Figuring out how to retire early may seem impossible. However, it’s simpler than you think: start early, and save more. Channel your resources into positive investments like an emergency fund, retirement accounts and appreciating assets (like property). Then, get ready for a relaxed retirement.
Front-loading these savings has enormous benefits, especially for freelancers who don’t necessarily have matching 401k plans and pensions. To get the insider info, I sat down with an expert to talk about how to retire early. Let’s dive right in:
The Magic of Compound Returns
Alanna Ford is an Innovation Catalyst at AARP who teaches finance workshops on the side. In both capacities, she advocates the importance of front-loading your retirement. “Saving for retirement sometimes reminds me of flossing,” Ford says. “It’s not sexy, and it’s easy to make excuses. But I love the feeling that comes from it afterwards, and watching the cumulative effects of consistently keeping at it over time.”
The reasoning behind front-loading your retirement savings is two-fold: First, saving early means you give yourself a head start. Second, the magic of compound returns means you make much more on every dollar you save, the earlier you save it. The takeaway? Your savings doesn’t just grow — it grows at an increasing rate.
Assessing Your Finances
So, where does this money come from? Ford believes that if you consistently assess how you spend your money, you’ll find a few tweaks that can add up to a lot of saved money in a retirement account. “While we’re socialized to value other aspects of our lives over our finances, cultivating our financial wellness is key to independence,” she says. Part of this independence is planning for the future.
Start with assessing where you allocate your money. “I’m constantly encouraging my friends to step back and identify their values — things like love, generosity, creativity or joy,” says Ford. “I then have them look at their latest bank statements. How aligned or misaligned is your spending with your values? How could you make adjustments to your budget so you’re in the driver’s seat of your money, rather than letting your money drive you?”
Finding the Money for Retirement
This kind of assessment isn’t about judgment. Instead, it’s about honestly recognizing your needs. Rather than getting your daily latte from Starbucks, treat yourself to just one on Friday mornings, and put the difference in a retirement account. Or, wait until that dress you’re eyeing goes on sale, and put the 20 percent you saved toward retirement. Yes, these acts may seem small, but like compounding interest, their impact can be exponential.
If you don’t see how you can cut down on spending, think about boosting your income stream and putting that extra money into retirement. When I have a really strong quarter, I put a percentage of those above-average earnings into my SEP IRA. Yes, I make regular, automated contributions — but I love adding some extra cash when I have it.
By taking a proactive approach to saving for retirement, you can set yourself up for peaceful twilight years. As Ford writes, “saving for retirement is an investment in your overall well-being.” Instead of shying away from thoughtful preparation, dive in with the best intentions.