How to Retire at 50: A Blueprint Anyone Can Start Today (Video)

You’ve come to the right place if you’re here and want to learn how to retire at 50. Retiring is a process that, for those who are unprepared, is a daunting thought. But retiring shouldn’t be a difficult thing to accomplish.

A retirement age of 65 to 67 is typical in many countries. And before retiring, most people usually work for over 40 years. While working for all these years, most will have a decent salary but often depend on social security to survive retirement. And unfortunately, some retire without any retirement savings.

Therefore, having a decent job and excellent benefits alone won’t guarantee a comfortable retirement. In other words, having a good job alone isn’t the answer.

In my book, The Financially Independent Millennial, I talk about how, despite dropping out of high school, not learning about money (when I was young), and going through bankruptcy, it didn’t stop me from retiring at 35. Sure, critics will say that, for my retirement, I could do it because I started and sold a business. And to that, I’ll respond that starting a business is among the only ways to retire young.  Well, that and winning the lottery or being an early “Magnificent 7” employee with vested RSU’s. But that’s for another article!

So, what’s the solution to retiring at 50? In this article, I’ll review a simple yet effective retirement planning approach. Considering that in 2024, the average salary in the US is $59,428, it’s not impossible. Retiring at 50 will take a little planning and perseverance. But it is possible!

So, if you’re ready to get started, read on!

Set Your Retirement at 50 Goals

The first step to retiring at 50 is to evaluate what you want. In other words, it’s essential first to understand what retirement means to you. For example, do you want to retire and travel the world ten months out of the year? Or, are you happy retiring at home, tending to the garden? Or, maybe you want to balance a side hustle with time to travel. Therefore, the lifestyle you want after retirement should dictate the plan.

Second, it’s critical to plan when you want to retire. Set a date and make it a target. Knowing the time between today and your retirement date will allow you to set mini-goals.

Third, you must know your financial independence number (FIN). The financial independence number is the money you’ll need at age 50 to retire. It is different for everyone, as everyone will have other wants and needs. But the calculation is the same, and I’ll cover it further in this article.

Determine The Retirement Lifestyle You Want

Retiring should be fun. It’s a reward for the hard work you completed in the past. And no one wants to retire broke. So, if you’re going to have a more satisfying retirement life, consider these tips:

• Create a retirement budget
• Commit to the plan before and after retirement
• Evaluate your financial situation
• Meet with a financial adviser frequently
• Invest your money
• Have a plan for after you retire

What will you Need to Retire at 50?

Retirement is being financially independent. So, what do you have to do to make yourself financially independent? Being financially independent doesn’t mean you’re rich. Retiring means you’re able to live on your passive income.

If you want to retire at 50, you’ll need the following:

• Enough income to live and support your goals (i.e., travel)
• A retirement budget
• No high-interest debt
• Have additional funds to enjoy life
• A fully-funded emergency fund

Retiring at 50 doesn’t mean you necessarily have to be rich. But it does mean that you’ll need to live within your means. Therefore, your lifestyle will correlate with the assets required before retirement.

Don’t Underestimate the Psychological Aspects of Early Retirement

Retiring early, especially at 50, can bring about significant psychological shifts alongside the obvious financial changes. While the prospect of leaving the workforce early often carries the allure of freedom and relaxation, it also presents unique mental and emotional challenges.

One of the most prominent issues early retirees face is the loss of professional identity. Work often provides a sense of purpose, structure, and social interaction, and its absence can lead to feelings of aimlessness or isolation. It’s crucial for early retirees to proactively seek new avenues for personal fulfillment and social engagement, whether through hobbies, volunteer work, part-time jobs, or community involvement.

Additionally, the transition to early retirement can strain personal relationships. Changing daily routines and dynamics requires adjustments and open communication, particularly if one partner retires while the other continues to work. Couples may need to renegotiate roles and routines to find a new balance. For single retirees, maintaining and expanding social networks becomes even more important to avoid loneliness and social isolation.

Furthermore, it’s essential to manage expectations realistically. The dream of early retirement may not always align with reality, and it can bring unforeseen challenges, such as health issues or financial concerns.

Understand Your Current Situation and the Next Steps

If you want to start a journey, your path depends on where you are today. The same also applies to retirement. Before retiring, you should understand your current financial position and map out what to take to retirement.

Now, you’ve set your retirement goals and know the shortest yet most convenient way to reach them. It’s time to assess your options.

You may consider many options, such as getting a better-paying job, starting a business, and investing. Indeed, the steps are similar for anyone looking to retire. How you optimize the steps between now and retirement will determine how well off you’ll be.

Related read: How to Start Investing Online – A Complete Guide

Things to do to retire at 50

Here are tips for living a better life after retirement. I’ve written these tips in order of importance, though you don’t necessarily have to do them in any particular order.

