5 Essential Aspects to Consider for Planning an Early Retirement
Apart from owning a dream house and a dream car, many individuals dream of early retirement, but there are several things that they will have to consider, prior to handing over their resignation letter. The most important amongst these is the fact that early retirement could be difficult on their finances and investing for this needs meticulous planning to obtain the desired results.
By following some simple tips, you can begin to make the most out of your plan to invest for early retirement. However, if you are not contributing adequately to your retirement account, then no doubt you are assaulting your future wallet by not planning early.
Here are 3 tips for early retirement investing. Follow these, and make smart investments, in order to look forward to your last day of work sooner down the lane.
1. Do Your Math!
The first and foremost aspect that you have to prioritize for early retirement investing is budget. The common value for discipline and thrift with finances is through controlling expenses, budgeting, and saving a part of your income for the future. Without this, all your plans will go for a toss. Proper budgeting allows you to assess the amount of money you can save for your retirement plan. Calculating budgets also help you to evaluate your expendable income every month and the amount you have for your savings. The contributions towards your 401(k) plan mostly depend on your available savings.
On the whole, we can say that all solid early retirement investing plans begin with a concrete budget.
2. Proper Asset Allocation
Investment portfolio allocation is recommended so as to get exposure to different asset classes. Real estate, equities, and bonds are 3 such segments, where return expectations vary for every category.
If you are planning for early retirement, include possible risks into the retirement portfolio. Making investments in hedge funds could be highly regulated and risky, even if they offer the highest returns in the financial market.
A retirement portfolio should include safety via government bonds as these are reliable conservative securities that will offer steady returns. Get advice from investment consultants to decide on the proper asset allocation based and economic and market conditions.
3. Get a Complete Match
To ensure that you are availing as much as possible out of your 401(k), get a complete match. Employer plans for 401(k) mostly donate 50 cents of each dollar you donate, up to 6% of your income. To obtain a complete match, you have to donate, at the least, the same percentage that is contributed by your employer.
For instance, if your annual income is $50,000 and your employer is giving 50 cents on each dollar at 6% of your income, the contribution from their end is $1,500 and you will have to donate the complete 6% of your income, which is $3,000.This does not mean that you should not be contributing higher than the match; doing so is always a better idea as this will contribute towards tax breaks apart from additional savings.
4. Max Out Your 401(K)
Irrespective of whether it is 401(k) or any other investment, be the most aggressive when you are young. Maxing out your 401(k) is the least you can do every year, and alongside that, you should consider investing in liquid funds, gold ETFs, some equities as well as debt funds.
5. Change Resource Allocation With Age to Minimize Risks
Another golden rule that you must follow is to reduce the equity exposure as you grow older; it could be a fantastic idea to have a health mix of 50% equity exposure, 30% debt funds, and 20% into other stocks, gold ETFs and futures when you’ve just entered into your 30s, but as you approach the 40s, you must reduce the equity exposure to less than 30% of your total resource allocation.
Follow these handy tips and become an early retirement investor to be able to break free from your 9-6 job way before you approach your 50s.
Author Bio – Michelle has been into the field of personal finance and debt management over 5 years. She has been working with small companies as well as individuals devising risk mitigation plans, advising on wealth management, and even assisting people in availing payday loan, and repaying them off in a jiffy.