Let’s face it, while a vast majority of us might be willing to retire at the age of 50 and live out the rest of our days in comfort, it’s easier said than done. First of all, everything around us keeps getting more expensive by the day, so saving money becomes more difficult. On top of that, with our current state of healthcare, most people tend to live past the age of 80. So in order to retire at 50, you will need to build a corpus which needs to last for more than 30 years. While a lot of people wonder ‘how to retire at 50′, a lot of them aren’t ready to do the required things for it. If you want to be rid of the daily workplace grind at 50, you need to grind a little more while you work. Yes, there are some people who can get very lucky with their investments or win a lottery, but we can’t count on that. If you want to retire at 50, you will need to follow a methodical approach towards it. It’s definitely a tough thing to do but if you utilize the following steps, you will definitely be able to work towards a stress free retired life once you turn 50.
Here are ten steps to help you retire at the age of 50:
Save, save, save a significant portion of your income
The most important (and in many ways, quite obvious) thing for retiring early, is to start saving early, and saving a significant percentage of your income. As an example, if you start saving around 20% of your income from the age of 20, you should be able to build enough corpus to help you retire at 50. Remember that if you start saving later, the percentage of income that you need to save increases significantly. For example, if you start saving for retirement from the age of 30, you need to save around 40% of your income in order to retire by 50. Your retirement corpus is a result of both the amount of time and percentage of income you save. If you save for a lesser time, you need to save a larger portion of your income, and vice versa.
Stay away from avoidable significant debts
Yes, we know that some debts are unavoidable and we are not saying that you shouldn’t buy a car/go to college/buy a house. However, you must understand that such big debts take very long to pay off and will make your plans to retire at 50 extremely difficult. A college degree is an extremely useful tool and will definitely help you with earning money for a lifetime. However, college degrees are usually very expensive and students usually end up with a mammoth loan repayment burden upon graduation. Since graduates will need to pay the student loan, saving big chunks of income will not be possible. That will directly impact your plans of retiring at 50. College education is really great but if you are left with a major student loan debt after it, you will most probably have to discard your ‘retirement at 50′ plans. Avoid massive credit card debts as well. Not only do they eat up your income, the massive interest rates can eat into your savings also.
Use stocks as the main part of your portfolio
When you start saving a significant amount of your income, you need to grow it through compounding. This is where services like Wealthface can help you allocate your money the way you need. Stocks should make up the majority of your portfolio, but you should also diversify your portfolio based on asset class and geography for risk management. Your allocation changes should match your age and you should be able to re-balance and allocate efficiently for tax relief. Wealthface will be able to do all of that for you with its expertise and experience in the field.
Don’t ignore the amount of tax you pay every year
Taxes can erode your savings, so it’s important to invest in a tax efficient way. This means that you want to save into investments that can help your money grow tax-free such as 401(k)s and IRAs. Doing this gives a free boost to your savings, because you can save more of your income and watch it grow faster. You may also be able to take advantage of employer matching with your 401(k) which can make your money grow even faster
Track your savings
What gets measured, gets managed. In order to manage something, you need to measure it. Tracking your savings doesn’t just help you stay abreast with your financial situation, it can also encourage you to save even more.
Do you know how much you have in your savings account? Take a look. Get to know that number. Learn when it goes up and when it goes down. As you track your savings, you’ll be motivated to keep that number pointed in one direction: up.
Fix a goal for your savings
One of the best ways to increase your savings rate is to make a savings goal. Maybe you want to save 20% of each paycheck. Maybe you want to save $10,000 by the end of the year. Maybe you want to max out your Roth IRA.
When you make a savings goal, you make a promise to yourself: you are going to save money. Once you make that promise, you’ll be even more motivated to keep it.
Want additional motivation? Share your goal, and your progress. That way, you’ll have a community of people to support you as you achieve your goals.
Save a portion of your paycheck first
What happens when your paycheck hits your bank account? Does it lie idly and wait for you to draw money from it in order to pay your bills or buy the new iPhone that you had been eyeing for some time. Or does part of your paycheck automatically transfer over into your savings account?
By saving a portion of your paycheck, you are essentially paying yourself before paying anyone else. When you send money straight to your savings account, you can’t be tempted to spend it on anything else. It’s also a great way to automate your savings process: out of sight, out of mind, into your savings.
Take a look at your bank’s website and find out how to set up an automatic savings transfer. Then, set up automatic transfers to deposit a portion of your paycheck into savings every time you get paid.
Don’t splurge your windfalls away
If you are rewarded with a bonus for exemplary performance at work, don’t be inclined towards splurging it all away on a giant party . If it’s not money that you’re used to spending then it will be easier for you to increase your savings rate without feeling any pain.
Discontinue services that you no longer use
Want to save more? Free up more money for savings by cutting services you pay for but don’t use. Cancel the subscription to the magazine you never read. If you get all your information online, or through a news app, cancel your newspaper subscription. Cancel your gym membership if you haven’t gone to the gym for months. If you don’t really watch TV and all your favourite shows and movies are on online streaming services like Netflix and Hulu, unsubscribe from your cable connection and just spend money on the streaming services.
The more services you cut, the more money you save. So take those monthly payments and turn them into monthly transfers into your savings account.
Ensure that you round up all your purchases
As you know, small amounts of money can quickly add up. So try to ensure that your money adds up in your favour.
Individual Round Up program rules may vary, but the typical Round Up program looks something like this: whenever you make a purchase with your debit card, your bank automatically rounds up the purchase to the nearest dollar or the nearest $5—and puts the extra change in your savings account.
See if your bank offers a Round Up program, decide how high you want to round up, and start saving money every time you swipe your debit card.
Increasing your savings rate is a matter of figuring out how to get money into your savings account, IRA, or other savings vehicle before you have a chance to spend it on something else. Use these tips to get started, and then see just how much you can save!
As discussed earlier, the period of saving itself may be a challenge if you have a college education that is funded through debt. However, if you can earn an extremely high income in your 20s and save the vast majority of it, as well as living in a relatively frugal retirement, you might even be able to retire at 30 (an extremely unlikely scenario, but definitely not impossible) . In such a scenario, your retirement period will be way longer than the actual time you spent working. To successfully execute such an extreme scenario, you will need to live the majority of your life with the returns on your savings, instead of eating into your capital’s value.