The average age of retirement stands today at 62 for women and 64 for men. But if you’re like many Americans, you’d probably much prefer to have your feet in the sand and a piña colada in hand well before you reach your 60s. No matter your age, it’ll be pretty hard to pay for that oceanfront real estate and tiki bar tab if you haven’t set aside enough savings.
Fortunately, your dreams of a comfortable, early retirement can still come true — so long as you’re willing to do some heavy duty planning, smart saving, and savvy investing. Read on for our roundup of the best tips and tricks for retiring early — without winning the lottery.
1. Set a Savings Goal
First thing’s first: You need to calculate how much money you’ll need to stockpile before you can quit your day job. Be forewarned — it’ll likely be a number that will make your jaw drop. But even if it seems totally unattainable, rest assured that it’s not. Let’s say you’d like to retire at 48 — a plum 15 years earlier than the average American. Take your pre-retirement income and multiply it by the number of expected years of life you’ll have in retirement; in this case, we’ll say it’s 48 x 31 (this assumes you’re going to live to be 79, the average life expectancy for an American).
For example, if you’re living off a $70,000 salary now, you’ll need to save $2.2 million before you can ditch your nine-to-five. On average, retirees spend between 65% and 95% of their pre-retirement income, so this calculation shoots a little high. But since you very well may live a decade or two longer than the average Joe, it’s better to have a bigger cushion than no cushion at all.
2. Live Frugally
If you want to achieve a comfortable, early retirement, one way of getting there is by living frugally. That means forgoing name brand clothing, coupon-less meals at restaurants, salon visits, and airplane travel. Buying used cars only — or giving up cars, altogether and instead riding a bike or public transit.
If this sort of lifestyle sounds foreign to you, you may want to begin by crafting a carefully detailed budget that will set you up to achieve your long-term retirement savings goal. If all of this sounds exactly like the way you don’t want to live out your younger years, frugal living as a road to early retirement quite simply may not be for you.
3. Start a Business — Then Let Someone Else Run It for You
If you’ve got an entrepreneurial bone in your body, you might want to explore launching your own business as a means of achieving early retirement. Whether it’s a food truck or a marketing and consulting firm, the idea is to launch the business and work it until it’s profitable enough that you can hire someone else to run the day-to-day operations while you kick back in that beach chair and watch the money pour in. Alternatively, the sale of your business could fund your retirement. Nearly 40% of small business owners say they are poised to retire earlier than they had anticipated.
4. Get Yourself a Pension
The beauty of the pension plan: It’s sort of like earning a salary, only without having to put in the work. And although many industries are phasing out these plans, about one in four large employers still offer some sort of pension to new hires, according to a recent study. At the top of the list are companies in the insurance, utilities, energy, transportation, and food and beverage industries. Government is another sector where pensions are alive and well. Many municipalities still offer firefighters, police officers, and public works employees pensions that include overtime and saved vacation in the final calculation. The result is that some workers can retire with a pension that’s higher than their former salary. Imagine that.
Alternatively, Apple, Google, Microsoft, and other big-name employers in the information industry offer workers an average retirement benefit contribution of $2.76 per hour worked. That’s huge. Also, these tend to be pretty high-paying jobs, which means employees have more flexibility to make larger contributions to their own retirement savings, in addition to what the company chips in.
5. Make Smart Investments
The best time to start investing is now. Case in point: If you start maxing out your IRA contributions at age 25, you will have saved $1.6 million by the time you’re 70. But if you were to start at 35, you’d save about half that sum. Clearly, a few years can make a huge difference. Now, if you’re not investment savvy, there are tons of tools available to help you figure out where to put your money.