Everyone likes to retire early and retire rich. But what does that look like to you? Some people think of old friends in rocking chairs while some think of the freedom to do whatever they want. However you define early retirement, you need to have a good plan that includes how you will pay for all that freedom. Take these 7 tips into consideration for a free early retirement strategy:
1) If you plan on retiring before age 60, then you will need savings and investments to draw on before you are able to take retirement plan money. The more you have saved up, the earlier you can retire. That doesn’t mean that you should also stop contributing to your retirement plan. It means that you will have to contribute to both.
2) At age 60 and above you can draw on money from both retirement plans and savings and investments until social security kicks in. Many people may find themselves in a high tax bracket while doing this. If so, one option is to rollover your retirement plan from an IRA to a Roth IRA so you can eventually draw some money tax free. Another option is to sell shares that have long-term capital gains so that you get the favorable tax treatment on the trade and create money to live on.
3) At age 62 you can start taking social security. If you are fortunate enough to have enough assets to wait to take social security later, then do it. It will be approximately 20% more income if you can wait for the later date.
4) If you find that after all this your income will be less than what you expected, don’t panic. Studies have shown that retirees will spend more in the first five years after retirement and then expenses taper off.
5) Another way to increase income after retirement is to downsize. Many people fail to realize how much money it takes to maintain a large home after all the kids have left. Downsize to a smaller home, and move to a less expensive area, and you will feel like you are living the high life with all that extra cash.
6) Even though you are retired, you have to watch your taxes. It’s not how much income you gross but how much you get to spend after tax. Instead of drawing down on one account at a time, take a little income from each account. Interest, dividends, capital gains, and a tax-free income combination will keep your income high and taxes low.
Also, for many people who retire early, have Medicare Supplement Plans 2018 is a great idea.