Create a Before and After Retirement Budget

After you retire, expenses don’t stop there. You’ll need a realistic monthly budget that includes income and expenses to cover your needs and wants. The goal of any budget is to create a monthly surplus. A monthly surplus is the amount of money left over at the end of the month after expenses get paid. The fewer expenses one has IN retirement, the faster one will be ABLE to retire.

According to Experian’s State of Credit 2020 report, Americans carried an average of $244,498 of mortgage debt and $22,622 of non-mortgage debt. Servicing this debt will require a payment nearing $2,200 a month. Removing $2,200 a month from the expenses will put anyone on the fast track to retirement.

Of course, if you have the income to support the mortgage in retirement, it might make sense to keep it. But the decision will ultimately be between you, your goals, and your budgeting skills.

Follow The 4% Rule

The 4% rule represents a widely accepted 4% safe withdrawal rate. Then, the withdrawals can be increased by the amount of annual inflation. It becomes part of the income in retirement, allowing a retiree indefinitely. Considering the S&P500 appreciates average, about 10% a year, and comes with a 1.5% dividend, I agree.

Related read: Investment Options To Protect Against Inflation

To retire, you’ll need a financial independence number. It’s the amount of money you need to have invested in retirement. You can calculate it by adding up your monthly passive income, subtracting expenses, multiplying by 12, and dividing by 4%. Sound complicated? Let me make it simpler for you.

Monthly Passive Income (I.e., rental income): $500

Expenses (Needs & Wants): $2500

Surplus (Deficit): $2000/mo or $ 24,000 a year.

So, in this example, the retiree will need to cover $24,000 of annual income to meet the retirement needs. To figure out how much investment is needed with the 4% rule, you can calculate:

24000 / 0.04 = $600,000.

As a result, they’ll need to have approximately $600,000 if they want to retire at 50. Naturally, in retirement, the more the income and the fewer expenses, the less the retiree will need to invest.

Invest your Monthly Surplus

Now that you have your budget having a savings plan to invest your monthly surplus is crucial. While your neighbors will buy a new car or boat every year or perhaps buy a bigger home right after getting a raise, doing so will eat into the budget and prevent you from retiring at 50.

You must start as early as possible to reach your investment goals. You may have heard the phrase, “It’s not about timing the market, but time in the market.” The same applies here.

If you have an employer match in a 401(k), take advantage of it. It’s free money! And, while you can’t withdraw any money from the 401k until you reach 55, you can withdraw from a Roth IRA. So, keep this in mind when planning your budget. After maxing out your retirement accounts, move to a standard brokerage account. Therefore, you can invest the remainder of your surplus in the stock market.

When investing your money, I highly recommend low-cost index funds. Index funds are diversified, moderate-risk investments that track a specific financial market. Also, they tend to have less volatility than individual stocks; I like that!

Spend Wisely

A budget only works if you follow it. And by doing so, it means spending your income wisely. If you want to retire at 50, it means you should spend as little as possible and invest your surplus income.

Some ideas that help you spend less:

• Tracking your spending – this refers to recording everything after you purchase. Every month, do the math. Look at your income and expenses, and find places to cut.
• Focus on needs, not wants – retiring at 50 requires spending on things you need and not things you want. A need refers to something you can’t live without, for example (Food, but not restaurants, rent, insurance, etc.) However, wants are things you desire, like shopping and vacations. So, only think about needs and not wants.
• Pay off debt – liabilities will restrict money from your budget. Having debt means having less to invest.
• Avoid high-interest debt – carrying a balance on high-interest credit cards will ruin your financial future. Paying 19, 20, and 30% of interest will eat into your surplus, thus limiting the money you can invest.

Consult with Advisers

Money management is essential, and you need to keep your money safe. Therefore, before making any financial decisions, work with a financial adviser. Explain your goal to retire at 50 and how you want to get there. Surely, a financial adviser will help you achieve the goal.

Additionally, investment advisors get paid to help steer your investments in the right direction. I don’t know what I’d do without my investment advisers, as I’m far too emotional to trade independently.

Pay Off Your Mortgage

Before retiring at 50 or any age, I believe it’s essential to eliminate the mortgage payment. Having no mortgage means you’ll sleep better at night and require less money in retirement. However, paying off a mortgage isn’t a deal-breaker. What matters is that there’s enough leftover, after expenses, in retirement to retire.

If paying off the mortgage is impossible, one way to do it is to sell your home and downsize. Doing so may just be enough to live mortgage-free.

Don’t Forget to Budget For Healthcare

Understanding and preparing for healthcare needs becomes crucial as you plan for early retirement, particularly at 50. Retirement brings about significant changes, not just in lifestyle but also in healthcare coverage and needs. In your working years, employer-sponsored health benefits often cover a substantial part of your healthcare expenses. However, upon retiring, especially before becoming eligible for Medicare at 65, you must maintain adequate healthcare coverage independently.

