Retiring early is a goal for many people because they believe they will enjoy a leisurely lifestyle and be able to do many of the things they have avoided during their working years. However, with little return on investments, stagnating wages and 401(k) portfolios underperforming, people feel that they will never have enough money to retire. However, there are ways to retire without having a fortune that include cost-cutting, saving and avoiding risky investments. These tips do not include winning the lottery, a huge inheritance or any other large windfall.
Saving is the first step to take. People who want to retire early should start saving the difference between how much they earn and how much they require to live. This amount can be raised by living frugally. If someone wants to retire early, they should not be spending 100 percent or more of their income. In a two-income family, it may be possible to live on one income and save the other. This is a fast track to retirement. The money saved can be invested, so it is earning money and adding to the retirement fund.
The savings should be invested in dividend-paying stocks or real estate. People who want early retirement should avoid high-risk stocks and get-rich-quick schemes. Continuously funneling savings into dividend-paying stocks will eventually give the person an income that can replace their salary. This is considered a passive income. Real estate is not as passive, but the owner can decide how much time and effort he or she wants to put into maintaining the property. The property can be rented, and the rental income will cover the mortgage payment. Once the real state is paid-off, the income becomes part of the retirement income.
Cutting spending can have a larger effect on retirement income than saving. For example, cutting cable TV and not spending on some luxury items such as lattes and bottled water can save up to 15 percent per year. This could be translated into working for eight more years before being able to retire. Not only does cutting spending increase the amount a person can save each month, it also reduces expenses after they retire because they have developed the ability to enjoy life with less.
Some tips for retiring without much money are:
Debts should be paid-off while the person is still working. It is not a good idea to face retirement with a load of credit card debt or car payments. The car can be sold and a smaller, cheaper model purchased with cash. If there are still years of payments on a mortgage, the house can be sold, the mortgage paid-off and a small, apartment can be rented or a small house purchased. This will give significant savings for living expenses and allow the person to put more into their savings account.
Live in a cheaper city. There are indexes that show how much it costs to live in various cities across the United States. The price of rent, groceries, services and other things are less in these cities. If there is one such city close to family and friends, the retiree should choose to live there.
Retirees can earn money during retirement doing things they enjoy doing. Some people do not consider this actual retirement, and it may not be for everyone, but it will increase income for the years the retiree can still work, and save income for the years he or she needs expensive medical care. Some jobs that retirees are suited for are:
• Temporary office work
• Part-time retail job
• Sell crafts and handmade sweaters online
• Be a substitute teacher or private tutor
• Write web content online
There are some common mistakes people make when they want to retire early, and if they already have little money, they should avoid making these costly mistakes.
Retirees should take Social Security benefits as late as possible. If they start collecting at 62 years old, they will get only partial benefits. They will get about 25 percent more if they wait until their full retirement age. This will help with later-in-life expenses and should be saved if it is not needed earlier in retirement.
Early retirees should avoid withdrawing money from their 401(k) or IRA before they are 59.5 years old. If they do, they will pay a 10 percent penalty. There are a few exceptions for disability, hardship medical expenses and purchasing a first home.
If working after retirement is an acceptable option, the retiree should be careful not to earn too much. Income tax can reduce the benefit from 50 to 85 percent depending on the amount of income.
For people who enjoy simple pleasures, it is not at all difficult to retire early on little money, but if international travel, expensive recreation and entertainment are required for a satisfying lifestyle, much more money will be needed.
By Andre Bradley