The journey toward retirement is different for everyone, and more Americans are aiming for an early retirement. However, many who would like to retire early are not planning properly to reach this goal. According to the United States Census Bureau, 50% of women and 47% of men who are between 55 and 66 years old have no personal retirement savings.

Anyone who retires at age 62 or younger is typically considered someone who has retired early. While the process of saving for an early retirement may seem daunting, here are several straightforward steps you can take in order to ensure you will retire early and retire confidently.

1) Is Early Retirement Right for You?

Your first step to retiring early should be determining if it is even the right decision for you. There are many clear benefits that early retirement provides. Americans are living longer, so an early retirement would mean more time to spend traveling, pursuing hobbies, and spending time with your loved ones. However, there are a few drawbacks that should be considered.

For example, when you retire early, you are not optimizing the amount of money you receive from Social Security. While you can start collecting Social Security at age 62, you maximize your benefits if you begin collecting at age 70, so retiring early means you are not taking full advantage of those benefits.

Insurance is also an important consideration in choosing early retirement. Individuals cannot collect Medicare until they are 65 years old, and retiring prior to that can create a large expense—whether you are self-insuring or paying for medical costs out of pocket.

Overall, retiring early also requires lifestyle changes and financial sacrifice, and it is important to determine if it is realistic for you and your family.

2) Develop a Post-Retirement Plan

After spending decades in the workforce, retirement can be a difficult adjustment. It is important to not just plan to reach retirement, but to plan for what comes after.

Do you want to travel? Buy another house? Visit family? These are just a few important questions to ask yourself when looking toward the future.

The more you want to spend after you retire, the more you need to save before then. Draft a list of post-retirement activities or goals you want to accomplish, and be specific and realistic. Your plan will help you ultimately determine when and how you need to save for retirement.

3) Calculate Your Financial Needs

Before you begin saving and investing for early retirement, you need to calculate how much money you will need once you retire. Emerj360 offers an online retirement calculator that can help. The retirement calculator uses personal data including your current income, current retirement savings, employer and employee contribution, your investment style and age you wish to retire at, to approximate the amount of money you will have each month post-retirement.

Most financial professionals suggest you have at least 70% to 85% of your current annual household income when you reach retirement, and you may need even more if you plan to retire early. The retirement calculator is a great starting point to help you determine what changes you need to make in your savings and investment style to reach that early retirement milestone.

4) Save Early, Save Often

Once you have determined the amount of money you will need to put aside each month, you can begin to build a comprehensive budget to help meet your savings goals. Retiring early may mean you need to save more aggressively. That can be achieved through measures like cutting out unnecessary spending, eliminating debt and increasing the amount of money you are contributing to personal or employer-sponsored retirement accounts.

One way you can save directly toward your early retirement is through maximizing your 401(k) contribution. A 401(k) is an employer sponsored plan that takes a portion of your paycheck (pre-tax) and puts that money into your retirement account. Many employers offer a 401(k) plan and will match a percentage of your contributions. Employer matching offers you free money toward your retirement, so take advantage of it if offered to you.

You have the choice in what percentage you want to contribute to your 401(k), but most financial planners recommend you contribute 10-15% of your monthly income. In the short term you are receiving less money each paycheck. In the long term, choosing to contribute 15% or more, and increasing that amount each year, will make retiring early easier to achieve.

Another way you can invest directly towards your retirement is through contributing to a Roth IRA. This type of Individual Retirement Account allows you to invest money that will grow over time. Once you turn 59 ½ years old and have had the account for over five years, you can begin withdrawing from the account tax free.

5) Invest Strategically

Once you have accumulated savings, you should start investing it. While you might be hesitant to take risks and begin investing more, it is a necessary step to retiring early. It is important to have a diversified investment portfolio—meaning you are invested in a variety of different securities—as it will reduce risk when you begin to invest more.

If you want to learn more about investing toward retirement, Emerj360 offers resources to help guide you through the investment process.

6) Retire With Emerj360

It is never too early or too late to create a retirement plan. If you are looking for guidance to meet your early retirement goals, contact one of our Emerj360 financial professionals and schedule a meeting today. Our professionals will answer all of your questions, and our retirement planning services will help guide you on your path to early retirement.

Written By  Brett Sebion, Financial Coach
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