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Early retirement looks different for everyone. Some people are motivated by helping to raise their grandchildren. Other folks throw themselves into volunteer service,follow an artistic passion, or finally on that adventure you’ve been putting off for too long.. There are a lot of reasons to want to leave work before the full retirement age of 67 and only a small portion of them involve white sands and endless margaritas.
Just as the reasons for retiring early vary, so does early retirement timing. Some people save more than 50% of their income to retire in their 40s, while others simply want to finish working before their social security is available. Partial social security is available at 62 years old while full social security benefits aren’t available until the age of 67.
Those who are interested in retiring early often run into the FIRE movement. FIRE stands for Financial Independence, Retire Early. The community surrounding this movement values frugality, investments and extreme savings to embrace your independence.
Why is it important to start saving for retirement early? How much money do I need to save? Those who are early retirement curious have a lot of questions. In this article, we’ll answer those questions and delve into the steps you can take to prepare for your financial independence.
When people retire, they typically live on 70 to 80 percent of what they lived on while working. Members of the FIRE movement typically wait to retire until their savings reach about 30 times their yearly expenses. It’s vital to stick with a pre-determined savings withdrawal rate so that your savings can continue to compound throughout your life.
There’s an anecdote that’s been traveling around the internet for a decade about a little girl who wants to become an astronaut. Her mom warns her that it’s hard work. She’ll need to study hard, go to college, learn a bunch of science and take a physical fitness test. The daughter doesn’t flinch, instead, she just replies, “That’s just four things”.
When you’re planning to retire early, it’s helpful to look at each phase like that little girl. Each step might take a long time and yet, there aren’t that many steps. When you zoom out, retiring early looks pretty simple.
The first step in planning for early retirement is deciding what that retirement is going to look like. The FIRE movement has three different variations of retirement:
Ask yourself some serious questions to help yourself picture how much money you’ll need. Here are some plans that people make:
Early retirement is the ultimate financial goal. When you’re laser-focused on ten to twenty years in the future, it can be hard to know what to do in the present. Everyone’s savings goals are going to be different, depending on when they start saving and how they want to live after retirement. However, the steps to make sure that you’re heading in the right direction are the same, no matter what your situation may be.
All these steps might seem like a long-term strain on your household budget, but remember to zoom out. This is quite literally a lifetime project to be taken one step at a time. However, there are ways to give yourself a financial boost and make those goals a little more attainable.
DCU can help you meet your financial goals. Learn how much you need to save in order to retire on your timeline.
Understanding the need for lifestyle adjustments is a fundamental part of planning and saving for early retirement, even if you’re well-to-do. Cutting your budget doesn’t have to be painful. Many people save money by reducing their:
Cost-cutting measures are a lot more enjoyable when you’re tucking the extra savings into your retirement accounts. Check out DCU’s retirement accounts to see your planning options.
Achieving your goal of early retirement might take decades of focus and sacrifice. But if you look at your financial goals like a little girl who wants to become an astronaut, your goal won’t seem so daunting, especially if you have a financial institution like DCU supporting you every step of the way. Check out our calculators and financial blogs to give yourself a boost toward your goals.
Of course, DCU offers more than moral support. Our range of retirement accounts can give you real financial gains. Whether you’re just starting or retirement is within your reach, DCU will be there with you every step of the way. Learn if membership is right for you, today!
Please note, membership is required to open a DCU retirement account or savings account. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.