How To Retire At 50

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Dollar And GlobeThe following is a guest post from MyMoneyDesign.com. My Money Design is a money blog that is all about planning for financial freedom and strategies for how to achieve an early retirement.

Social security says you aren’t done until at least age 62. Your retirement savings plans all say you can’t access them until age 59-1/2. Does that mean you’ll have to work until age 60?

You could …. But when have you ever let anyone tell you what and when you’re going to do? I didn’t think so.

Financial freedom is a well-deserved privilege that is available to anyone when they first begin their savings journey. Unfortunately, however, not very many people take advantage of it when they are young. They squnder their opportunities, and their window of potential gets smaller with every year.

It’s not because they are dumb or don’t want to. In many cases it just boils down to the fact that many people don’t even know how to retire at 50 or that it’s a possible option. The truth is that you can actually retire anytime you want! But it comes at a cost. And that cost is knowing how to plan for it and how to get there.

So if you’d like to declare retirement a lot sooner than your peers (or when the government says you can), then you need to get familiar with these tactics:

Strategies for How to Retire at 50 (or Before):
Let’s say you already have a retirement savings goal in mind but would really like to accelerate your progress. There’s a few things you’ll need to do that will give you an edge over the what other people are doing.

Understand and Max Out Your Retirement Savings Options:
One of the best things you can do for yourself is to really make sure you understand your options for retirement savings. Not only will they help you build up your fortune quicker, but the tax advantages that come with them will help you save a whole more than if you tried to save without them.

Another thing you can do for yourself: Take advantage of as many options as you have available. Don’t just think that you have to stick to or save in one type of account. Even though there are a lot of differences between a 401k vs IRA, why not max out the advantages of both so that you can really accelerate your savings?

Check this out for example: In 2014 you can stash away a maximum of $17,5000 in your 401k and a maximum of $5,500 in your IRA for a total of $23,000 saved per year. If you had just relied on one or the other, here’s what the difference in savings would like after 25 years and an average 8% return:

 

  •  $5,500 using you IRA = $402,083
  •  $17,500 using you 401k = $1,279,354
  •  $23,000 using you 401k and IRA = $1,681,437

If you’re married and both working, then you can both save as much as $46,000 per year!

Pay Attention to Your Investment Expenses:

It’s not enough to just play offense. Sometimes you have to mind your defense as well.

Nothing erodes your returns quite like hefty investment expenses that come with your plan. Unfortunately most people never even think to look at these since they are usually not obvious when you look at your investment statement.

When I compared the expenses of our 403b vs 401k plans, I was amazed by how much more expensive the funds in our 403b plan really were. Therefore I decided to make all the investments in the 403b plan point to index funds so that they’d be as low cost as possible.

Know Your Way Out:

Did you know that access most of your retirement savings early if you really want? Though the IRS says you can’t access most of your accounts until age 59-1/2, you do have some options in front of you. For example:

  • You could use a little known trick called a 72t distribution that will allow you access your funds early. Though it will require some special tax reporting and careful orchestration, it can be a useful way how to retire at 50.
  • You could take tax-free withdraws from your Roth IRA contributions.
  • You could access your taxable brokerage account (if this was one of the options you used as part of your overall retirement savings portfolio).

The big thing you’ll want to be careful of if you decide to use any of these tricks is to make sure that you DON’T drain your accounts too soon. The last think you want to do is run out of money and then have to go back to work. So make sure your retirement goals will be very generous and that your savings projections will exceed your goal (just to be on the safe side).

Images courtesy of FreeDigitalPhotos.net

4 COMMENTS

  1. Great article on the powers of compounding interest and saving for retirement!

    You should also include some assumed employer match in the above calculation to show what it would be combined all together!

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