Many Americans wrongfully believe that only the very wealthy can enjoy the luxury of an early retirement. But the good news is even workers with a middle class income can retire at an early age—it just takes some flexibility, creativity, and early and strategic planning. If you don’t want to keep working until you’re in your 70s or 80s, you might not have to. You could retire at almost any point after you reach 55 years—it’s just a question of how much you want to live on and how willing you are to change your standard of living. If you retire early on a middle class income, you can’t expect to live in luxury during your later years.
Here are some steps you can take for early retirement.
Know Your Budget, After Tax
Of course, if you’re going to retire early, you’re going to need to ensure that you’re financially capable of doing so. You don’t want to run out of money after a few years. So the first thing you need to do is know your budget, after tax. You can use a software program like Quicken to track your software. Keeping track of and then adding up your predicted retirement expenses will allow you to better understand where your money needs to go and how much money you’re realistically going to need on an annual basis once you retire.
Consider Your Location
Location, location, location. Your housing needs are going to make up a big percentage of your retirement budget, but there are things you can do to reduce the amount of money you’ll need. If you want to take part in early retirement, you might not be able to live in your current location. You might need to consider moving to a lower cost part of the United States or even moving to other parts of the world where your dollar will go much further, such as Panama or Costa Rica. When considering where to live, make sure you pick an area with good healthcare standards and one where your insurance will still cover you.
Work Part Time
One of the easiest ways to be able to move on from your 9-to-5 job and partake in early retirement is to work part time during your retirement years. If you don’t want to lower your standard of living too much, then working part time can be the best way to earn some much-needed income, especially if you’re going to delay claiming Social Security. Consider doing something you love, or at least like, a few hours a week.
Cut Your Expenses
Part of preparing for early retirement is to cut expenses where you can. Your income will be significantly reduced, so you’re going to need to make some changes and slash some expenses. Maybe you can stop going on annual trips overseas, quit going golfing every week, or quit going to the spa every weekend. Once you consider your expenses, you’ll realize that there are some purchases that you’ll be able to do without.
Choose Your Health Insurance Wisely
One of the easiest ways to sabotage your early retirement is to be stuck paying for costly unexpected medical bills. Do your research and understand your health insurance options, especially when it comes to long-term care insurance. Make sure you’re protected in case of illness, disability, or accidents.
Apply the 4% Rule
When you retire early, your money is going to have to last you for many, many years, especially considering today’s average life expectancy. To make sure you don’t blow through all of your hard-earned savings, use the 4% rule: you should only be using 4% of your total retirement income each year.