a family discussing how to retire at 50

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

If you’re here and want to learn how to retire at 50, then you’ve come to the right place. Retiring is a process, which, 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 of them will have had a decent salary but often depend on social security to survive during 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 didn’t stop me from having retired 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 at a young age.  Well, that and winning the lottery, or being an early FAANG 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 go over a simple yet effective approach to planning for retirement. Considering the average salary in 2019 in the US is $52,208, 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 on your way to retiring at 50 is to evaluate what you want in retirement. 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 to live 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 how much time remains between today and your retirement date will allow you to set mini-goals along the way.

Third, you’ll need to know your financial independence number (FIN). The financial independence number is the amount of 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.

Determining 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 you’ll 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.

Understand your current situation and the next steps

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

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

You may consider many options, such as getting a better paying job, starting a business, and investing, among others. 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.

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 $215,655 of mortgage debt and $24,483 of non-mortgage debt. Servicing this amount of debt will require a payment nearing $2,000 a month. And removing $2,000 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.

The 4% rule

The 4% rule represents a widely accepted, 4% safe withdrawal rate. 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. 

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, subtract expenses, multiply by 12, then divide 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 -$24000 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 budgets, it’s crucial to have a savings plan to invest your monthly surplus. While your neighbors will be buying a new car or boat every year, or perhaps buying a bigger home right after getting a raise, doing so will eat into the budget and prevent you from retiring at 50.

To reach your investment goals, you have to start as early as possible. 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), indeed, 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, then 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 you to spend 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 to have, like shopping, 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, 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 will 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 an impossible task, 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 health insurance

As a full-time employee, you’re likely covered with your employer’s health insurance. However, in retirement, that won’t necessarily be the case. Make sure to budget for this expense.

Diversify your investments / 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 get 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 that 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 side hustles either! 

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

How to Retire at 50: The Bottom Line

In this article, you’ve learned the steps needed to retire at 50. In the end, it means knowing your budget, expenses, and your surplus in retirement and following a plan to get there. If you have any additional tips, leave me a comment below!

Rick

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