Can You Really Retire at 50?<\/h2>\n\n\nTable of Contents<\/h3>\n<\/div>\n\n\n- Can You Really Retire at 50?<\/a><\/li>\n
- Important Considerations if Retiring at 50 Is a Real Goal<\/a><\/li>\n
- 7 Steps to Retire at 50<\/a><\/li>\n
- Step 1: Start Saving EARLY!<\/a><\/li>\n
- Step 2: Save More Than Everyone Else<\/a><\/li>\n
- Step 3: Invest and Invest Aggressively<\/a><\/li>\n
- Step 4: Maximize Your Retirement Savings<\/a><\/li>\n
- Step 5: Set up a Roth IRA Conversion \u201cLadder\u201d<\/a><\/li>\n
- Step 6: Live Beneath Your Means<\/a><\/li>\n
- Step 7: Stay Out of Debt<\/a><\/li>\n
- Yes, You Can Retire at 50<\/a><\/li>\n
- Retiring at 50 \u2013 The Ultimate Guide<\/a><\/li>\n
- What Investments Should I Consider if I Want to Retire at 50?<\/a><\/li>\n
- The Bottom Line \u2013 How to Retire at 50 in 7 Easy Steps<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n
It\u2019s a big bold claim \u2013 retire at 50? Yeah, sure. A lot of people out there dream of early retirement<\/a> \u2013 who wouldn\u2019t love to hang up the office keys and jump off the 9-5 train sooner rather than later? <\/p>\nBut while it\u2019s possible to retire at 50 and have plenty of time left in life to have new experiences, it takes careful planning and a will of steel. <\/p>\n
You\u2019ll need to carefully manage your budget, invest in efficient high-yielding assets<\/a>, and review the numbers regularly so you can work towards retiring at a reasonable age without sacrificing your lifestyle along the way. <\/p>\nSo if you\u2019ve got ambition and self-discipline, maybe you really can retire at 50!<\/p>\n
Important Considerations if Retiring at 50 Is a Real Goal<\/h2>\n
If you want to retire at 50, there are some important considerations to take into account. <\/p>\n
For starters, you\u2019ll need a good grasp of money. That means understanding the stock market, planning for debt and savings, and investing in yourself<\/a> through education or entrepreneurial ventures. <\/p>\nJust as important is managing your health \u2013 after all, no one wants to retire only to have their retirement cut short! Make sure you\u2019re exercising regularly and eating a balanced diet. <\/p>\n
And lastly, it never hurts to start visualizing what you want your life post-retirement to look like. It could be travel, starting up a business from home<\/a>, or simply spending more quality time with loved ones. <\/p>\nWhen I was working with retirees, I would often ask them to share what a perfect day would look like for them in retirement. It really helps paint a clear picture of your future expectations for the next chapter in your life.<\/p>\n
\n\n\n\nBefore Retirement Tip ![\"\ud83d\udca1\"](\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\")
:<\/strong> Visualize what your \u201cperfect\u201d day looks after you retire. <\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nWhatever it is that lights your fire in the present moment will be a huge influence for not only deciding when you\u2019re ready for retirement but how you plan on approaching that retirement<\/a> once it\u2019s here.<\/p>\nLooks now look at the 7 steps needed to retire at 50..<\/p>\n
7 Steps to Retire at 50<\/h2>\n
1. Start Saving EARLY!<\/a><\/p>\n<\/p>\n2. Save More than Everyone Else<\/a><\/p>\n<\/p>\n3. Invest and Invest Aggressively<\/a><\/p>\n<\/p>\n4. Maximize Your Retirement Savings<\/a><\/p>\n<\/p>\n5. Set up a Roth Conversion \u201cLadder\u201d<\/a><\/p>\n<\/p>\n6. Live Beneath Your Means<\/a><\/p>\n<\/p>\n7. Stay Out of Debt<\/a><\/p>\n<\/p>\nThere are all different ages that people want to retire at, and for most people, it\u2019s probably something like as soon as possible!<\/strong><\/em> But let\u2019s focus on how to retire at 50 since it\u2019s a doable goal for a lot of people.<\/p>\nHow can you make it happen?<\/p>\n
Step 1: Start Saving EARLY!<\/h2>\n
If you\u2019re 25 right now, then you should start saving to retire at 50 now \u2013 as in immediately. The best way to prove the point is with a couple of examples.<\/p>\n
If you decide to put off saving to retire at 50 for another five years \u2013 when you are 30 \u2013 and you begin saving $10,000 per year, invested at an average annual rate of return of 7%, then by the time you\u2019re 50 you will have $425,341.<\/p>\n
But if instead, you decide to start saving right now \u2013 again, $10,000 per year, invested at an average annual rate of 7% \u2013 then by the time you are 50, you will have $656,227 saved.<\/p>\n
That\u2019s a difference of more than $230,000, just for beginning to save and invest five years sooner.<\/p>\n
\n\n\nLearn more about the best compounded interest investments<\/a><\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\nStep 2: Save More Than Everyone Else<\/h2>\n
It\u2019s a common belief that you can retire just by saving 10% or 15% of your annual income. And that may be true, if you plan to retire at 55<\/a> or even 60, and have 35 or 40 years to save and invest money.<\/p>\nBut if you\u2019re serious about retiring at 50, you\u2019re going to have to save more than anyone else. That might mean saving 20% of your income, or maybe 25% or even 30%. <\/p>\n
