For the most part, modern Americans are more focused than ever on being free, financially, to do as they please. Unfortunately, most people are not born into the kind of millions required to retire early without considerable planning and intention. However, many people share advice on how to achieve financial freedom sooner rather than later. And, in this post, we want to share some of that wisdom so you can apply it toward beefing up your income and savings to meet any challenge.
ISU Credit Union realizes that many people want to reach retirement early because it will bring them more enjoyment of life and a fuller experience day to day. We’ve developed a few case studies that resemble real customers and their journey toward early retirement. Through the remainder of this post, you can learn what these customers went through, what they earned, and how they placed themselves in excellent financial positions for early retirement.
Follow closely the experience of those who have gone on to retire early before you, and you’ll see that you can make informed decisions everyday to move closer to that amazing experience of relief that comes with any form of retirement, but especially at 45. The comparisons and case studies we present are meant to guide you during your deliberations and planning for how you will achieve financial freedom. Let them assist you in making decisions on how to make your next big financial move.
Case Studies in Early Retirement Planning
The process toward early retirement is as personal as it is a hard calculation. Everyone starts from a unique vantage point and location on the full map of financial experiences. The part that often consumes the most energy and space in the mind is income; we are all concerned about the money we have coming in as much as the money we are letting out. Use the following two case studies as guides for how you can channel your income and limit your spending to maximize retirement savings.
Example #1
Imagine that you graduate from a prestigious university and go on to have a rewarding career in a major city that pays you competitively for skilled work. You would be like many young people and recent graduates looking to be smart with their resources while looking at long-term goals like early retirement. Let’s say, even, that by the age of 30 you’re already making a six-figure income that allows you to save and set aside for the future.
This person may take about 20 years to save almost one million dollars. You would have to spend just $50,000 per year to do this with a 2% return on your savings per year. Then, after retirement, you could spend more than $60,000 per year while collecting interest, allowing yourself to live almost anywhere in the world. With a spouse, this would be even simpler because $120,000 per year can be quite comfortable for a couple.
Example #2
Now imagine that you get a job with a consulting group in your early years and end up as a senior executive at around 40 years old. You may have a couple of kids who you want to see grow up, and you don’t want to miss a moment of it by retiring early. Over the years, your able to save more and more as your income increases and you move toward your final position as a senior executive.
If you start early, you can start saving immediately and after 20 years earn over 1 million dollars in savings. For example, if your retirement savings is 1.6 million, you can spend over $70,000 per year to stay with and support your sons or daughters as they grow up. In this model, you would earn over $25,000 per year in interest, which could boost your available spending even more. Say you decide that $80,000 per year is enough for you, and that’s more than many families who live comfortably in the United States.
How to Save for Early Retirement
The key idea for early retirement is and has always been to save more than you spend. Or, at least, you should save more than you did the previous year. If you keep your savings at a rate of 50% per year of your total taxable income, you will accumulate 15 years of retirement savings every 15 years. On the other hand, if you save 10% per year of your total taxable income, you will accumulate one year in retirement savings every 5 years. It’s easy to see which is the better option.
When it comes to retirement savings, the operating assumption is that one can live off roughly half of the their after tax income. Living off less while making less than $100,000 per year is difficult and does not set one up for success in a sustainable way. But, if saving half your income every year to achieve early retirement is too challenging or difficult with your financial situation, there are other options as well.
If you save just around 20% of your income for early retirement, you will be able to reach your goal in just under 40 years on your own. (This is another place we should emphasize the importance of planning and committing to an early retirement plan early.) For many people, this won’t be aggressive enough to meet their goals, but you can see how a $50,000 savings for 20 years sets you up for the quickest and most direct path to financial freedom.
Use your time wisely, save your money, and improve your life through an early retirement plan that can ensure years of comfort through simple hard work and savings.
ISU Credit Union serves members with all kinds of financial and personal goals that motivate them to spend what they need and save what will take them farthest. With our checking and savings products, our aim to to provide a high-quality and financially rewarding experience for our memebrs. Review our savings options today.