It’s ironic, in a way, that while many of us are establishing our careers, we’re also programmed to think about ending them. Whether you like your job or dread going to work, it’s natural to have retirement on your mind. But if you’re among those who dream about early retirement, you should know that it’s a more attainable goal than you might think. If you’re intent on making a timely exit from the workforce, here are three rules to follow.
1. Start saving immediately
The sooner you start saving for retirement, the sooner you’ll be able to tender your permanent resignation. That’s because saving early gives your money extra time to grow. Say you start contributing $5,000 a year to a 401(k) at age 25, and continue to do so every year until you retire. If your investments earn a 6% return, which is actually a pretty conservative number and well below the stock market’s historical average, you’ll have almost $574,000 by age 60. Now let’s say you start funding your 401(k) with $5,000 a year at age 35. Assuming that same 6% return, you’ll have around $282,000 by age 60 — not exactly a negligible amount, but far less than you would’ve accumulated had you started saving 10 years prior. If you’re serious about retiring early, start saving as soon as you land a steady paycheck.
2. Don’t be too conservative
The more your investments earn, the more likely you are to be in a position to retire early, but sticking to conservative investments like savings accounts, CDs, and even bonds probably won’t get you there. Imagine you want to retire in 20 years and have $50,000 to invest. Stick that money in a savings account paying 1% interest, and you’ll have just $61,000 two decades later. Lock up your money in long-term bonds paying 4%, and you’ll have close to $110,000. But if you invest in stocks — which you can do if you start early on and have ample time to ride out the market’s inevitable highs and lows — and manage to snag an 8% return overall, which is perfectly realistic given the market’s historic performance, you’ll wind up with a cool $233,000.