How To Retire By 55

How To Retire By 55: How Much Do I Need? 2022

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How To Retire By 55

These days, it feels like all we do is work, work work. From the time you first start school to your last day on the job, it seems like there’s hardly any time to rest. It’s no wonder, then, that so many people are now interested in retiring early.

Imagine a world where you actually get to spend the money you earned on things you enjoy. Hobbies, holidays, time with family, and much more await you on the other side of early retirement.

In this guide, we’ll share some key tips for how to achieve retirement by 55. Even if 55 is right around the corner for you, it’s never too late to start saving. Think of it this way: the time will pass one way or another… you might as well use it wisely!

Should I Try To Retire By 55?

Even if 55 rolls around and you decide you don’t want to retire, that’s totally fine, but you should still do the work now to give your future self that option. You never know what could happen in terms of illness or other big life changes, and the worst-case scenario would be not saving anything and having to work during challenging times. 

A good course of action is to start saving and planning as if you were definitely going to retire by 55, and then crossing that bridge when you come to it, so to speak. It’s far better to be prepared for any eventuality than to assume things about your future that are impossible to predict.

That being said, you’re probably wondering how you should go about organizing your life to ensure that you can retire by 55. Here are a few methods you can use to retire earlier than you ever thought possible.

Boost Your Savings

In order to retire by 55, you’ll definitely need to save a bit more. This probably means that you’re going to have to cut back on day-to-day spending, but it doesn’t have to be significant. Over time, even a little extra will add up, so even if you’re only adding a small amount extra per month you’ll still be better off than if you weren’t doing that at all. 

That being said, it’s important to keep in mind that the more you contribute to your retirement savings, the more likely it is that you’ll be able to retire early. You’ll have to assess your own situation and determine how frugal you’re willing to live in the meantime. For some people, living in the now is equally as important as saving for early retirement, and those people may not being willing to cut back on daily spending as much as others might. It all depends on you, your lifestyle, your earnings, and how important it is to you to retire by 55. 

Boosting your savings isn’t all about cutting back on daily spending, though. A key part of it is also making smart investments that will pay off in the long run. It can be tempting to invest in the hot, new trendy company, but be wary of any claims that assure you you’ll “get rich quick.”

In most cases, the only people who get rich quick in those schemes are the people who are trying to convince you to give them your money. That’s not to say that you shouldn’t make any risky investments, but make sure you do your research and due diligence before going all in. Remember, your future is on the line here!

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How To Retire At 55 And Live Off Your Dividends

How to Retire By 55 and Live Off Your Dividends

When considering the possibility of living off of investment dividends during retirement, it’s important to stop and take stock (no pun intended) of the risks involved in investment. There is no one right answer to this, and it depends on your own situation. Only you know what you’re comfortable with. 

To start building your portfolio now, look to invest in dividend growth stocks that have a strong growth history with dividend payouts. The dividend growth stock approach is typically a safer way to invest. It involves selecting your stocks to invest in by looking at a company’s dividend payouts over time, rather than fluctuating stock prices. Dividends are paid based on capital earned by a company, and companies with a steady growth rate and continuous increase in dividend payouts are usually good bets.

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How Much Do You Need To Retire By 55?

In order to retire by 55, you’ll need to have saved a significant amount of money and have a strong investment portfolio. How much you personally need depends on your goals for retirement and how much you’ll need to support that lifestyle. 

Say, for example, you’d like to have an investment dividend income of $100,000 per year. In that case, you’d need to have a minimum of about $4.5 million invested. If you only needed to live on an income of $50,000 per year, however, you’d only need to have invested $1.7 million. 

A common question that potential retirees ask is “Is $2 million enough to retire at 55?” Again, the answer is subjective, but it is possible. If you had invested $2 million by the time of your retirement, you’d be looking at investment yields of a little less than $65,000 per year. If that is enough for you to cover all of your expenses and still live comfortably, then absolutely!

In short, how much money you should have to retire by 55 depends on how much you feel you need to live comfortably while covering all of your expenses. 

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Is 2 Million Enough To Retire At 55?

