income you earn or profits you take during the year. However, you can decrease your tax bill if you qualify for the long-term capital gains or qualified dividend tax rate.
You could even use your brokerage account to build a dividend portfolio that pays your bills during early retirement. Let's say your bills are $2,500 a month. You can build a portfolio that produces at least $30,000 every year in dividend income. That way, you don't have to worry about dipping into your savings to pay your bills every month.
Another benefit of a brokerage account is that you don't have to worry about incurring penalties if you dip into the account before you reach a certain age. You can't tap most of your retirement accounts until you hit 59 1/2 -- unless you're fine with paying penalties and taxes -- so it's important to have other funds available that can support your early retirement.
If you follow these simple steps, you'll be on your way to retiring early and living life on your terms.
