Retirement Planning is step 6 of 7 in your do it yourself financial plan. Everyone would like to retire early and retire rich. But what does that look like to you? Some people think of old folks in rocking chairs while some think of the freedom to do whatever they want. You need to have a retirement plan for success that includes how you will pay for all that freedom however you define retirement. Those that take the time to look into the future and see what potential lies ahead will have a head start of a very successful retirement. Take these 7 tips into consideration for your own personal early retirement strategy:
1) Get the spouse or significant other on board. While your wife will be thinking a cottage close to her mother in Maine, you may be thinking downsizing and living near the beach in Florida . Don’t think about the money and how you will afford anything. Just talk and brainstorm ideas together of what you both would like.
2) If you plan on retiring before age 59 ½, then you will need savings and investments to draw on before you are able to take retirement plan money . The more you have saved up, the earlier you can retire. That doesn’t mean that you should also stop contributing to your retirement plan. It means that you will have to contribute to both.
3) At age 59 ½ and older you can draw on money from both retirement plans and savings and investments until social security kicks in. Many people may find themselves in a high tax bracket while doing this. If so, one option is to rollover your retirement plan from an IRA to a Roth IRA so you can eventually draw some money tax free. Sell shares that have long term capital gains so that you get the favorable tax treatment on the trade and create money to live on is another option .
4) At age 62 you can start taking social security . If you are fortunate enough to have enough assets to wait to take social security later, then do it. It will be approximately 20% more income if you can wait to the later date.
5) If you find that after all this your income will be less than what you expected, don’t panic. Studies have shown that retirees will spend more in the first five years after retirement and then expenses taper off. You can put yourself on an income plan that decreases as you get older and are less active.
6) Downsizing is another way to increase income after retirement is to downsize . Many people fail to realize how much money it takes to maintain a large home after all the kids have left. Downsize to a smaller home, and move to a less expensive area, and you will feel like you are living the high life with all that extra cash.
7) Even though you are retired, you have to watch your taxes . It’s not how much income you gross but how much you get to spend after tax. Instead of drawing down on one account at a time, take a little income from each account. Interest, dividends, capital gains, and a tax free income combination will keep your income high and taxes low.
Now matter what age you are, financial independence and retirement starts before you hand in your resignation. With these 7 planning tips, you can retire early and retire rich.