How to Retire Early

Many people see stepping away from the workforce and into retirement as a path to freedom. If you want to retire early, you might be able to enjoy hobbies, spend more time with family and get involved in charity work. To get ready, you’ll want to make sure your finances can support you and your household for the next decades.

If you want to retire early, it’s a good idea to do these eight things:

— Practice your vision of retirement.

— Have a purpose.

— Be aligned with your family.

— Know how much you need.

— Establish your savings strategy.

— Have access to funds.

— Evaluate ways to earn more.

— Stay flexible.

Use the following tips to save and prepare for early retirement.

[READ: A Guide to the FIRE Movement.]

Practice Your Vision of Retirement

If you have an idea of what you want to do in retirement, consider trying out some of the activities. Perhaps you’ve always wanted to spend time on the road in an RV but have never vacationed in one. You might rent a motorhome for a weekend or two and take a trip nearby to see if you enjoy this mode of travel. “Practicing retirement provides an opportunity to sample things that you may want to spend more time experiencing during retirement,” says Eric Ross, senior wealth advisor at Madison Wealth Management in Cincinnati. You could fall in love with RV travel, or you may opt for a different way to explore.

Have a Purpose

During the working years, you may have felt like you were carrying out important tasks or meaningful work. Knowing your purpose is often just as important in retirement. “The real danger is for those that think they will figure this out during retirement,” Ross says. “I have seen transitions to retirement be more successful when there is a defined purpose or at least a plan to find one’s purpose.” You might want to mentor students, help support other seniors that have reduced mobility or spend more time with your loved ones.

Be Aligned with Your Family

If you plan to move during retirement to be near children and grandchildren, talk to relatives beforehand. Go over any expectations, such as helping with child care or getting together frequently. You may find family members are looking forward to your transition or that they may want more space. Couples will want to make sure they agree regarding where to live and how to spend money.

[See: 10 Important Ages for Retirement Planning]

Know How Much You Need

Think about what you earn annually and if you’ll need the same income during retirement. “How much you want to live on will determine how big your nest egg needs to be,” says Stephen J. Landersman, president of Unifi Advisors in Harrisburg, Pennsylvania. “Most will need to accumulate about 35 times the income they desire for their retirement lifestyle.” If you plan to take a part-time job during retirement to stay active, factor that into your future budget. You’ll also want to account for inflation and the impact it could have on your savings. If inflation is higher than the return you receive on your investments, your ability to maintain your desired lifestyle could become difficult.

Establish Your Savings Strategy

Some individuals choose to follow the FIRE (Financial Independence Retire Early) movement to retire early. If you use this path, it could mean setting aside a substantial percentage of income each year, such as 50% or more. “The earlier you want to retire, the more frugal of a lifestyle you need to have in the accumulation phase,” Landersman says. You might choose to save a lower percentage of your income, depending on your nest egg goals and how many years you want to work before retiring.

Have Access to Funds

If you’ve contributed to a 401(k) or retirement account that has early penalties on withdrawals before the age of 59 1/2, look at how your other funds are allocated. “Having enough of your portfolio invested in taxable brokerage accounts allows for a lot of flexibility to withdraw without penalties before age 59 1/2,” says Houston Friend, a financial planner and tax professional for Redeem Wealth, a wealth management firm in Gilbert, Arizona. “These accounts are also taxed at capital gains rates instead of ordinary income, so it can be very tax-efficient.”

[Read: How Much Should You Contribute to a 401(k)?]

Evaluate Ways to Earn More

If you want to save an additional amount each year, you could look for ways to increase your income. This might come through working extra hours, starting a side business or upping your salary. There could be an appeal to work on a temporary basis in retirement. This could help with the transition and allow you to stay active and engaged. Some individuals use a few hours of their time each week to be a consultant, especially if they have an area of expertise and years of experience in an industry niche.

Stay Flexible

While it can be valuable to create plans, there are many factors that could change the trajectory of your lifestyle in retirement. If you’re not eligible for Medicare, you may need to pay for health insurance premiums, deductibles and copays, which can fluctuate. When it comes to medical coverage in early retirement, “A couple should expect that to easily run into a five-figure expense and increase dramatically from there,” Landersman says. You might also feel a sense of boredom and want to head back into the workforce. Some early retirees struggle to connect with others, as many of their peers are still deeply immersed in their careers. At the same time, you may find you’re able to retire earlier than expected and have even more years to enjoy the road ahead.

More from U.S. News

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How to Retire Early originally appeared on usnews.com

Update 07/06/22: This story was published at an earlier date and has been updated with new information.

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