The biggest obstacle to a successful retirement is procrastination. For over 30 years I have helped individuals and their families plan for retirement and the most common complaint is that they wish they had started earlier. Use this simple plan to get started and keep moving in a positive direction.
Plan for an early retirement:
Step 1 – Start young: Question: What is young? Answer: You, right now. It doesn’t really matter how old you are, if you’re concerned enough to read this you’re good to go. Whether you’re 21 or 51, you can still have a positive impact on retirement. My hope is that you are in your 20s and 30s because this will make your endeavors easier and more rewarding. But either way, start now.
Step 2 – Start small: Taking the first step is always the most difficult. If you have a 401K (or similar plan) available at work, join it tomorrow and start adding a small amount each pay period. If you can pay more, please do so. If your employer matches contributions, find out how much and try to get the maximum as quickly as possible.
If you don’t have access to a 401K or similar plan, set up your own IRA. It can be a Roth or a Traditional depending on your income tax situation. If you think you are paying too much in income taxes, check out a traditional deductible IRA first. If your taxes are reasonable, consider the Roth version, which will be tax-free when you retire, but not deductible now.
Call or visit the website of a discount broker, such as Charles Schwab, Fidelity, or any of the better known names, and open your own IRA brokerage account. Then establish a weekly, paycheck, or monthly contribution to your IRA. You can usually start with as little as $ 25 to $ 50, but the most important step is to start now.
Step 3: Invest regularly: Once you start to build up some money in your account ($ 250 to $ 500), you should start looking at your various investment options. Choose one or two options and have your weekly or monthly contributions allocated directly to these investments with every deposit. You will invest during good markets, as well as during market downturns, which actually helps your portfolio’s performance over the long term.
Step 4 – Don’t get too aggressive: Many younger investors try to be overly aggressive with their retirement savings, trying to make a “killing” and a big windfall. Unfortunately it usually works the other way around, they make some profit, they get greedy and then the markets crash and they lose more than they made. Then they panic, jump and lose.
Try to avoid being overly aggressive, but don’t be overly cautious either. Try to select a couple of good stock and bond funds that have a strong long-term track record and take a balanced and diversified approach to managing your money. You may never get big returns, but you will always get a better than average return.
Step 5 – Increase as available: The next important step to early retirement is to increase your retirement savings as often as possible. If you receive a large income tax refund, change your withholding and put those dollars in your retirement accounts on each paycheck. If you get a raise or promotion, try to take at least half of the raise and invest it in your retirement. If you don’t have time to work or take a second job, try using that extra income to add to your retirement savings. Every year, try to make an increase if possible.
Step 6 – Review and evaluate: It is very important that you regularly review your entire financial situation, especially your retirement savings. That doesn’t mean you have to see it every day or even every month. If you look at it quarterly and make any necessary adjustments, you should be fine. It shouldn’t take more than an hour each quarter to look at account statements, compare quarterly and yearly performance, and ask yourself this question. Should I make any changes now or let it run for another trimester?
Step 7: retire early: If you’ve followed the steps above and kept moving forward with your retirement plans, you should have built up a considerable amount of retirement savings. The next step is to coordinate all of your retirement income streams, analyze your retirement cash flow needs, put inflation into the picture, and find that magical date when you can start enjoying your retirement.
My favorite definition of retirement: “When life is affordable … and work is optional.”
Summary: If you give yourself as much time as possible to work through this process and stay focused on your end goal, you will be successful. As you can see, it doesn’t mean you have to sacrifice everything just for retirement, but the more you can save when you’re young, the more time you’ll have to grow and compose. Over the past 30 years, I have seen many clients who have followed this plan and actually retire earlier than expected. They were better prepared and found that they were even busier after retirement than when they were working.
The big difference was that they were doing what they wanted to do … not what they had to do.
