How to Save Money to be an Early Retiree and Gain Financial Freedom
This is a guest post by Linda Richardson.
She summarizes some of the key points a person should address in order to switch from planning for retirement to planning for early retirement, as well as giving a few ideas about where to start saving, especially for readers living in US.
Enjoy!
How is it possible to achieve financial freedom by undertaking early retirement?
Well, you have to play a different ball game altogether. Make a thorough change in your financial strategy. Your early retirement planning needs a different savings technique.
What is it?
Have you heard about FIRE? The full term is Financial Independence, Retire Early (FIRE).
It means you are retiring earlier than normal retirement age. You have to adopt clever investment strategies and save up to an extreme point to make your FIRE successful.
What does the Government rule state about retirement age?
The present retirement age is 66 years and 2 months for people born from 1955 to 1959. Your retirement age will be 67 if you were born in 1960 or later. You are eligible to get full retirement benefits from Social Security if you claim at the right age as mentioned.
Early retirement means you are retiring in your 30s, 40s, or 50s.
How much calculated risk should you take before retiring from the job?
If you still don’t have an emergency fund, you can start by setting a goal of 30% savings rate.
- You can spend up to 70% of your monthly income.
- 20% should be kept for savings.
- Start investing the remaining 10%.
Your aim should be to save at least 30 times of your yearly expense to achieve financial freedom.
Make economical withdrawals from your bank account per year so that you can save around $1 million as your life-time savings.
You can spend the post-retirement life on a happier note.
The conventional saving format won’t work for you – Try something else like CD
You may know it. The Federal Reserve has cut down the savings account interest rate (current rate is 0.01%).
My suggestion is to check out the interest rate of Certificate of Deposits (CD) offered by banks. For example, Barclays bank will offer you an average of 2.00% interest rate for 2020. You can avail the same Certificate of Deposit interest rate of 2.00% for 1 year APY, 3-year APY, or 5-year APY (Annual Percentage Yield).
Online Savings Accounts – Get better interest rate than brick-and-mortar banks
The online banks may offer you a better interest rate than banks who have any real existence.
You may take a look at HSBC Direct as an example. Currently, the online bank is offering you 2.05% APY in comparison to 0.01% APY offered by traditional banks.
It is better, for an early retiree, to depend on online saving accounts to get a good interest rate.
Make thorough scrutiny of health insurance options before you take an early retirement
Those who want to opt for FIRE means they need alternative health insurance choice.
Look at the options available to you if you take premature retirement
- You may continue with the insurance policy you started with your last employer. This is the favorable health insurance option available for an early retirement planner.
- Your second insurance option is adopting the COBRA (Consolidated Omnibus Budget Reconciliation Act).
You’ll only get facilities under COBRA if you have worked for the private sector or state government. The health benefits can be extended to a maximum of 1.5 years. You have to request your employer to extend the time after 1.5 years is over.
Consolidate your credit card debts for your benefits
By the way, you cannot get complete financial freedom without solving your credit card debt problem. You can consolidate credit card debt on your own through the balance transfer method or debt consolidation loan.
You can adopt the balance transfer method if you have one or more than one credit card outstanding balance. Merge all the credit debts into one credit card balance that is offering you a zero percent rate on your transferred balance in the introductory period. An introductory period generally expands up to one year or fourteen months.
Debt consolidation loan is your second option to consolidate credit card debt on your own. First, pay off all your lenders with the new loan; then repay your new loan with a single monthly payment. The advantage is previously you have to remember all the payment debts of your multiple creditors. Now you are free from headaches with a single payment facility.
Your new lender may only offer you a balance transfer card or debt consolidation loan if your credit score is an impressive one. Try to keep your credit score above 700 points to take out a loan at suitable terms and conditions.
Early retirement means you have ample time. It is time to wake up your sleeping creativity again and live your childhood dream. You can write a book, create an online blog, etc. to earn some money as well as fulfilling your creative hunger.
That’s all about taking early retirement and gaining financial freedom.
I may tell you some points in brief if you are curious to know more about FIRE. The idea is the brainchild of two men, Vicki Robin and Joe Dominguez.
They first made the idea public in their book ‘Your Money or Your Life.’
How early you’ll retire to taste the monetary independence is up to you.
A quote from the book is suitable to conclude the article.
“He who knows he has enough is rich.” – Vicki Robin
Linda Richardson is a New Jersey-based financial content writer and enduring learner with an ongoing interest to learn new things.
She uses that curiosity, connected with her knowledge as a financial writer, to write about subjects valuable to small businesses.
You can find her on Twitter at @LindaRossie9 & on Facebook.
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