Retiring in your 50s doesn’t require a superpower, a trust fund or winning the lottery, but it does require discipline. Since your investments will have less money to compound, you’ll need to contribute more of your own cash each month.
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If early retirement is something you’re interested in, here’s some advice and budget templates from early retirees to put you on the same path.
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Create a Monthly Budget for Early Retirement
Family law practitioner Katie L. Lewis recounted a client of hers who retired young. “My client adhered to a strict budget, allocating a significant portion of their income to savings and investments.”
Specifically, they allocated the following according to Lewis:
Essentials (housing, utilities, groceries): 40%
Savings and investments: 30%
Discretionary spending (travel, dining out, entertainment): 20%
Miscellaneous (healthcare, insurance): 10%
David Blain, a financial advisor with BlueSky Wealth Advisors, provided this example of a typical pre-retirement budget:
Housing: 25-30%
Utilities: 5-10%
Food: 10-15%
Transportation: 10-15%
Healthcare: 5-10%
Savings/Investments: 20-25%
Discretionary spending: 10-15%
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Prioritize Savings and Investments
As we saw in the previous budget examples, while there are variations in how much money each individual allocates to their spending, you can see one common factor: a higher-than-average savings rate.
Blain has seen this as a consistent pattern among his clients who have retired early. “Start saving early and consistently. Live below your means, and in particular, avoid lifestyle inflation,” he said. “They also prioritized paying off high-interest debt early and invested in diversified portfolios to benefit from compound growth.”
He also pointed out that many of his clients have grown their savings by increasing their income. “Consider part-time work or side gigs to supplement your income,” Blain advised.
Maximize Tax Advantages and Free Money
One way to avoid paying exorbitant taxes is by investing through tax-advantaged retirement accounts. “Many of my clients focused on maxing out their retirement accounts, such as 401(k)s and IRAs,” says Blain.
While you can’t access the money until you turn 59 ½, you can combine these tax-sheltered accounts with standard taxable investments, which you can draw on early in your retirement. Some employers even offer to put their money toward your retirement savings through matching or other programs. But you have to invest first.
Lewis saw it with her client who retired young. “They took advantage of employer-matched retirement accounts and diversified their investment portfolio. In addition, they regularly reviewed their financial statements with a forensic accountant, uncovering underutilized resources and reallocating funds more effectively.”
Allow Some Splurges
You don’t have to live like a monk to retire in your 50s. But you do need to choose your splurges intentionally. Lewis recalled that “Travel was my client’s primary splurge, but they budgeted for it meticulously, ensuring it didn’t derail their financial goals.”
That marks a common theme among early retirees. “My clients often allowed themselves to splurge on experiences, such as travel and family gatherings, rather than material goods,” added Blain. “This approach provided lasting memories and satisfaction without significantly impacting their long-term financial goals.”
You can have anything, but you can’t have everything. Choose your splurges with care and budget accordingly.
More Tips for Early Retirement
The earlier you start investing, the more compound returns can do the heavy lifting for you. “Start saving and investing as early as possible,” advises Lewis. “Regularly review and adjust your budget. Focus on incremental progress and maintain disciplined financial habits.”
Don’t be afraid to bring in a fresh set of eyes periodically, either. We all have blind spots. Lewis recommended you should consult with financial experts for personalized advice. Blain added that this could include help with optimizing your investment portfolio for higher returns and lower risk.
As for expenses, Blain also advised his clients to pay attention to one in particular: healthcare costs. You never know what medical issues you might face and you want to be sure you can take care of yourself and your family, even in early retirement.
None of the advice above is difficult, but it does require you to pay attention and keep growing your savings rate to fuel your portfolio. Get that right, and you’ll be surprised how quickly you can grow your net worth — and how young you can retire.
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This article originally appeared on GOBankingRates.com: Retiring in Your 50s Is the American Dream for Many — 5 Budget Tips To Make It a Reality
