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MoneyWatch: Managing Your Money
By Tim Maxwell
Edited By Matt Richardson
/ CBS News
As 2023 comes to a close, many Americans are turning their attention to 2024 and contemplating resolutions for the new year. Many focus on financial resolutions. as people seek to earn more or create breathing room in their budget. For some, making a commitment to retire early is a worthwhile resolution. On the surface, striving to retire early may seem like a lofty or potentially unattainable goal. However, early retirement could be possible by taking specific actions.
While the money needed to retire will vary from one person to another, the below financial moves could help you inch closer to retirement, perhaps even earlier than the traditional retirement age.
Learn more about investing for an early retirement here.
Want to retire early? Make these 5 moves in 2024
Here are five smart moves to make in 2024 with an eye toward an early retirement.
Review your investments
It's hard to launch the boat if you don't know where you're docked. Before proceeding, take some time to review your financial situation to see where you stand.
"Now is an ideal time to conduct a thorough end-of-year review," says Tyler Meyer, a CFP and president of QED Wealth Solutions. "It's an opportunity to identify successes, rectify oversights and lay the groundwork for a financially prosperous new year."
Calculate how much you have in savings and investment accounts, including any retirement savings. You'll need to be realistic about your current financial situation and how soon you want to retire. For example, if you are 40 years old with $40,000 in retirement savings, it could be challenging to retire by age 50 without a dramatic increase in income and savings.
Start reviewing your investments now.
Pay down debts
Living comfortably in retirement is possible with careful planning and intentional action. However, it could be harder to make ends meet if debt is dragging on your budget, especially if you're no longer earning income from your job.
Additionally, paying high interest on credit cards and other debt takes away money you could be saving for retirement. Consider consolidating this debt with a lower-interest debt consolidation loan or moving your debt to a balance transfer credit card with a 0% introductory period. Some credit card companies offer promotional periods lasting up to 21 months, which could give you enough time to pay off or make a serious dent in your debt without incurring interest charges. Debt relief services can also help.
Stacey Black, the lead financial educator at BECU, advises using a debt repayment strategy to get debt under control. "List out all of your debts in one spot, including the total amount owed, the interest rate and the minimum payments. Then, look into and compare different debt payoff strategies and choose the method that will motivate you the most," says Black.
Calculate how much income you'll need in retirement
Not sure how much money you'll need to retire? One general rule is that you'll need to bring in roughly 80% of your pre-retirement income in retirement. You can adjust this percentage higher or lower to fit your circ*mstances, and it's probably wise to consult a financial advisor to help you determine your number.
If you are aiming to retire early before you're eligible for Social Security benefits, don't include that income in your retirement calculations. For example, if you need $84,000 per year, or $7,000 each month, in retirement, and expect to receive $3,000 each month from your pension, you're almost halfway there. You'll need to save to produce the other $4,000 in monthly income, or $48,000 annually.
Next, figure out a safe withdrawal rate from your retirement savings that can last throughout your retirement. For this, retirement experts commonly advise using the "4% rule." This rule states you can withdraw 4% from your retirement savings in your first year of retirement and increase the amount each year thereafter to match rising living costs. This rule is not perfect, but it's a good starting point to help ensure your money lasts in retirement.
To apply the 4% rule, multiply the amount you need to come up with each year in retirement by 25. Using the previous example, if you need $48,000 annually, multiply it by 25, which, in this case, results in a savings goal of $1.2 million.
Max out your retirement contributions
Maximizing contributions is another tactic that can help you build your retirement savings faster and retire earlier than if you make minimal contributions. When you contribute up to the limit allowed to your 401(k), IRA or another retirement plan, you maximize the power of compound interest. This is where you earn interest on both your principal balance and the interest it earns. According to the IRS, the maximum amount you can contribute to your 401(k) or IRA in 2024 is $23,000 and $7,000, respectively.
Many companies offer a 401(k) match, up to a specific percentage of your salary, as part of their benefits plan. For instance, one common match is 50% of your contributions up to 6% of your salary. The employer match is effectively free money that could add thousands of dollars each year to your savings total and boost your retirement savings substantially over time.
Follow a strategic savings and investment plan
Once you've set your savings goal, you'll need an effective savings and investment plan to help you achieve it. It's a good idea to consult a financial advisorwho can help you devise an investment strategy that aligns with your goals and considers your current financial situation and risk tolerance level. Your advisor can help you determine how much you should save each month and ways to maximize your returns.
Diversifying your investment across different asset classes can help you manage risk while potentially maximizing your returns. Consider adding a gold IRA to your portfolio, which could help stabilize your holdings, as gold often holds its value and even appreciates during times of economic uncertainty.
The bottom line
Retiring from the workplace is only half the battle. To ensure a comfortable and fulfilling retirement, start planning now for how you'll spend your time once you're no longer working.
Ultimately, following a strategic plan and making smart money moves can help you reach your goal of an early retirement. Of course, the journey will require hard work and discipline. But if you can save and invest consistently in alignment with your goals and risk tolerance, it's possible to retire early.
