Saving For Early Retirement Is Hard Work, But These Habits Can Make It A Little Easier!

December 25, 2016

Early retirement is something many workers dream about but few are able to achieve. Roughly half of U.S. adults say they would like to retire by age 60, according to a poll from TD Ameritrade, but only a third think they'll be able to do so. Furthermore, a whopping 82% say they expect retirement age to increase over the next decade.

If you've got your mind set on early retirement, it won't be easy. Retirement is becoming more expensive, and Americans are living longer. The average American age 65 and over spends nearly $46,000 per year, according to the Bureau of Labor Statistics, and a third of today's 65-year-olds can expect to live into their 90s, the Social Security Administration reports. If you spend $46,000 per year for 25 years, retirement will cost upwards of $1 million -- and that's not accounting for inflation, either.

Retiring early, then, will likely be even more expensive, because you'll be spending more years in retirement. However, early retirement can be a dream come true, and if you're willing to work for it, it is achievable. To jump-start your savings, here are a few habits that can help.

1. Set up automatic savings

Let's face it: Retirement saving can be a chore. No matter how motivated you are to save for the future, surely there are other things you'd rather be spending your money on. With so much temptation to be spending elsewhere, it can make it harder to ensure you're saving as much as you should be every single month.

That's where automatic savings come into play. When you designate a certain amount of money or a percentage of your salary to be transferred directly into your retirement account each week or month, you're forcing yourself to set money aside for the future -- whether you want to or not.

Think of retirement saving as just another bill that needs to be paid. You don't have a choice whether you want to pay the mortgage each month, so even if you don't want to pay it, you know you have to. Go into retirement saving the same way. Even though you won't lose your home or face any immediate consequences if you forgo saving for a few months, it could put your retirement in jeopardy.

Especially if you plan to retire early, it's important to be consistent and save every month. The longer you put it off or the more often you skip saving, the harder it will be to achieve your goal.  


2. Increase your saving rate regularly

Exactly how much you should be saving depends on several factors, such as the age you want to retire, how many years you expect to spend in retirement, and how much money you plan to spend each year. But regardless of how much you're saving each month, it's a good idea to continually increase your saving rate.

Life is unpredictable, and you never know what financial curveballs will be thrown your way. You might not receive as much from Social Security as you expected in retirement, for example, or perhaps an expensive health issue could throw off your budget. If you're saving the bare minimum each month, a surprise like this could make the difference between being able to afford to retire early and having to work years longer than you anticipated.

If you gradually increase the amount you're saving each month, though, you can build a strong nest egg that can handle a few financial surprises.

These adjustments don't need to be life-changing, either. Even if you only increase the amount you're saving by a couple hundred dollars per year, that can amount to thousands of dollars over time. And as your savings grow over the decades, you could increase your net worth by tens or even hundreds of thousands of dollars by making these small, gradual adjustments.

3. Consistently make small budget cuts to save more money

If you're going to be increasing the amount you're saving on a regular basis, you're going to have to find the extra money to save. Part of the cash can come from any raises or bonuses you get at work, but it's also important to routinely check your budget for any spare cash you can put toward your savings.

Even if you don't think you have anything extra to save, it may still be worthwhile to do a deep dive into your budget. Nearly 60% of Americans say they're living paycheck to paycheck, a survey from Charles Schwab found, yet that same report noted that the average household spends close to $500 per month on non-essential expenses.

Map out all your expenses (either the old-fashioned way with a spreadsheet or with an app that automatically tracks your spending) and divide your costs into necessary versus unnecessary. You might be surprised at how much you spend on non-essential costs, and cutting back in a few spots can help you save more for retirement. If you're finding it tough to cut down on your spending, consider how important these expenses are compared to being able to retire early. If early retirement is a major life goal, you'll need to make some sacrifices to reach it.

Early retirement isn't easy to achieve, no matter how much you're earning. But if you're willing to cut back and make sacrifices, it can be within reach. With a few lifestyle adjustments and new financial habits to get used to, you'll be well on your way to enjoying your early retirement dream.