3min
May 2, 2024
Retiring early while maintaining your financial independence might feel like a dream for many, but it can be achievable with a little strategy, discipline, and creativity. You may have heard of the FIRE (Financial Independence, Retire Early) movement, which has gained significant momentum in recent years. This simple approach involves saving aggressively, investing wisely, and living frugally to retire long before the typical age of 65.
While the FIRE movement is gaining popularity, it’s not realistic for most of us. That's why we created Savvly, a new investment option that can provide an additional income stream in retirement for long-term financial security.
Now let’s take a look at some of the paths toward an earlier retirement. Whether you're looking to hang up your work shoes a few years ahead of schedule or planning to jump into retirement decades early, here are 8 ways to fast-track your retirement.
1. Reassess your financial goals
Before you set your sights on early retirement, it's crucial to have a clear understanding of what "early" means for you and why. Define your target retirement age and consider the lifestyle you hope to maintain. This will help you determine how much money you'll need to save. Use retirement calculators to get a rough estimate, and then add a buffer to account for unexpected expenses. The calculators from NerdWallet are our favorite. And spoiler alert: we have our own, one-of-a-kind retirement calculator coming to you soon.
2. Maximize your savings rate
Increasing your savings rate is one of the most impactful steps you can take. This might mean cutting back on discretionary spending — such as dining out, vacations, and luxury goods — or downsizing your home to free up more cash for your retirement accounts. Common advice is to aim to save at least 20% of your income, and if possible, push this towards 50% to accelerate your retirement timeline.
3. Invest wisely
To retire early, investing your money and letting it grow over time is key. At Savvly, we are firm believers that the best investments for retirement are driven by the market over time. Consider investing a majority of your portfolio in a low-cost market-tracking ETF. If you’re looking for potentially higher returns, you could consider alternative investments like crypto. But the key here is to balance risk and reward: it's better to consider higher-risk options when you're further from retirement and gradually shift to more conservative investments as you approach your target date.
4. Consider a side hustle
Boosting your income with a side hustle can significantly hasten your retirement plans. This could be anything from freelancing to driving for a rideshare service or renting out property. Consider aligning it with your passions and interests. If you like to go to a specific workout studio, maybe you can land a role at their front desk. The extra money can go directly into your retirement savings, compounding over time and building a larger retirement fund faster. Plus, you could keep the part-time gig during retirement as a way to stay active and engaged.
5. Reduce taxes and fees
Minimizing the amount you pay in taxes and investment fees can add years to your retirement fund's lifespan. Take advantage of tax-deferred retirement accounts like 401(k)s and IRAs. Be mindful of the fees associated with your investment accounts and consider lower-cost options like index funds and ETFs. Additionally, speaking with a financial professional about tax optimization strategies can further stretch your retirement dollars.
6. Plan for healthcare
Healthcare costs can derail even the most well-thought-out retirement plans. If you're planning to retire early, you may have to bridge a gap before Medicare kicks in at age 65. Buying healthcare on your own out of pocket generally isn't cheap — but you have options. You can purchase health insurance directly from a company or through an insurance broker, who will work with multiple companies to find a policy on your behalf. You can also purchase private insurance through the health insurance marketplace established by the government after the passage of the Affordable Care Act (ACA).
You could also consider purchasing a high-deductible health plan tied to a Health Savings Account (HSA). The money you invest in an HSA can be used for qualified medical expenses, but keeping it in your account means it can gain value over time. HSAs are triple-tax-advantaged so this option can make a lot of sense for those looking to minimize taxes.
7. Adopt a frugal lifestyle
Living below your means doesn't just help you save more; it also reduces the amount you'll need to sustain your lifestyle in retirement. Embracing frugality isn't about scrimping on everything. It’s more about prioritizing spending on what genuinely brings value to your life. For example, maybe you drive an older car that’s fully paid off, but you still leave room in your budget to go out to a nice dinner once a week. This mindset shift can make a big impact over time.
8. Consider Savvly
Savvly is an alternative investment for retirement. It’s the world’s first market-driven pension designed to give you easy and affordable financial security for life – at a fraction of the cost of an annuity or traditional index fund. It’s a new solution that can offer long-term income when you're in the decumulation phase of life.
The best part? It can offer market returns plus an additional long-life bonus, made possible by partially giving up some investment liquidity. Knowing you'll have this additional income stream coming can give you the confidence you need to retire earlier than planned.
The bottom line
Retiring early is not just a matter of wishful thinking but the result of meticulous planning, disciplined saving, and proactive lifestyle choices. By adopting these strategies, you can build a financial foundation strong enough to give you the freedom to retire not just on time, but potentially years ahead of your original plan. As always, consider consulting with a financial advisor to tailor these suggestions to your specific situation and get professional insights tailored to your own needs.
