Easy Steps on How to Retire Early

When planning for retirement, it is important to understand that the key goal in planning on early retirement is careful planning and execution. The first step in planning on retiring early is determining the amount of monthly retirement expenses and evaluating the amount of money that is needed in order to meet those monthly expenses. Saving money should be the number one priority for someone who desires to retire at an early age. There are some measures that need to be taken into consideration such as saving a third of one's paycheck. However, saving money from a paycheck is nearly impossible for most Americans. However, there are ways to start aggressively saving money for retirement in order to have enough stashed away to retire at an earlier age.

Create a Budget

Budgeting is a great way to gain a visual inspection of the amount of mandatory expense that is needed to live from month to month. There are many costs that can be reduced once one realizes just how much money is being spent in certain areas. People who go to Starbucks twice a day could save $10 a day by making their own coffee at home. $10 a day does not seem like that much but that's $70 a week, or $3,360 a year! The coffee money can be saved and allocated into an aggressive investment account that will allow the retiree to enjoy residual income later in life. Of course, mandatory expenses are obligations that absolutely need to be paid for. Some mandatory expenses are: rent, credit card bills, car payments, insurance, and other miscellaneous bills. Once the fixed expenses are calculated, multiply the rest of the monthly income by at least 33% and set this amount side for a retirement savings account. With some creative planning, the rest of the money can be allocated towards entertainment (restaurants, movies, games), and other variable expenses. Remember that sacrifices have to be made in order to save a considerable amount of money from one's monthly paycheck.

Save Additional Income

Raises and promotions from jobs are a great way to save additional income. Once a raise is obtained, save all the additional monies that is received from the promotion. All of the additional money can be collected and invested back into the retirement accounts in order to expedite the retirement process. Another way to increase investment income is by working a part-time job that is enjoyable as well as an income producer. Remember not to spend any of the income that is produced from the part-time job and consider this "retirement income". For additional resources on how to save money for retirement, go to the aarp.com website.

Invest Savings in Aggressive Retirement Funds

The amount of money saved from working part-time jobs and aggressive pay-check allocations should be invested into retirement accounts. Aggressive investing in higher-risk/high-return mutual funds will allow funds to grow at a faster rate, which means more retirement money in the future. However, remember that higher risk retirement accounts can also result in a higher rate of money lost due to poor performing funds. For a lower risk approach, one can invest additional savings income into treasury bills at the risk free rate. Investing in lower risk investments means that the overall annual return will not be as high, but at least ht money invested will earn some interest.

With these simple tips, one will be on the right track to retire early.

Source

CNN Author. "Retirement Planning: Can You Retire Early - Calculator?" CNN