Retirement should be defined by leisure, enjoyment, and relaxation. This is the period of your life where working should be optional, not necessary. Hopefully, you’ve saved and invested enough money over the course of your career, and now your money is going to work for you. Today, more Americans are retiring than ever before. According to the Alliance for Lifetime Income (ALI), 2024 marks the start of the “Peak 65 Zone”: the largest surge of retirement-age Americans turning 65 in U.S. history. Over 4.1 million Americans will turn 65 each year through 2027. However, you may want to retire even earlier, perhaps before the age of 60. According to an Instagram post by finance influencer Marc Russell, there are seven important steps you may want to take now if you want to retire before the age of 60.
Calculate Your Monthly Expenses
If you’re planning to call it quits at your 9-to-5 earlier than most, it’s crucial to carefully calculate your monthly expenses beforehand. Stopping work at an earlier age can mean you’ll need to be more careful about your spending to ensure you don’t outlive your savings. Knowing exactly what your monthly expenses are will help you understand how much money you need to save and will help you plan for the long term. Begin by documenting all your regular monthly expenses, including rent or mortgage payments, utility bills, groceries, transportation costs, insurance, and any other recurring costs. Don’t forget to account for occasional expenses like vehicle maintenance, medical bills, and home repairs.
Once you’ve listed all your monthly expenses, add them up to get a clear picture of your monthly financial obligations. This calculation gives you a baseline figure to work from. It’s important to also separate your essential expenses from discretionary spending, as this distinction can help you better estimate your future financial needs. The goal is to have a clear understanding of your financial situation before you retire so you can maintain your desired lifestyle without running into financial difficulties.
Multiply Your Monthly Expenses by 12
As a rule of thumb, start by multiplying your monthly expenses by 12 to see how much money you’ll spend annually. This will help you estimate how much money you need for essentials and how much money will be left over for discretionary spending. By multiplying your monthly expenses by 12, you’ll get a clearer picture of your annual spending habits, which is a crucial step in retirement planning. This method assumes that your monthly expenses will remain roughly consistent throughout the year, which is a reasonable assumption for most people.
After determining your annual expenses, you can move on to the next crucial step in your planning process. Knowing your annual expenses allows you to create a more comprehensive retirement savings plan. For example, if your monthly expenses total $5,000, multiplying this figure by 12 gives you an annual expense amount of $60,000. This figure represents how much you need each year to cover your living expenses and is the foundation for the next step in your retirement planning journey.
Multiply Your Annual Expenses by 25
After you’ve calculated your monthly expenses, multiply your annual expenses by 25. This step helps you determine the total amount of money you’ll need to have saved to ensure a financially stable retirement. Here’s an example: If you’ve determined that your annual expenses are about $80,000, multiply that by 25, and you’ll get $2 million. You’ll want to be sure you have at least that much saved up for yourself before considering an early retirement. The “multiply by 25” rule is based on the 4% withdrawal rate principle, which suggests that if you withdraw 4% of your savings annually, you’ll have enough money to last throughout your retirement.
This approach assumes that your investments will continue to grow over time, helping to offset inflation and maintain your purchasing power. It’s important to remember that this is a general rule of thumb and may need to be adjusted based on your personal circumstances, such as healthcare costs or lifestyle choices. However, it provides a useful benchmark for setting your retirement savings goals and gives you a clearer picture of the amount you need to accumulate before you can retire with confidence.
Open a Brokerage Account
If you haven’t already, open a brokerage account and start investing as soon as possible. Many financial institutions offer a variety of brokerage accounts, and it’s usually easy to open an account online quickly. Opening a brokerage account is a vital step in achieving your early retirement goals, as it provides you with the platform to invest your money and grow your wealth over time. Take the time to research different brokerage firms and find one that meets your needs in terms of fees, investment options, and customer service.
Once you’ve selected a brokerage firm, complete the account setup process and familiarize yourself with the platform’s tools and resources. Starting earlier allows you to take full advantage of compound interest, which can significantly boost your savings over time. By investing consistently and wisely, you increase your chances of growing a substantial retirement fund that will support you in your later years.
Start Contributing Money
This should go without saying, but you’ll want to start contributing money quickly. Investments need time to grow — if you’re going to stop work earlier in life, you’ll have less time for investment growth before you need to tap into your funds. The earlier you start contributing, the more time your money has to compound and grow. If you start investing in your early 20s, the chances of achieving a comfortable retirement before age 60 may be much greater than someone who doesn’t start investing until their 30s or later.
Additionally, if you start investing in your early 20s, you won’t need to save as much money every month to grow a substantial retirement fund thanks to the power of compounding. The more time your money has to grow, the better. Develop a habit of regularly contributing to your brokerage account, even if it’s a small amount each month. Over time, these contributions can add up and make a significant difference in your overall financial situation. Set up automatic transfers from your bank account to your brokerage account to ensure that you’re consistently contributing to your investment portfolio.
Invest Early and Often for Maximum Returns
Once you transfer money into your brokerage account, ensure that the cash is invested. If you simply transfer money but leave it uninvested, it likely won’t benefit from as much long-term growth and compounding. Consider investing in low-cost mutual funds and ETFs, which have a long history of reliable returns — especially if you’re nearing retirement. These investment options provide diversification and can help reduce risk in your portfolio.
Additionally, regularly review your investment strategy and make adjustments as needed to ensure that your portfolio aligns with your retirement goals and risk tolerance. The key to successful investing is consistency and a long-term perspective. Stay informed about market trends and investment opportunities, but avoid making impulsive decisions based on short-term market fluctuations. By investing early and often, you increase the likelihood of achieving your financial goals and retiring comfortably before age 60.
Plan To Withdraw 4% Annually
To estimate your annual spending, start by multiplying your monthly expenses by 12. This gives you a good look at your yearly outflow, covering essentials and discretionary spending. This calculation assumes your monthly expenses stay relatively constant, which is a fair assumption for most people. Understanding your annual expenses is a key step in retirement planning.
After you know your annual expenses, you can proceed to develop a more detailed retirement savings plan. For instance, if your monthly expenses are $5,000, multiplying by 12 reveals an annual expense of $60,000. This number gives you a clear target for your retirement planning, indicating how much you need each year to maintain your lifestyle.
Armed with this knowledge, you can better determine how much you need to save for retirement. Knowing your annual expenses helps you create a more accurate and sustainable savings plan, giving you peace of mind and clearer financial goals as you plan for your future. This step is foundational for successful retirement planning and achieving financial security.