The first challenge in retirement healthcare is addressing the coverage gap if you retire before 65. This gap period requires you to seek alternative health insurance options until Medicare kicks in. Options include extending your employer’s coverage through COBRA, which can be expensive, purchasing private health insurance, or exploring the Health Insurance Marketplace for plans under the Affordable Care Act. Each option comes with different costs and coverage levels, necessitating careful evaluation to find the most suitable and cost-effective plan for your needs.

Additionally, it’s essential to understand the limitations and costs associated with Medicare once you are eligible. Medicare does not cover all health expenses – premiums, deductibles, and co-pays- and does not typically cover dental, vision, and long-term care. Planning for these out-of-pocket expenses is vital.

Consider setting up a Health Savings Account (HSA) during your working years, as it offers tax advantages and can be a valuable resource for future medical expenses. Also, consider supplemental insurance plans like Medigap or Medicare Advantage Plans to cover additional costs.

Optimize Your Tax Situation

As you plan for early retirement, understanding and leveraging tax optimization strategies is pivotal to preserving your wealth and maximizing your retirement savings. Effective tax planning can significantly impact your financial well-being in retirement, especially when you aim to retire at 50. Early retirees need to navigate a landscape where their income sources – be it from investments, pensions, or part-time work – are taxed differently and where strategic withdrawals can make a substantial difference.

One key strategy is understanding the tax implications of withdrawing from different retirement accounts. Traditional IRAs and 401(k)s offer tax-deferred growth, but withdrawals are taxed as regular income. On the other hand, Roth IRAs and Roth 401(k)s provide tax-free withdrawals since taxes are paid upfront. Strategically planning these withdrawals can minimize your tax burden. For instance, you might consider withdrawing from tax-deferred accounts in years when your income is lower to stay in a lower tax bracket and using Roth accounts when in a higher tax bracket.

Moreover, tax-loss harvesting in taxable investment accounts should not be overlooked. This involves selling investments at a loss and offsetting the gains in other investments, thereby reducing your taxable income. Additionally, it is essential to understand the specific rules around Social Security benefits and how they are taxed based on your income level. If possible, delaying Social Security benefits can increase the monthly benefits and reduce the tax burden, depending on your other income sources. It’s also beneficial to stay informed about tax law changes that may affect your retirement savings and strategies.

Lastly, consider consulting with a tax professional or financial advisor specializing in retirement planning. They can offer personalized advice and help devise a tax optimization plan that aligns with your specific financial situation and retirement goals. By integrating these tax optimization strategies into your retirement plan, you can more effectively manage your tax liabilities and preserve your hard-earned savings for a comfortable and secure retirement.

Diversify Your Investments With Passive Income

A poorly timed stock downturn can put your income and retirement at risk. However, there are things you can do to mitigate this risk.

First, think about creating additional sources of income (ideally, passive income sources) so that you will not be forced to sell your investments at a loss in the event of a downturn. Examples of passive income include rents from apartments or commercial shops, peer-to-peer lending, dividends, etc.

And, when you retire, it doesn’t necessarily mean you stop working altogether. Retiring means you don’t need to work. But, if you want to have a little side hustle to help earn additional income, go right ahead. It’s not just millennials getting a side hustle, either!

The highest-paid side hustles for the over-50 crowd include coaching and teaching, which can add hundreds each month to your surplus.

Estate Planning Considerations in Early Retirement

Estate planning is also a crucial aspect of retirement planning, often overlooked in the early stages of preparing for retirement, especially for those aiming to retire by 50. While it may seem premature to think about estate planning at this stage, early and thorough planning ensures that your assets are protected and distributed according to your wishes. It also provides peace of mind, knowing that your loved ones will be taken care of and your legacy will be preserved as you intend.

The first step in estate planning is to create a will, which is fundamental in outlining how your assets should be distributed after your passing. Without a will, state laws will determine how your assets are divided, which may not align with your wishes. Additionally, establishing a trust can be a wise decision, especially if you have a significant estate or specific wishes about how and when your assets should be distributed. Trusts can also offer tax benefits and help avoid the lengthy public probate process.

Another critical element of estate planning is designating powers of attorney for healthcare and finances. These designations ensure that someone you trust can make decisions on your behalf if you become incapacitated. Furthermore, reviewing and updating your beneficiary designations on retirement accounts and insurance policies is essential, as these typically override instructions in wills and trusts.

Regularly reviewing and updating your estate plan, particularly after major life events or changes in financial circumstances, ensures that your estate plan remains aligned with your current wishes and situation.

This article How to Retire at 50: A Blueprint Anyone Can Start Today originally appeared on Rick Orford.

This article originally appeared here and was republished with permission.