Plan Your Early Retirement
There’s no magic to age 65 for retirement, and many people are choosing to stop working earlier, so they have more time to make the most of life. Marin Wealth Advisors can help you create an early retirement plan to secure your retirement dreams.
What Is Early Retirement?
Early retirement is simply stopping work before the typical retirement age. In past decades, many people retired at 65, and some employers required people to leave their jobs when they reached that age. For the generation born before 1943, 65 was also the age at which they could collect full Social Security benefits. People born after 1960 can’t claim full Social Security benefits until they turn 67.
The statutory retirement age has been creeping up, and many people live longer and work longer. However, there is a movement in the opposite direction: people choosing to retire at 50, 40, or even in their 30s. In some cases, the impetus to stop work early is selling a startup or getting a windfall from an IPO. But you don’t have to make a fortune in tech to retire early. If you start planning for early retirement now, retiring by 40 could be within reach.
7 Tips That Could Help You Retire By 40
What we don’t plan for can’t happen, so it’s critical to make an early retirement plan now. Whatever early retirement age you aim for—it doesn’t have to be 40—these strategies will help you realize your goal.
1. Maximize your 401(k) contributions
The first step toward early retirement is to save for retirement as aggressively as possible, starting with your 401(k) plan. At a minimum, you should contribute enough to maximize your employer’s matching contribution. If you can afford it, contribute the maximum allowed to your 401(k). In 2022, that amount is $20,500, and people over 50 are allowed to contribute an additional $6,500. Even if your early retirement age is 60 rather than 65, pushing the limits of your 401(k) is an excellent way to build retirement security.
2. Open a Roth IRA
Roth IRAs are individual retirement accounts with a twist. Rather than making pre-tax contributions then paying income tax when you take the money out, Roth contributions are after-tax. When you withdraw funds from your Roth IRA, you won’t pay any taxes. With proper planning, you can also avoid capital gains taxes on your Roth investments. Start working toward early retirement now by making the maximum Roth IRA contribution.
Roth IRAs are only available to people under a specific income level (the Roth income cap changes annually). You’ll have to wait until age 59 ½ to make withdrawals without a penalty, so it’s crucial to have other strategies to support your life in early retirement.
3. Don’t accrue credit card debt
Life costs money, and you need to buy stuff. But, when you use credit rather than cash to cover your everyday expenses, you are likely to end up paying much more than the sticker price for your purchases.
Even with good credit, you can expect to pay around 20% interest on credit card purchases, and that interest is compounded, so you end up paying interest on the interest. Funds that you could set aside towards your early retirement plan go to your credit card company instead.
Of course, you’ll have to make some purchases on credit. It’s fine to take out a mortgage or a car loan, and you’ll generally pay much lower interest rates to your lender than you would on a credit card. In addition, many people have student loan debt they have to pay off. Those debts are all investments in your life, and they have a fixed payment term, unlike credit card debt which can be an endless drain on your wealth.
4. Buy a multifamily house
Buying a multifamily house is a terrific investment if you want to retire by 40. Plan to live in one unit and rent the others after you retire, giving yourself a steady income without a steady job. And multifamily dwellings are also a good value: the price of a four-unit building is less than four single-family homes.
5. Save your side hustle income for retirement
A side hustle is an excellent way to work toward early retirement now. If you consult or do gig work on the side, you can use that income to move up your early retirement age. Simply open a SIMPLE IRA. A SIMPLE IRA can serve as a type of retirement plan for small employers, and you can use it to save all of your side hustle income for retirement.
You may also want to continue a side-hustle or part-time work after retiring from your full-time job. Creating a small business today is a terrific way to start working toward early retirement now.
6. Include Social Security in your early retirement plan
If you retire at age 40, you’ll need other savings to get you through your initial years after you stop working, but you should still include Social Security in your early retirement plan. You can start collecting benefits as early as age 62, though the amount will be less than if you wait till your full retirement age. If you can wait until age 70, you will receive a higher monthly benefit. However, you might collect more benefits in the long run by taking Social Security early.
7. Get help from a financial advisor
What kinds of IRAs should you open, and how much should you contribute? Where should you invest your retirement savings? When is the optimum time to apply for Social Security? How can you work toward early retirement now? These are all questions that a financial advisor can help you answer.
Planning is critical if you want to retire at 40 (or 50 or 60). No matter how much money you make or even if you were to win the lottery, your money—and your future security—can slip through your fingers without a financial plan. Financial planning is an investment in your future that can pay the dividend of more years to travel, spend time with family, or volunteer.
Start Planning For Early Retirement Now
When you retire by 40, you get more time to do the things you love, to build a life and not just a career. Your Marin Wealth Advisors financial planner can create a model portfolio that fits your risk profile and your time horizon. We can help you build an early retirement plan that gives you stability and freedom, whatever your early retirement age.
Marin Wealth Advisors has been helping clients throughout the Bay Area build wealth since 2013. Collectively our team brings over 100 years of professional experience to the responsibility of meeting your investment management and financial planning needs. Our experienced financial advisors take the time to listen to you and understand your goals. They will give honest answers to your questions, help you determine your optimal early retirement age, and craft an early retirement plan just for you.
What could you do with your life if you retired early? Start planning for early retirement now and find out!
The Marin Wealth Advisors Fiduciary Promise
At Marin Wealth Advisors, we place our client’s best interests first. From this principle, we commit to the following five fiduciary principles:
- We always put your best interests first.
- We act with prudence. We apply the skill, care, diligence, and sound judgment of a professional to your financial plan.
- We will not mislead you. We provide transparent, complete, and fair disclosure of all critical facts.
- We avoid conflicts of interest.