It’s probably not an exaggeration to say that the majority of us will want to retire one day. Whether we’re no longer able to physically work, or we’ve had enough, we’ll all likely reach a point where we stop and live the rest of our lives off our savings. Unfortunately, the average age that Americans are retiring keeps increasing, and one-third of Americans are not confident about having enough money to retire. We’ve probably all seen whether in the news or firsthand about the older generation having to keep working, going back to work, or working several part time gigs just to make their ends meet.

If you don’t want this to happen to you, there are steps you can take now towards retirement planning. It’s never too early to start, and it’s better late than never. Read on for 5 steps to start making your early retirement possible. 

Look to the Future

The first step to starting a retirement plan is to find out how much money you’ll need to retire in the first place. This number gets larger the earlier you intend to retire.

It can be difficult to make an accurate assessment, especially since people assume they’ll spend less in retirement. The truth is, you’ll likely be spending more. This is because the cost of living is continually on the rise. People are living for longer – which means more years to take into account, and you’ll have more free time in which to spend your money. Not to mention the possibility of medical bills popping up. 

If you don’t want to run out of money half-way through retirement, there’s a lot to take into account. In addition to your current spending, you should think about your hobbies and what you will want to do with your time when it comes around. If you plan on frequently traveling and crossing expensive items off your bucket list, those expenses should be accounted for. 

Another factor to think about is where you intend to live. The amount of money you need to allocate towards housing will strongly depend on what state or country you reside in.

Try to estimate based off of your current salary. Could you live off of that for the rest of your life? Perhaps that number is a little more than you’d need, maybe 75% or 50% of your current salary? The average life expectancy is about 79 years, so depending on when you retire start doing that math on how much you need to have saved up. A good rule of thumb that I follow is to save 15% of my income towards retirement.

How to make Room to Save

Retirement seems like it’s far away, and being so far away, not something that we feel the need to save for. As a young professional we’ve gotso much on our minds like: dining out, coffee expenditures, and entertainment. While cutting or setting boundaries to these expenses limits us now, it’s a great way to get started. Another great way to limit your spending is to cancel any unnecessary subscriptions or services. Ask yourself: Do I need that manicure or app, or fancy gym membership?

Another strategy is to go after the utility bill, particularly in those states that run hot or cold. Throwing on some extra layers or coping with the heat to limit air conditioning expenditures can go a long way. You can also try shorter showers. 

You can save even more on food by writing out a grocery list and sticking to it. It helps to not shop hungry. Also meal plan! If you have a plan you’re less likely to feel the urge to dine out. You may also be able to save on transportation costs and housing by downsizing.

Cutting these costs not only helps you save for retirement but will lessen the amount you spend in retirement. 

However you decide to make room, I recommend trying to automate your retirement contributions. Having it be automatic is one less thing to worry about and you won’t be as tempted to spend it now.

Where to save it

While you can put your savings in a regular savings account, there are accounts specifically for retirement that you can use. These accounts come with a tax advantage, as the government sees you saving for retirement as a good thing, and so they reward you for that with a tax break. The most common types are the 401k and the IRA.

A 401k is usually set up by an employer and a portion of your paycheck is automatically set aside into this account. Some 401k businesses will match the amount entered if it’s high enough. 

An IRA is an individual retirement account. There are two types of IRA’s. The money in a traditional IRA isn’t taxed until you take it out of the account, whereas the money in a ROTH IRA is taxed upon entering the account. 

Get Rid of Debt

Debt, although it can be a powerful tool, it can also hold you back from achieving your future financial goals. The average American has approximately $38,000 in personal debt, excluding their mortgage. 

Having this much debt can affect your quality of life down the road and make saving impossible. That’s why it’s important to pay it off as quickly as possible. 

Start by getting rid of any credit cards you don’t need, as they often come with higher interest rates. Then, make a list of all your debts and pay off the ones with the highest interest rates first. 

Another great way to start paying off your debts faster is to try out the snowball method. This is when you put your excess money into paying off the smallest debt as quickly as possible, and then putting the money that was going to that debt into paying off the next one. 

To prevent debt from worsening, it’s essential to make payments on time, and if you can’t, to communicate your needs to those you owe. 

When you can, you should pay more than the minimum payment required. This will effectively pay your debt off faster and result in less expenditure overall since it will have less time to gain interest. 

Invest Frequently and Consistently

The average annual inflation rate is 3.22%. This means that as the years go by and you add more to your savings, that money is simultaneously losing value. $1 today is only worth about $0.97 next year. To help counteract this and to help grow your savings faster, you should consider investment opportunities. 

You can either manage your investments yourself or hire someone else to do it for you for fairly cheap. Regardless of who’s doing the investing, you’ll want to know what kind of investments to make. You can invest in riskier stocks with greater potential gains, or more stable bonds. I recommend starting with good target date retirement funds. They automatically adjust to less risk (but also less potential for growth) over time.

Change Your Mindset

Steps 1 through 4 can seem like a lot to tackle. That’s why step 5 is changing your mindset towards your a retirement plan. 

Making cuts to save, for example, can be seen as stripping the good things from your life. A healthier mindset would be to remember all of the other good in your life and to focus on how you’re taking control of your future.  

The psychology of wealth is one that’s impacted by the power of thought and intention, just like most things in life. The Harv Eker Academy has found that you need to first understand and change your prior conceptions of money to succeed. 

Understanding the power of changing your mindset and following through can do wonders for increasing the number in the bank. 

It’s Never Too Early

The time to start early retirement planning is now. The earlier you start saving, the earlier you can live the life you’ve always wanted. Thinking about the future, saving up, getting rid of debt, investing and changing your mindset are the 5 steps that will get you there. 

If you found this helpful, be sure to check out our other posts for more financial tips!

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