Most people assume that they will retire in their 60 or 70s, likely because that is when Social Security kicks in. However, there are no rules about when you can retire; you just need to be able to replace your income with another source.
That being said, it may be possible for you to retire at 55, 50, or even sooner. If this is a goal that you have, take these steps to begin funding your early retirement.
1. Consider your retirement lifestyle
Determine what kind of lifestyle you want to be living during retirement. Do you want to travel, spoil the grandkids, spend the weekends on your boat? Or do you foresee a quiet retirement at home, relaxing and enjoying your free time? The retirement lifestyle you anticipate will significantly affect how much you need to save.
In our experience, outside of singular “bucket list” events, most retirees don’t sustain a higher level of spending than they had while working. This is especially true of those that can be characterized as frugal and good savers.
2. Calculate retirement expenses
Once you have an idea of what you want your retirement to look like, you can begin to estimate how much you need to save.
Here are some expenses to take into consideration:
Some expenses, like healthcare, tend to increase throughout retirement. Others, like transportation and entertainment, will peak near the beginning of retirement and then slowly decline. For most upper-middle-class families, expenses typically decrease over time as falling expense categories overwhelm increasing medical expenses.
Additionally, consider what age you want to retire, life expectancy, and inflation rates. The best predictor of your spending in retirement is your spending in the years previous to retirement, but make sure to take out the taxes you are paying and the savings you are putting away. Work with your financial advisor to analyze all these factors and determine your retirement savings goal.
3. Make a plan
Once you know how much you need to save, decide how you are going to get there. Retiring in your 60s can take discipline; retiring earlier will most likely require some additional trade-offs. The key is to remember that you are sacrificing now so that your future, happily retired self will thank you.
The most critical step to getting on track to retire early is to identify the savings rate you need to have today and then put that money away first. Take those extra dollars and invest them. Work directly with your financial advisor to develop an investment plan catered to your personal risk tolerance, which will help you achieve your goal of retiring early.
4. Resist lifestyle creep
Most people live on what they earn. The more they make, the more they spend. However, if you want to retire early, you will need to mentally separate what you earn from what you need to live. Try to avoid the urge to spend more when you get a raise or a bonus; instead, put that money straight into your retirement funds.
Remember, many people with the goal of retiring in their 40s or 50s are saving 50% or more of their annual income. What trade-offs are worthwhile to you?
5. Make the most of your retirement accounts
And last but not least, the first place to save is almost always those retirement accounts. If the employer you work for offers a 401k match, take full advantage of it. If you are in a higher tax bracket, you’ll likely want to max out all your pre-tax accounts first. If you are over the income limitations for a Roth IRA, a backdoor Roth contribution may still be available to you. These tax-advantaged accounts will enable you to save more money faster, and investments grow more quickly when in tax-advantaged accounts
As you strive to meet retirement goals, consider working with the fee-only planners at IMAFS in Boise, ID. We specialize in retirement planning for doctors, and we will help you every step of the way to achieving your life goals. Whether you are just starting your work in the medical sector or are looking to finalize your retirement strategy, trust some of the best financial advisors in Boise, ID. For more information about our physician retirement planning services, contact us today!