How to Pull Off Early Retirement — Even if You’ve Gotten a Late Start on Savings

Many people dream of retiring early. But often, to make that happen, workers need to start funding their savings at a very young age. If you’re already many years into your career without much money in savings, you may be wondering if your plans for an early retirement are doomed.

The good news is that they’re most certainly not. But you should aim to make these moves to compensate for your late start.

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1. Max out your retirement plan contributions

Maybe you’ve barely put any money in your IRA or 401(k) plan over the past 15 years. That’s clearly not ideal. But if you’re in your late 30s with the goal of retiring in your late 50s, that still gives you 20 years to build wealth. And a good way to start is to max out your IRA or 401(k) going forward.

So, let’s say you max out an IRA at today’s levels between ages 39 and 59. Let’s also assume you load up on stocks in your IRA so as to generate an average annual 8% return in your portfolio, which is a bit below the stock market’s average.

All told, you’ll end up with $287,000. That’s not a ton of money, but if you have other income sources are your disposal, you can make it work. And if you’re able to save beyond what IRAs allow for, you can put your extra money into a brokerage account so that you might have another several hundred thousand dollars at your disposal by the time retirement rolls around.

Meanwhile, 401(k) plans come with much higher contribution limits than IRAs. If you max out a 401(k) at today’s levels between ages 39 and 59 and score an average annual 8% return in your portfolio, you’ll end up with just over $1 million. Now that’s enough to pull off an early retirement, and an enjoyable one.

2. Secure a passive income stream

The money you pull from your savings can help fund an early retirement. But it also pays to set yourself up with an income stream that will continue to pay you once you leave your career behind.

One good option to look at in that regard is real estate. If you purchase an income property, that home might gain value through the years so that you can eventually sell it at a profit. But more so than that, the rental income you continuously collect can help cover your expenses so you’re able to retire when you want to.

It also pays to invest in income-producing assets like dividend stocks, bonds, and REITs (real estate investment trusts). Those assets could end up paying you on a regular schedule so you have predictable income to look forward to.

3. Reset some expectations

Your dream retirement might have you traveling to Europe three times a year and living it up in a big city. But if you’ve gotten a late start on the savings front, it may be time to rethink your plans.

You may not have enough income at your disposal to be a frequent globetrotter and live someplace expensive. But that doesn’t mean you can’t wrap up your career early and enjoy local trips, low-cost entertainment, and the freedom of not being bound by a work schedule.

The sooner you start saving for an early retirement, the better. But if you’re late to the game, that’s not a goal you have to abandon. You may just need to get aggressive with your savings efforts, line up the right income streams, and be reasonable in your spending.

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