It's a familiar dream: Start a successful company, sell it for big bucks and hit the beach while you're still young enough to enjoy it. But what if you, like most Americans, haven't struck it rich professionally or via inheritance -- is the dream dead?
The short answer: not necessarily. Here are some things to keep in mind as you consider whether retiring early is feasible.
LIST YOUR GOALS
You'll have to define your retirement goals clearly. How do you envision your life after you hang up your spurs? Are you willing to overhaul where you live, how you spend your money and your daily activities? Are you planning to sell your house or travel?
The average retirement costs more than $700,000. Retiring early may mean your costs will be higher. And, keep in mind, more people are living longer. A recent University of Michigan report showed the number of people living to the age of 100 in the United States has nearly doubled in the past 20 years (to roughly 72,000) and is predicted to double again by 2020.
That means you may need to nurse your retirement funds longer than previous generations of retirees. You don't want to outlive your money!
So how can you reach the goal? Financial experts recommend saving as aggressively as possible while you are working full time. In addition to putting money into employer-sponsored retirement plans, you should also be saving in other ways (more on that later) and investing to grow those funds.
BE HONEST ABOUT SPENDING
Financial advisers say honesty regarding your spending habits is the most important part of planning for retirement. It's also critical to be conservative in estimating how your investments might grow, and be aware of costs that can quickly consume your savings -- like medical expenses -- as you get older.
"Being realistic about standard of living -- that's where the human side comes in," Mark Struthers of Sona Financial, told CBS MoneyWatch. "Be honest about how much it's going to take. Don't just put up a number that sounds good."
If you hope to retire early, Struthers said, you need to start planning early. "How much do you have in the emergency fund because of that time frame? What's tough is, this can't be done when you are turning 50. You should plan far in advance if possible. The mistake many make is they don't actually go into the numbers."
And crunching the numbers reveals just how much planning might be involved: according to Bankrate.com's retirement calculator, a 30 year-old making a $75,000/year salary would need to save 65 percent of his or her income to retire comfortably at age 50, and have enough for a 40-year retirement.
PREPARE FOR EMERGENCIES
Other numbers to keep in mind are unforeseen health care costs, which can add up fast for retirees, jeopardizing their financial goals. Many people don't think about how much an employer health plan can actually save them in medical expenses. Early retirement also means considering what you'll do for insurance coverage until Medicare is available in your 60s.
A recent Fidelity study showed that a typical 65-year-old couple retiring in 2016 would pay an average of $240,000 in health care costs over their retirement. That's even with Medicare, which rarely covers potentially heavy long-term care costs.
"Even when you do retire at the Social Security age of 65 or 67 and you get Medicare, there are still a lot of costs that can go along with staying healthy," said Kelly Luethje, a financial adviser at Willow Planning Group. "It's regular doctors appointments, prescriptions, etc. The figure I use right now is about $5,000 per year for a retiree to pay on top of Medicare."
If you retire before age 59½ , you won't be able to access retirement accounts like 401(k)s or IRAs without being taxed and penalized for early withdrawal. That means you'll need to bridge the gap between when you retire and when you'll be able to take out that money by using other vehicles.
Eric Roberge, financial adviser at Beyond Your Hammock, tells clients looking at early retirement to diversify their investments.
"I always make it a point to let them know that they should diversify their account types just like they do their investment portfolios," he said. "Based on the various tax laws and the chance that they may change in the future, we want to prepare for all outcomes. A good rule of thumb is to have some tax-deferred -- a traditional 401(k) and/or traditional IRA, tax-free Roth 401(k) or Roth IRA -- and a taxable brokerage account. With those three account types set up, you can then figure out how much to save to achieve your retirement goals."
EMBRACE THE SIDE HUSTLE
Ideally, early retirement won't mean you completely stop earning money and live solely on savings. Most financial planners say it is a big plus to have alternate income streams, such as real estate rents or spending a few hours each week consulting at your old company. That way, if an emergency does happen, you're in better financial shape to handle it.
"Building a side business or learning new skills now can help increase income today, which in turn can help you increase savings rates and benefit you with an established income stream on your terms in retirement," Noah Schwartz of Blueprint Financial Strategies, told CBS MoneyWatch.
"You've got years, maybe decades, to develop another business. Why not start now?"
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