I’m a Retirement Planner: Here Are 4 Steps To Retiring in 5 Years, No Matter How Old You Are
Chances are that you would like to retire sooner rather than later. While we all have different ages at which we envision ourselves escaping the workforce, the good news is that you can retire within five years regardless of the age at which you start planning your exit. You don’t have to work until you’re late 60s, and you certainly don’t have to feel stuck at a job because there are numerous strategies for retiring earlier than expected.
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We will look at how you can retire in five years, no matter how old you are. We spoke to retirement planning experts who will explain how you can retire in five years for those in their 30s, 40s, 50s and 60s.
How To Retire in Your 30s
“First, you need to keep your expenses as low as possible for as long as possible,” said Cody Berman, a financial expert in the FIRE community who helps others retire at a young age. You may have heard about the early retirement movement community. The premise behind this FIRE (Financial Independence, Retire Early) community is to leave the workforce much younger than the conventional retirement age. While this may seem like a far-fetched concept initially, there’s an entire movement around this with those who have taken extreme measures to live on their terms.
How do you keep your expenses low? “House hack, drive a paid-off car, spend responsibly if you hang out at restaurants and bars. Do whatever you can and get as creative as possible.” The entire goal is to reduce your expenses heavily so that you can increase your savings and accelerate the process of leaving the workforce.
From there, Berman encourages you to work on increasing your income to save more. “Second, focus on increasing your income as much as possible. Get a raise, start a side hustle, change industries — whatever it takes.” You’re going to want to focus on bringing in more money to build up your retirement contributions since you want to retire at such a young age.
What’s the final step for retiring early? “Invest the difference between your income and expenses. The bigger the gap, the sooner you’ll be able to retire.” When you reach the point where your investment income replaces your day job income, you can start to think about quitting your main gig.
How to retire in your 30s summary:
Keep your expenses as low as possible so that you aggressively save toward retiring early.
Focus on increasing your income so that you have more money to invest.
Invest the difference until you can leave the workforce.
Get aggressive about minimizing expenses and increasing your income by making substantial sacrifices.
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How To Retire in Your 40s
“First, you’ve got to have enough money saved up to last you potentially for decades,” according to Jeff Rose, CFP and founder of Good Financial Cents. “And don’t forget about the rising costs of almost everything — your savings need to keep up with that. Plus, saying goodbye to your job means saying goodbye to perks like health insurance. You’ll need a plan to cover potential health issues as you age, which can get pretty pricey.”
From there, Rose recommends figuring out how you will spend your time if you leave the workforce in your 40s. “Leaving the workforce early means you’ll have a lot of time on your hands, and filling that time can be challenging. You might miss the daily interactions with colleagues, and staying up-to-date with the latest in your field could become a thing of the past.”
Then, you will want to work with a tax professional to ensure you know your retirement income options. “There are rules about when you can take money out of retirement accounts without penalties, and you’ll need to think about how to manage your assets in the long run,” Rose warns that you can lose money unnecessarily if you get stuck paying hefty penalties.
“You might also need to make some lifestyle changes, like moving to a cheaper area or finding new, affordable hobbies,” Rose said, mentioning the importance of getting everyone on board. “Don’t forget about family, too. If you have kids or aging parents to take care of, you’ll need to factor that into your plans. And if you’re married, you and your spouse must agree about when and how to retire.”
How to retire in your 40s summary:
Ensure that you have enough money saved and invested to last you a few decades.
Figure out how you will spend your days when you’re not working.
Learn the rules about taking out retirement funds.
Consider significant lifestyle changes to reduce your expenses.
How To Retire in Your 50s
“If you’re planning to retire within the next five years, one of the best investments you could make is hiring a Certified Financial Planner
who specializes in retirement planning,” according to Benjamin Hooper, CFP®, CIMA®, RICP®, founder and wealth manager, Comal Wealth Management. Hooper went on to share with us the key retirement questions that you’re going to need to be answered with the help of a professional:
Do I have enough saved?
Can I live my ideal retirement?
How do I minimize my taxes?
How do I maximize my income?
How do I align my investments to support my ideal retirement?
“The sooner you have a plan in place, the easier it will be to have a smooth transition into your ideal retirement,” Hooper said.
How to retire in your 50s summary:
Work with a qualified financial planner.
Ensure that you have enough money saved.
Have a plan for minimizing taxes.
Align your investments to support your ideal retirement.
How To Retire in Your 60s
If you just turned 60 and are planning on retiring within five years, then there are a few things you have to focus on doing right now since your retirement will look much different than some in their 30s or 40s. “First, look up your Social Security benefits and have a strategy on when to start receiving those benefits,” said Andrew Creme, a certified financial planner and founder of Creme Wealth. “Just because you’re retired doesn’t mean you have to draw Social Security immediately. It often makes more sense to wait and live on other income sources for a few years.”
Next, start looking into a tax plan for your retirement. “There are often ways to minimize taxes during the last five years of employment and the first five years of retirement through things like funding donor-advised funds, charitable trusts, strategic Roth conversions, and Medicare benefits planning.”
The final step that Creme recommends is to have a good understanding of your investment options and future cash flow needs. “Many employer-sponsored plans like 401(k) plans allow employees to move their account balance to an individual retirement account (IRA) without a penalty even while stiff employed at age 60, so it may be something to consider. It doesn’t prevent future contributions from being made into the 401(k) plan, but it does open up a variety of other investment options to pre-retirees that may not be available to them in the 401(k) alone.”
How to retire in your 60s summary:
Have a plan for accessing your Social Security benefits.
Create a tax plan for your retirement income.
Have a clear understanding of your investments and future cash flow.
Figure out what kind of employer-sponsored plan you have.
Closing Thoughts
Regardless of age, you can retire in the next five years if you get committed to the process immediately. The steps that you have to take will vary depending on your age and you’re starting point. The good news is that retirement isn’t as far away as you may have originally figured.
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This article originally appeared on GOBankingRates.com: I’m a Retirement Planner: Here Are 4 Steps To Retiring in 5 Years, No Matter How Old You Are
