How To Retire Early
Step 1 How to Calculate Your Retirement Savings
Traditional retirement planning uses a guess, 80% of your salary, to calculate how much savings you need for retirement.
A guess, which can over estimate by up to a million dollars or more, the amount of savings you need to retire. Forcing you to work years longer than necessary.
How much you spend in retirement, not your salary, determines how much savings you need to retire. You control how much you spend in retirement, therefore, you control how much savings you need for retirement.
How much savings do you really need to retire?
Compare the amount of retirement savings you need to retire using the traditional retirement planning formula, and the amount you actually need, based on how much you plan to spend in retirement.
Now go back to the calculator, and reduce your monthly retirement budget by $250, $500, $1,000. Notice how you can control the amount of retirement savings you need, using the Early Retirement formula, by changing the amount you plan to spend in retirement?
Simply by adjusting your retirement budget, you control the amount of savings you need for retirement, and when you can retire.
Millions of Americans can retire today, or many years earlier, simply by changing the formula used to calculate retirement savings. Step 2 describes how to calculate and control your retirement savings needs.
Step 2 Create a Retirement Budget
How much you spend in retirement determines how much savings you need to retire. Here are 5 monthly retirement budgets and the amount of retirement savings they require.
$1,500
$450,000
$2,250
$675,000
$3,000
$900,000
$4,000
$1,200,000
$5,000
$1,500,000
To calculate how much savings you need for retirement, you need to know how much you will spend in retirement, you need to create a retirement budget.
Learn More: How to Create a Retirement Budget
The easiest way to create a retirement budget is to first create a current budget. Then copy your current expenses over to your retirement budget, and reduce or eliminate retirement expenses, to retire early.
To illustrate, watch how "Bob and Pam" use this simple method, to retire early.
Housing
$2,000
$750
Bob's Car
$600
$500
Pam's Car
$400
$0
Health Care
$300
$600
Food
$600
$500
Dining Out
$400
$200
Vacations
$300
$200
Mini-Storage
$150
$0
...Other Expenses
$1,000
$450
$5,750
$3,200
$1,750,000
$960,000
On their current budget of $5,750 per month, Bob and Pam would need $1,750,000, before they could retire. By reducing and eliminating expenses in retirement, Bob and Pam reduced the amount they need to save for retirement to $960,000, a $790,000 difference. Bob and Pam will retire years earlier.
You control how much you spend in retirement. Reducing your expenses in retirement, reduces the amount of savings you need for retirement, enabling you to retire early.
Now that you know how to calculate, and control, the amount of savings you need to retire early - How do you SAVE it?
Step 3 How To Save For Retirement
How do you save the amount you need to retire early? You saw how reducing your expenses when you retire reduces the amount you need to save for retirement. Reducing your expenses before you retire increases your retirement savings.
Let's stick with Bob and Pam, and see how they creatively find ways to increase their retirement savings,enabling them to retire early. From their retirement budget, Bob and Pam know that they need to save $960,000, before they can retire.
Housing
$2,000
$1,500
Bob's Car
$600
$0
Pam's Car
$400
$500
Health Care
$300
$300
Food
$600
$500
Dining Out
$400
$200
Vacations
$300
$200
Mini-Storage
$150
$0
...Other Expenses
$1,000
$750
$5,750
$3,200
$0
$2,550
By reducing their current expenses, Bob and Pam have increased their retirement savings from zero to $2,550 per month, enabling them to retire in 15 years.
How did they do it? Bob and Pam saved $500 per month by moving closer to Bob's work. Enabling Bob to save another $600 per month, by ditching his car, and walking to work.
Pam brews her own coffee, and packs-a-lunch to work everyday, saving $150 per month. They save another $150 per month by having a garage sale and getting rid of their mini-storage unit.
Reducing your expenses before and during retirement enables you to retire early.
Enter a monthly expense i.e. mini-storage, coffee habit, gym, car, into the retirement savings calculator, to see how it positively impacts your retirement.
The combined effect of reducing your expenses, before and during retirement, enables you to retire many years earlier.
While Bob and Pam were able to make dramatic lifestyle changes, are there easier, more realistic ways to save for retirement? Yes.
3 Saving Strategies to Reach $1 Million in 20 Years.
10 Ways to $1 Million Here are ten expenses you can eliminate, or reduce, that could add up to $1 million dollars in 20 years.
| Bottled Water | $40 | $26,500 |
| Brew Your Own Coffee | $50 | $33,500 |
| Dry Cleaning | $40 | $26,500 |
| Cheaper Phone Plan | $60 | $40,000 |
| Quit the Gym and Walk | $60 | $40,000 |
| Pack-a-Lunch | $100 | $67,500 |
| Get Rid of Mini-Storage | $150 | $100,000 |
| Convert Grass Lawn | $150 | $100,000 |
| Ditch one Car | $400 | $268,000 |
| Less Expensive Housing | $500 | $335,000 |
| $1,500 | $1,000,000 |
From: How To Save $1 Million
The $500 Plan If you save $500 per month this year, then $600 per month next year, and increase your monthly savings by $100 every year after that, in 20 years you could have $1 million in retirement savings.
Save Your Raise If you earn $45,000 per year and receive 5% annual raises, keeping your spending the same and saving your raise, could give you $1 million in retirement savings in 20 years.
These are just a few ways you can save $1 million in 20 years,however, you do not need $1 Million to retire early. As you saw from the table at the top of this article, if you create a retirement budget of $3,250 per month or less, you can retire with less than $1 Million. Which means you can retire in less than 20 years. You can retire early!
When Do You Want to Retire?
Retire When You Want!
Our unique Early Retirement Planning Software package enables you to retire when you want.
Simply choose the date you want to retire, and get the planning and software, to make it happen.
No guessing, worrying, or wondering. Know how much you need to save to retire, how much you can spend in retirement, and when you can retire.
Plan, manage, and maintain, a safe and secure early retirement. for Free! Learn More
How To Retire Early Articles
What else do you need to know if you want to retire early? The following articles from our Early Retirement Blog discuss the other things you need to know, if you want to enjoy a safe, and successful early retirement.
- The Best Asset Allocation Model
- Why You Should Not Retire In Debt
- How To Retire On Only Social Security
- Rent or Own a Home in Retirement?
- How To Retire With Less Than $1 Million
- How to Retire After a Layoff
If you haven't done so already, be sure to try our Free Early Retirement Calculator and find out if you can retire today!