Many hardworking Americans dream of early retirement and the freedom it offers. You probably read inspirational stories of early retirement success in financial independence, retire early (FIRE) blogs. FIRE followers start early, wish to achieve financial security at a young age and understand the importance of frugality. These inspirational stories make many of us wonder how they achieved their goals, and why we can’t. But you can – financial independence is obtainable with hard work and diligent planning.
Although recent studies show that early retirement is very rare in the U.S., that does not make it impossible. We have provided a few strategies you can employ for early retirement success.
- Anyone can retire when they want, so long as you set a plan and stick with it
- Start early, be consistent, and trust the process are words to live by
- Don’t think you can’t afford to save – every little bit helps.
This first strategy applies to a portion of Millennials and even a significant portion of Gen Z young adults. Of course, we don’t expect a four year old to employ these practices, but teenagers who generate earned income can take advantage of this advice. It is never too soon to start saving. Even if you don’t know what you are saving for just yet, you should stash away a small portion of your paycheck for the future. It doesn’t have to be much, for example, a minimum of $3 a day can make a huge difference. Parents who are reading this, pass the advice along to your teenage children, because early retirement success is a subject that is scarcely included in their school curriculum.
Be Consistent in Saving
For many young Americans, it may be hard to consistently save the same amount each month. There are, essentially, two segments of Millennials. The younger segment worries about establishing their career, paying off student loans and other immediate bills. The older segment of Millennials may have established their careers, but have to support a young family, pay off credit card debit and have a mortgage. So, whatever stage you are in, consistency may come as a struggle.
Financial experts advise that individuals save at least 10% of their monthly earnings. The first step is to determine what 10% of your monthly earnings is, and whether that’s achievable. Multiply all of your earnings by 0.1 and that number is what you should save each month. If this is not a realistic target, determine how much money is leftover after you pay bills and other necessary expenses. From there, set aside a portion for saving and then another portion in case of emergency. Additionally, you want to view your savings as another financial obligation.
Establish a Retirement Plan
A recent survey shows that 2/3 of Millennials are not offered an employer sponsored retirement plan, such as a 401(k) or 403(b), but you can still establish an IRA. The Traditional IRA is the most popular individual retirement account, and it offers tax-advantages to savers, as contributions are tax-deductible on both state and federal tax returns. A Roth IRA is another option, however you do not receive an upfront tax-break when establishing a Roth IRA, though qualified withdrawals are tax free.
At IRA Financial, we recommend the Self-Directed IRA. It is a tax-advantaged retirement account, much like the Traditional IRA, but it allows you to make investments outside of stocks, bonds, and other traditional investment options. Investments you can make with the Self-Directed IRA include real estate, cryptocurrency, precious metals, and so much more. All income and gains the investment makes will be tax-free while held inside the plan.
Do Your Homework
Segueing off of that previous bit advice is do your homework meticulously. After you make the decision to use your retirement funds to invest, get to know the world of finance and investments before stepping into it; understand the investment(s) you wish to make from top to bottom. To help you get started, you can enroll in a free finance course online to gain general knowledge, or read investment books by leading experts within the industry
If you wish to establish a Self-Directed IRA, we recommend reading Self-Directed IRA in a Nutshell. This book is a great starting point to learn the Self-Directed IRA structure, IRS prohibited transaction rules and the role of a passive custodian. It was also written by our very own Adam Bergman, a tax attorney and leading voice in the self-directed retirement world.
Trust the Process
Early retirement won’t happen overnight. That’s why it’s important to trust the process and understand that, yes, saving for early retirement is going to take a while. But you must believe in yourself, visualize your future, trust the power of tax deferral to perform, and take one step each day toward your goals of retirement wealth.
Get in Touch
IRA Financial is one of the leading providers of the Self-Directed IRA and Solo 401(k) retirement plans. Start self-directing today: contact a tax professional at 800-472-0646 or download the free IRA Financial app. The app will allow you to establish your account, perform basic maintenance tasks and make investments all on your mobile device.