Your Roadmap to Financial Independence and Early Retirement

In the spirit of celebrating United States Independence, let’s find out what it really takes to be financially independent and retire early. At face value, anyone could retire at any age if their spending aligns with their cash flow. However, as you know, life has many variables. We’ll identify the most common variables and put together a plan to achieve financial independence.

Before we establish the potential variables, we need to create a current working model: your budget. You should list all of your expenses and categorize them accordingly. I also like to break them down into Needs, Wants, and Savings. You can use my monthly budget workbook to help you.

MONTHLY BUDGET WORKBOOK

​Next, we will establish financial goals. When you retire, what will you want to do? Travel, invest in a business, move, or buy a new car? If so, how often will you want to do these things? Assign a cost to each of these goals and apply an inflation factor based on how many years it will take to achieve them. The standard inflation rate is set at 3%, but I like to use the SSA COLA table. If you plan on being retired for 40+ years, this will provide historical input that is helpful for your planning process. You will divide each goal by the number of years it takes to achieve them, then add that to your annual spending to give you a more realistic picture of your life in retirement.

That annual figure will be what you need to live on. Multiply that by 25 years, and that is what you will want to have for retirement. I recommend having 2 years of expenses in cash to stabilize your income stream. By "cash," I mean placing it in a high-yield account. This way, it will produce interest along the way. Another advantage of this strategy is that you will not have to withdraw from your accounts during a market downturn. Withdrawing during a market downturn will take longer to recover.

Other considerations include the types of accounts you are using to retire early and whether these accounts will generate a regular rate of return to maintain your lifestyle. Contributions to retirement accounts will not be accessible before the age of 59 ½ without a penalty. Additionally, if you have entered retirement and your risk tolerance has changed, you may not have the growth needed to support an early retirement.

If you have any questions along the way, I’m here to help and support you in an exciting journey to start living your life on your terms.

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