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Early Retirement: 7 Steps to Retire in Your 40’s

Early retirement is one of the things that most people dream about. Indeed, retiring early is living a life of freedom; freedom to leave the 9-5 job behind and treat every day like you’re on vacation. However, retiring early is not that simple. Early retirement requires serious planning, research, lots of work, and a key understanding of your investments. After all, you want to be able to live comfortably during your retirement years.

If your goal is to retire in your 40’s, then you have serious work to do around your finances. Here are some steps to take right now to make that dream a reality.

1. Make more money now.

Retiring early means that you have a lot of money saved up so you can live comfortably during your retirement years. So you have to increase your income now, whether by switching jobs with a higher pay, or asking for a big raise or doing some side hustles.

Investing your money is also another way to boost your income, which brings me to the next point.

2. Consider hiring a financial adviser.

Most people would like to retire early, but they just don’t know where to start. If that is you, then consider talking to a qualified financial adviser if you want help with your retirement planning. A financial adviser can help you put in place an early retirement investment strategy. A financial adviser will consider your personal goals, choose investments that are right for you and put together a comprehensive plan to achieve your early retirement goals.

If you’re interested in a financial adviser to help you start building your savings and investment portfolio, click here.

3. Refinancing your mortgage.

Refinancing your mortgage has many advantages. One of them is that you can switch to a shorter mortgage loan term, so that you can pay off your mortgage early. After all, it’s better to retire in a mortgage-free home.

Refinancing to a shorter term will increase the amount you would pay every month. However, it will also reduce the length of the loan, thereby you will pay less interest in the long run. If possible, refinance to a 10 or 15-year mortgage.

Related: How to Pay Off Your Mortgage Early

4. Invest in a Roth IRA rather than a traditional IRA.

If you plan on retiring in your 40’s, you need to invest in a Roth IRA instead of a traditional IRA. The reason is that you can withdraw your contribution in a Roth IRA, without a penalty of 10%, before you reach your retirement age, which is 59 1/2. Note that I say contribution; however if you withdraw your earnings before 59 and older, you will get hit with the penalty.

By contrast, if you invest your money in a traditional IRA, you can’t withdraw your contribution without a penalty. In 2019, you can contribute up to $6000 to a Roth IRA each year provided that you meet the income requirements.

So it’s important to invest aggressively in a Roth IRA, because you can access your tax-free money at any time.

5. Invest your money in stocks.

Investing your money in stocks is perhaps one of the best investments to retire early. However, investing in stocks, while has higher returns potential, is not without risks. So, if you’re not an experienced investor or not comfortable doing it yourself, you better off seeing a qualified financial adviser with the appropriate experience to help you.

See how getting financial advice can help you plan your early retirement

6. Build multiple streams of income.

Creating multiple streams of income, especially passive income, is important when thinking of retiring early. Unless you’re a successful lawyer, investment banker, or doctor, etc, relying on one source of income may not be enough to allow you to retire early. You’ll need to build several streams of income.

Another reason to create more than one stream of income is that if you’re laid off now, that source of income no longer exists and you have no other source of income to rely on. That will not only lead to financial hardship, but also it will impede your goal of retiring early.


How to Create Multiple Income Streams

5 Passive Income Streams That Will Make You Rich.

7. Spend less money.

If you’re thinking of retiring in your 40’s, it’s a good idea to start monitoring your spending habits. Start by identifying things that you can live without. For example, do you really need cable? Could you switch to a less costly gym? This extra money can be used for things that matter the most, like investing.

Bottom line…

It’s possible to retire in your 40’s. But it requires planning, budgeting , saving, investing aggressively, and seeking the help of a qualified financial adviser. But most important of all, you have to start the planning process now.

For more retirement planning tips, read:

Work With The Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

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