With the typical age of retirement being 65-67 years (in the US), a vision of retirement while only 50 years old seems tempting.
Many people who retire at a younger age are familiar with the FIRE movement – “Financial independence, retire early”. Folks who are followers of this movement retire in their 30s or 40s.
This usually implies living on a very tight budget and saving at least half of your salary. And then, the retirement isn’t luxurious either. That’s why instead of retiring at 35 or 40, it might be a good idea to retire at 50 and still enjoy life.
But let’s start from the beginning.
What do you need to retire at 50?
- Establish your situation
- Get an idea on how much money you’re going to need
- Figure out a saving plan
- Go for it, as if your future’s at the stake
How do you figure out if you’re able to retire at 50?
You need to be aware that early retirement is oftentimes a sacrifice and a commitment. If you retire earlier than your peers, this means you’ll have a couple of years less to save, and that many years more to support yourself on the retirement.
As a 50-year-old retiree, you want to be financially independent, meaning that you have a supply of money that is essential for living at a certain level of quality of life. You can still work if you want to, but financial independence allows you not to. The choice is yours to make.
In order to gain that by the desired age, you need to start working towards it years before. One of the key points of that preparation is knowing how much to save, and at what time.
How much money do you need to retire at 50?
Average US citizen is expected to live around 79 years. Hopefully, you’re looking to live a little bit longer, and that’s why it’s even more important to calculate your savings.
Let’s run the math.
Experts say it’s a good idea to expect to be needing 70-80% of your current income while retired to maintain your living standards.
With the average US salary being $56,516 a year, or $4,709.66 a month, you’d want to have around $45,000 a year when retired. If you multiply this with your life expectancy (or hopefully a number that is greater, not to encounter lack of funds) you get the amount you need to save.
If you expect yourself to live for 85 years you’ll need to have saved a net total of $1.575 million.
If you decide to start saving right after graduation, at 25, you’ll need to save $63,000/year. That’s a lot, isn’t it? Well, assuming that’s more than an average salary, yeah, that’s something.
Of course, the numbers vary. Try using an online retirement calculator to figure out exactly how much you need to save each month.
What if your retirement savings goal is out of reach?
If you are not able to save as much as you need to sustain your retirement, here’s what you can do:
- Try to lower your retirement expectations
If you can cut down the amount of money you need to save for retirement, it might be more manageable to save that amount. This ties with lowering the standards of your life when being a retiree.
- Try to save more
The best way to maximize the amount you save each month is by reducing expenses. Take note of everything you spend money on during the month, and figure out what it was that you bought but didn’t need to.
Saving more money bonds with having a restricted budget every month, which means possibly lowering the standards a bit.
If needed, you might want to apply points 1 and 2.
- Maximize your income
Taking extra hours or a part-time job might help. The more money you have, the more you’re able to save.
- Seek better investment opportunities
You might want to look for better ways to invest your money. If you’re willing to take the risk, that is. A well-done investment might significantly boost your retirement savings plan.
- Speak to a financial advisor
When all else fails, advice from a pro might help. Financial advisors are educated professionals who deal with saving and investments al the time. If you can afford one, they could prepare a personalized saving plan or consult your possibilities with you.
What should I keep in mind when starting saving?
According to the Bureau of Labor Statistics, if you lived in 1991 and earned $48,000/year, you’d need almost $80,000 for the same buying power 20 years later.
Inflation is a huge risk factor when dealing with long term investments. That’s why the money should be working for you, instead of just sitting in your account.
Consider investment accounts, stocks, and assets, anything that could make you any profit seemingly passively. You might want to start caring if your company has 401(k), or think about opening an IRA. Individual retirement accounts can help when saving for retirement.
- Insurance, risks, and healthcare
If you retire at 50, you’re not eligible for Medicare for another 15 or so years. You’ll need to pay for private medical insurance through that time, and don’t expect to stop paying when you turn 65. According to Fidelity Retiree, a retired couple at 65 years old will need around $280,000 for healthcare.
As a 50-year-old retiree, you will not be able to claim social security benefits just yet. You’re going to have to wait a couple of more years to do so – until you’re 62.
There are a lot of things to care about when planning an early retirement. Despite all the hiccups along the way, a wisely prepared and thoroughly executed savings plan can lead to financial freedom at the age of 50.
Early retirement is something many people dream about, so why don’t you stop dreaming and start thinking about your saving strategy?