seven tips for retiring early

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Seven Tips for Retiring Early
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Introduction

• Although the idea of retiring early may be
  appealing, ensure that early retirement makes
  financial sense before going through with it.
  Risks involved with early retirement include tax
  penalties, loss of health benefits and debt
  collections. Save as early as possible and keep
  your debts low to make early retirement a
  reality.

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Limit Debt

• Large amounts of debt accumulated over the years
  can get in the way of your early retirement
  plans. Don't purchase more than you can afford,
  and do not rack up large credit card bills than
  you are unable to pay off. Pay the balance of
  your credit cards off each month. Put any extra
  money you make into an account where you cannot
  access it easily.

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Calculate Your Financial Need

• Determine how much money you need to live
  comfortably during retirement. Retirement funds
  need to cover your day to day bills along with
  any extra expenses. For instance, if you are not
  old enough for Medicare, you may need to pay for
  your own health coverage upon retirement.

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Don't Wait

• If you want to retire early, planning should
  start as soon as the idea enters your mind.
  Investments take a long time to become
  profitable, and the earlier you start saving, the
  sooner you will be able to retire. If you plan
  for early retirement in your 20s instead of your
  30s or 40s, you can stash away less money and
  still make it happen.

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Find Out Your Investment Options

• According to Charles Schwab, your main retirement
  savings fund will likely be an IRA and a
  qualified employer plan such as a 401(k), 403(b)
  or 457. For employer sponsored plans, employers
  typically match your contributions up to a
  certain percentage of your salary. A traditional
  IRA allows contributions to be tax deducible
  while a Roth IRA allows for tax-free
  withdrawals.

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Be Skeptical

• Be aware that investment schemes for early
  retirement may not always pan out. Investments
  depend on the market, and a down market will hurt
  your ability to retire early. The NASDAQ website
  warns of free seminars sponsored by brokerage
  firms that suggest an investment in high-risk
  securities as a way to retire early.

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Know the Penalties

• When you cash in your retirement savings plans
  early, you put yourself at risk of tax penalties.
  According to Section 72(t) of the Internal
  Revenue Code, you are imposed a 10 percent tax
  penalty on withdrawals taken from a qualified
  retirement plan made before the age of 59 ½.

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Consult a Financial Advisor

• Although early retirement may make sense on
  paper, speak to a financial adviser before taking
  any steps to stop working. Advisers can review
  tax penalties, your estimated annual earnings and
  risks involved with early retirement. For
  instance, if you owe child support, alimony or
  any unpaid debt, your retirement earnings may be
  garnished.

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