When you have a precise retirement savings number you’d like to achieve, it takes dedication and consistent investing to get there.
Luckily, Americans have confidence that they’ll achieve their retirement goals. Three in four workers (73%) believe they can fully retire with a comfortable lifestyle, according to the November 2021 Transamerica Institute Retirement Survey of Workers. In fact, 24% say they are “very confident” that they’ll likely meet their retirement goals and 49% say they are “somewhat confident.” Full-time workers (75%) say they’ll more likely retire comfortably compared to part-time workers (62%).
Being confident enough to hit your goal is a great thing. But what might you need to do if you want to hit your retirement savings goal early? (As in, before you hit “regular” retirement age — 66 years and two months for those born in 1955 and 67 for those born in 1960 and after.)
Let’s find out what you can do to get this goal underway in 2022.
How to Hit Your Retirement Savings Goal Early
Let’s walk through some tips you can use to realize your retirement savings dreams earlier than you imagined.
Tip 1: Determine what you want to do in retirement.
What do you want to do as a retiree? If you’re content in your current house with your pets and plan to do activities close to home for the duration of your retirement, you might need less money in retirement than, say, someone who plans to circumnavigate the earth a minimum of five times.
Many individuals look forward to traveling as part of their major retirement plans. In fact, 65% plan to travel. The Transamerica survey also found that would-be retirees have an interest in the following activities:
- Spending time with family and friends: 59%
- Pursuing hobbies: 51%
- Pursuing paid work: 38%
- Starting a business: 20%
- Pursuing an encore career: 17%
- Continuing to work in the same field: 14%
- Volunteering: 26%
- Taking care of grandchildren: 21%
It’s important to decide what you want to do in retirement so you have a figure to work toward. If you don’t have any idea, you may never meet your goal.
So, what is the full figure you decide you’ll need to save? Have that in mind and work backward from there. If you don’t do this from the get-go, it’s like trying to hit an archery target wearing a blindfold.
Tip 2: Take a look at your savings rate.
Many of us didn’t save aggressively early in life, starting with our first jobs at 16.
However, you can still pick up your savings rate and retire early. Many experts suggest saving 15% of your salary. However, to hit your retirement savings goal early, you may need to pick up the pace. (Especially if you get started later or only started out saving a small percentage, such as 5%, early on in retirement.) Use a retirement savings calculator to help you determine exactly how much you should save, based on your preferences and activities in retirement.
You may need to max out your contributions to your 401(k) and get your employer’s match in order to achieve your goals, so be prepared to do that in 2022 if necessary.
Tip 3: Stick to a lifestyle that meets your needs and eliminates excess spending.
You may have read about the financial independence, retire early (FIRE) movement. And while you may plan to retire at age 30 or 40 like FIRE followers, you can still learn something from these folks.
FIRE followers keep expenses super low. This means they stick to an extreme budget and kick all their extra money toward savings. If you want to retire early, you may need to consider how much you actually need to live off of. You might want a brand new car every year, but does that actually align with your goals of retiring earlier? Get rid of excess spending and put your extra money toward your retirement savings instead.
Tip 4: Decide whether your goals require a boost in income.
The more you make, the more you can save. If you don’t think you can achieve your retirement savings goals with your current income, you may need to make more money. The retirement savings calculator you use can help you determine the dollar amount you’ll need to save in order to meet your desired retirement deadline. A side gig or additional job may work in your favor if you need to boost your income in order to meet that goal. You may also consider approaching your employer to ask for an increase in salary.
Prepare to demonstrate to your boss why you deserve a salary increase. Show how your performance in the past warrants a salary increase. You may also need to lay out a future plan and what you hope to accomplish in the next year to demonstrate your candidacy.
Tip 5: Understand the various investments available to you.
Not researching your investments is dangerous because it puts you in a situation where you may not understand what’s happening with your money. With retirement accounts, it’s a good idea to understand:
- Contribution limits (for example, the IRS recently announced that the 2022 contribution limit for 401(k) plans will increase to $20,500 in 2022)
- Penalties for withdrawal (if you withdraw money early, before age 59 ½, you will face tax penalties)
- The current return on your investments
- Your asset allocation on your current investments
- Types of investments available to you
All of these considerations — and more! — are important to review and understand when you want to retire early.
Consider What You Need to Do Before 2022
Did you develop a burning desire to retire early in 2021? You may be years away from retiring early, but there’s no reason you can’t start planning for it in 2022.
Pinpoint your goals, identify how much you need to save, understand your options and keep your lifestyle in line with those goals. It’s exciting to think about the possibilities — start dreaming about your future starting now.