How to Retire Before 65

Retirement is a monumental life transition. Half of America wants to retire before the age of 65. We all have different reasons, including taking the time to do what you want, time to travel, volunteer or even focus on passion projects and hobbies. If you are wondering how to retire at 65, then you have come to the right place.

In the U.S., 63 is the average retirement age. 62 is the youngest age you can collect your Social Security retirement benefits.

But what if you want to retire way before 65, like in your 50’s or maybe even your 40’s?

It’s possible.  But you can’t just hope for it to happen!

So, if you plan correctly, you should be able to save enough to retire at almost any age and maintain a happy & meaningful lifestyle. If you want to know how to retire before 65, then I suggest you think about the following points:

• Forget money for a minute.
  • What does your ideal life look like?
  • Where do you live?
  • What do you do for fun?
  • What tangible & intangible things will you have that make you happy?

Write all this down and then create a vision board!  It will drive and motivate you through all of the following steps!

• What is your plan?
  • Where will you save & invest for the future?
  • Types of accounts and how they work.
  • How much of your salary/income will you need to save?
  • How much tax will you pay?
• Don’t set it and forget it – jump into the captain’s seat and fly this plane according to YOUR destination.

Let’s dive in.

How to get excited about planning for your retirement: Start with a vision

One mistake I have seen many people make is that they never came up with a mission for their money.  They didn’t take the time to create a vision for their future.  Instead they got a job, started saving in their “401k” because that’s what “everyone” does, and then put their head down for decades.

Sure, were some of these people able to retire before 65?  Yup, but more by accident than by design.

Having a mission & vision for your ideal life is critical to being able to retire before 65.  Creating a vision forces us to articulate, make real, the things that we want and that are important in life.  Once we have identified and crystalized our ideal life (where we want to live, what we do for fun, our hobbies, stuff we want to buy, etc.) a couple things happen.

First, we get excited!!!  Humans by our very nature are lazy.  So, if we don’t have real motivators to drive us forward each day then we tend to just trudge along.

Second, we have now identified the destination (s) we want to arrive at in life.  Just like planning a family vacation, or Delta Skymiles medallion trip (yes, I do this each year!), once you have identified where you want to go then it is time to plan how you will get there.  By identifying the destination it is easy to figure out how to make it happen!

How to Retire Before 65: Create a financial plan

First things first; create a financial plan. It is impossible to know if retiring before the age of 65 is achievable if you don't work out all of the variables on how to actually do it.

You can start this process by establishing a financial baseline.  How much do you project your retirement costs will be?   How much money do you need to sustain your retirement for X years?  Etc.

The financial plan assesses where you are today and where you want to be in the future and then will tell you what you need to do to make your future early retirement a reality.

By using a retirement calculator, you can calculate withdrawals for each year and much more. It'll also determine how much your savings could increase based on your investment rate of return. It will help you determine the total amount you need to save and how much you must save per month to hit your retirement goal. Once you have an estimated amount, subtract any funds you expect from Social Security, your 401(k), pension or Rollover IRA to figure out the amount you need to save on your own.

There is obviously a lot more to this but in general the financial plan is something that will boil down where you are today and tell you how to get to your final destination in the future.

How much income will you have once you retire?

When you retire, your income will more than likely come from multiple sources, such as a retirement accounts, social security (we hope!), passive income from your investments and/or real estate and so forth.  It’s important to consider all of these, how they are taxed, will they increase over time, and so on.  Don’t make the mistake that any of them will be “guaranteed” but instead be conservative with your projections to see if that combined income will be enough for you to retire early.

2. Save, save, save – Now, not later!

Once you have determined your “destination” for retirement, start saving as much as possible, as soon as you can. If you want to know how to retire before 65, the answer is to start saving now.

The earlier you contribute to savings & investments, the more time they have to grow. This is thanks to compounding.

It works like this:

The longer you wait to contribute, the less time that money has to grow.

For example:  

• Let’s say you are 40 years old
• Make $250,000 a year
• Want to retire at age 60
• Have $0 saved for retirement
• Have determined via a financial plan that you can save $25,000 a year
• Will save this amount for 15 years.

If you start saving now assuming a 7% annual compound return, it will be worth $672,201 in 15 years (age 55) and $942,797 when you are 60!

If you wait 5 years before contributing, assuming everything else is exactly the same, you will have only $672,201.  That is $270,296 LESS by waiting 5 years to get started!

You saved the same amount ($375,000) of money but had 5 less years of compounding returns, see how much of an impact time can have on your nest egg?

There are various ways to build wealth for the future, so be sure to take advantage as early as possible.

3. How to get started on your path to early retirement – Consider Working with a Virtual Financial Advisor

With all of the online tools and calculators available to us it is relatively easy to get started and do some “planning” for your future.  What I have found however is that most people want the help of an expert, just like we do for our health (doctors) or taxes (CPA’s), and so on.

I have been helping people with their money since 2006 and one thing I can say for absolute certainty is that no two people or financial situations are the same.  Thus, each situation should be dealt with uniquely with highly customized solutions.

If you feel you can navigate this flight path to an early retirement by yourself, then rock on and make it happen!

If you feel you would like a co-pilot to help you along the way then I would encourage you to find someone you can trust and that “get’s” you.  And if you do decide on working an advisor consider using one that is virtual.  No longer do you need to have a stranger come to your house, at night, after a long day!  You can learn more about working with a virtual advisor in a previous post I wrote here.

Either way I hope you are motivated to get on your flight to an early retirement, or do a course correction as needed ?

Thanks for reading,

Derek