Planning for Early Retirement with IRA Accounts


Building a nest egg to live off of after you retire is something everyone should start planning for sooner rather than later. Did you know that if you started setting aside money in IRA accounts when you are in your twenties, you would have to set aside less each pay period than if you waited until you are older?

Most young adults put off planning for retirement and then, by the time they are in their late thirties and early forties, they realize they now have to save more each pay period than if they had started saving sooner. This can make retiring early more difficult but not entirely impossible.

The first thing you should do, if you want to retire long before reaching the mandatory age to start drawing full Social Security benefits, is to determine how much you need to save. You need to be able to have enough money set aside to live comfortably off of until you can supplement your retirement savings with Social Security benefits.

The next thing you should do is invest the money you are setting aside for retirement. You need a well-balanced portfolio that includes cash, stocks, bonds, and CDs (certificates of deposit). Keep in mind, if you retire early, making withdrawals before reaching a certain age can have tax implications.

In addition, putting all of your retirement investment income into a single savings plan is never a good idea. It is difficult to predict how rates of return will fluctuate with stocks. This is why you need to have other secure investments as well. You may also want to consider investments in real estate.

To help increase the amount you can invest toward retiring earlier, there are other things you can do. For instance, find out if you can pre-pay your property taxes. Many municipalities offer a small discount for pre-paying taxes rather than waiting until they are due.

You should also set aside any windfalls you experience, like tax returns, bonuses, and wage increases. Contributing these toward retirement can further build your nest egg. In addition, investments that offer compound interest will grow much quicker when you contribute more.

Home Equity

While you are saving, you will want to start eliminating unnecessary expenses and try to pay off mortgages, auto loans, student loans, and other such debts. If you can retire debt-free, then you will be in a good place financially.

Last, remember to also consider how you intend to pay for healthcare. You might want to set aside pre-tax money in a health savings account, as many plans now feature rollover allowances from one year to the next.

Setting yourself up for early retirement does not have to mean frugality as long as you are actively contributing and investing while exploring investments you can leverage, like real estate. To learn more about opening an IRA, help in setting up contributions, share savings, or CDs, please feel free to stop by your nearest branch of The People’s Federal Credit Union or contact us at 806-359-8571 today!

DISCLAIMER: Please be advised the information presented here is for informational and educational purposes only. With investments, the value of stocks could go up as well as down. As such, past performance does not always guarantee a return on your investment. Nor can we guarantee the outcomes of investments and therefore, cannot be held liable for any losses you might experience.

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