How to Develop a Plan to Save for Early Retirement

If early retirement sounds more like a pipe dream than a real possibility, you are not thinking big enough. It is not only possible to retire early, but it is completely possible to enjoy your retirement long before age 65; all you genuinely need in order to do it, is a solid plan.

Step 1: Create a budget

The first step in any good financial plan is a budget. Look at how much money you are bringing in versus how much you are spending. Evaluate your habits.

Once your “current” budget is done, anticipate needing that same annual amount of spending money from the time you retire until you pass on. A good rule of thumb to use in figuring this equation is for you to plan on living until the ripe old age of 100.

You need to plan to live longer (even if you do not) simply because you do not want to outlive your money. Padding your budget for an extended lifespan allows for unexpected medical expenses that could pop up in your golden years. It also gives you plenty of money with which to live comfortably, and without having to do any incredibly complex mathematical calculations to figure out how much you “need” to retire.

Step 2: Make a plan

Once you have your budget in place, you need to have a plan.

For example, if you spend $40,000 a year and your goal is to retire at age 50, you would need 50 years’ worth of whatever you are spending today in order to be comfortable.

The math is simple, and it looks like this:

50 years x $40,000 a year = $2 million dollars for retirement.

If you are 30-years-old, you would need to save $100,000 a year (not accounting for interest earned on investments) over the next 20 years.

Are you saving and investing enough to get to that point?

Step 3: Get professional help

In order to get to your bare minimum target for early retirement, seek the advice of a certified financial planner. For about $300, you can talk to someone about your individual circumstances, discover how much you need to save and invest (and where you need to save and invest) in order to meet your goals.

Step 4: Adjust your savings and investments

When it comes to saving and investing the right amounts to meet your early retirement goals, you will probably need to adjust your allotments by spending less and investing more.

Begin thinking about the small frivolities you can live without today that will also allow you to have enough money to meet your goals. Could you cut down on your cable bill and invest that money instead? Could you downsize your home or car in order to better prepare for retirement?

Talk to your financial planner about making a new budget that meets your retirement goals and start figuring out how to spend smarter and how to save more.  

Step 5: Cultivate multiple streams of income

A smart move for any retiree (early or not) is to cultivate multiple streams of income. Consider investing in real estate, buying into a franchise as a silent partner or finding some additional investments that pay impressive dividends.

Use your financial planner for guidance here.

Following these five uncomplicated steps will give you the financial freedom to wave goodbye to your nine-to-five gig sooner than later, and focus on what actually matters: living now, living later and living well.