How To Decide How Much You’ll Need

Because it all depends on you and your lifestyle, it can feel challenging to figure out how much money you should have to retire at 55. Listening to conventional advice isn’t always helpful, but in some cases, it can be. 

In order to set realistic goals for your retirement savings, some experts suggest that you plan to live on 65-80% of your income when you’re working. You should be putting a minimum of 10% of your current annual income into your retirement savings each year. You should also make it a goal to have about 10 times your current salary saved in order to retire comfortably. 

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Saving For Retirement

How To Start Saving At A Young Age

If you’re in your 20’s or 30’s and you’re looking to retire by 55, there are many things you can do to set yourself up for a successful future. Many companies offer 401k plans that you should consider contributing to as soon as you start working.

You can also begin opening retirement plans — a Roth IRA for example — that can help you in the long run by accruing interest over the years. Additionally, you should consider depositing savings into a high yield savings account. High yield savings accounts offer much higher interest rates for your savings, meaning you make more money over time than with traditional savings accounts. 

These are both good options because they can passively grow even when you aren’t able to actively contribute to them. 

Investing, as mentioned above, is another good way to start saving for retirement while you’re still young. Whether or not you decide to take bigger risks or invest in dividend growth stocks is up to you, but both are good options. 

A good rule of thumb for traditional retirement is to try to have 1-2x your annual income saved by your 30s, and 3-4x saved by your 40s, and 6-8x saved by your 50s. This could still work if you plan to retire by 55, but it might also be a good idea to increase that if you want to make sure you don’t outlive your retirement savings.

Another good way to invest and start saving when you’re young is to invest in real estate, especially when you consider that if you move or buy another house, you can rent out the original property and make passive income that way. 

Owning multiple properties is another way to make passive income if you rent out the homes. Being a landlord can be a lot of work and can cost you money by having to fix or replace things that are broken, but it requires very little active management. Even if you don’t want to work at all after you’re retired (including being a landlord), you can easily pay someone a small fee to perform the task for you. 

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Some Things To Keep In Mind

When crafting your retirement portfolio, you should make sure it consists of stocks, bonds, and savings in a savings account. You want to have a healthy distribution to account for all economic eventualities. Making sure you have a strong savings account can protect you during volatile financial times (if there’s another recession, for example), and having good stock investments will help you earn passive income after you’ve retired. 

It’s also important to keep in mind that you’ve been collecting Social Security throughout the years without even lifting a finger. In 2020, the average Social Security check was $1503, which will add a nice little cushion to your existing portfolio. 

You should also make sure that you’re paying off your debt as quickly and effectively as possible while you’re still actively earning an income. If you put off these payments by making payments in the smallest installments, you’ll only burden your future self more. This will ultimately be more difficult and straining because you’ll be relying on your savings and dividend payouts. This will severely limit your available spending money during retirement. 

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Start Investing

If You’re A Bit Older And Playing Catchup

If you’re a bit older and playing catchup to try to retire by 55, there are still some things you can do to achieve your goal. If you can cut down on spending for a few months — or better yet, an entire year — you can make significant contributions to your savings, your Roth IRA, and even your investment portfolio. Investing just $1,000 every two months (ideally every month, though) will go a long way to helping you catch up to your retirement goals. 

The thing to keep in mind is it has to be a balance between living large and enjoying your life in the moment, and setting yourself up for a comfortable and early retirement. If you’re at a place where your priority is to have significant savings available to retire early, then you need to be willing to cut back on your spending and really focus on saving as much as you can. 

If you plan to invest more in dividend growth stocks, keep in mind that your dividends will also increase over time. Your first year may yield $10,000 (if you invest $300,000 at a 3% return rate), but will increase over the next few years. This means that you may be living off of a smaller sum earlier in your retirement, but will receive larger amounts over time. You can then reinvest some of these additional funds or just spend them at your leisure. 

In Summary

Based on how hard people work these days, it’s no surprise that many people are interested in retiring at the young age of 55. Making sure that you start saving and investing at a young age are crucial elements of ensuring your early retirement. It’s also important to clear up any debt you have as quickly as possible and to make smart decisions with your money while you’re still actively earning a salary. Whatever you decide, early retirement is possible for you. All it takes is the first step and the belief that you can do it!

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