Heck, if you\u2019re much older than 25 or 30, you\u2019ll have to save between 40% and 50% of your income if you hope to retire at 50.<\/p>\n
What You Can Do Is Start Out Saving 20%.<\/em><\/h4>\nBut each time you get a pay raise or promotion with an even bigger pay raise, instead of spending the extra money, commit it to savings. After a few years of steady pay increases, you should be able to increase your savings rate to 30% or even more.<\/p>\n
Saving such a large percentage of your income accomplishes two very important goals:<\/strong><\/p>\n1. It obviously enables you to reach your savings goals faster<\/p>\n<\/p>\n
2. But just as important, it conditions you to living on less money than you earn<\/p>\n<\/p>\n
That second point will be really important when you actually do retire. The less money that you need to live on, the sooner and more effectively you\u2019ll be able to retire.<\/p>\n
Step 3: Invest and Invest Aggressively<\/h2>\n
I probably don\u2019t have to tell you that you\u2019re not going to be able to retire at 50 by investing in interest-bearing assets, like certificates of deposit<\/a>. Interest rates of 1% per year or less just won\u2019t cut it.<\/p>\nYou\u2019ll have to invest in stocks, and that\u2019s where the great majority of your money will need to be invested at all times. The stock market has returned an average of between 9% and 11% over the past 90 years<\/a> and that\u2019s the kind of growth that you\u2019ll need to tap into if you want to retire at 50.<\/p>\n<\/div>\nSince you\u2019re probably well under 50 now, you can afford to keep 80% to 90% of your savings invested in stocks. That\u2019s the best way to get the kind of return on your investments that you\u2019ll need to build the kind of portfolio you\u2019ll need to make early retirement a reality.<\/p>\n
\n\n\n\nRetiring requires investing with some degree of risk<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nAll the rewards of aggressive investing come with some risk, so you want to make sure you invest with a solid platform. <\/p>\n
Here are my top picks for all of you bold investors itching for early retirement:<\/strong><\/p>\n\n- Ally Invest:<\/strong> With Ally Invest<\/a>, you can opt for do-it-yourself investing or professional account management with Ally\u2019s robo-advisor. Ally starts out by helping you establish your risk tolerance, where you can opt for \u201cAggressive growth\u201d<\/strong> and put the majority of your investments into stocks.\n
Ally Invest offers some of the lowest trading fees on the market, 24\/7 customer service, and professionally managed portfolios to meet your investment goals. Try Ally Invest today<\/a>.<\/li>\n<\/ul>\n\n- Betterment:<\/strong>\u00a0Betterment<\/a> offers investors an alternative robo-advising experience, completely automating your investment experience. The software maximizes your returns with tax loss harvesting and helps you reach your specific retirement goals with RetireGuide.\n
The service automatically rebalances your portfolio to keep you on track to your goals. With a low annual management fee and no trade fees, you can start investing with Betterment<\/a> easily.<\/li>\n<\/ul>\n\n- M1 Finance:<\/strong> Rather than assessing risk tolerance, M1<\/a> focuses on helping you target your investment goals and stay on track to reaching them. When you invest with M1 Finance<\/a>, you can choose from 60 expertly designed investment \u201cpies\u201d<\/strong> made of up to 60 ETFs and stocks, or create your own.\n
M1 then manages your investments, rebalancing your account as needed. M1 gives you fee-free account management and trades, and requires low initial investments, making it a great choice for aggressively investing for early retirement.<\/li>\n<\/ul>\n
\n\n\n<\/div>\nOpen an Account<\/a><\/div>\n\n\n- Commission-free investing<\/li>\n
- Allows fractional shares in stocks, ETFs<\/li>\n
- Small minimum investment: $100<\/li>\n<\/ul>\n
<\/a><\/div>\n<\/div>\n<\/div>\nStep 4: Maximize Your Retirement Savings<\/h2>\n
Taxes are one of the underestimated obstacles of early retirement planning. Not only do they reduce the income you have available for savings, but they also take a chunk out of your investment returns.<\/p>\n
For example, if you earn 10% on your investments, but you\u2019re in the 30% tax bracket, your net return is only 7%. That will slow your capital accumulation.<\/p>\n
But there is a way around that problem, at least partially. You should maximize your tax-sheltered retirement contributions.<\/p>\n
Not only will that reduce your taxable income from your job, but it will also shelter the investment earnings in your investment portfolio so that a 10% return will actually be a 10% return.<\/p>\n
If your employer offers a 401(k) plan<\/a>, you should make the maximum contribution you\u2019re allowed to. That would be up to $22,500 per year. If your employer offers a matching contribution<\/a>, that\u2019s even better.<\/p>\nYou should also plan to make contributions to a traditional IRA<\/a>, even if those contributions won\u2019t be tax deductible due to income limitations<\/a>. The investment earnings in the account will still accumulate on a tax-deferred basis<\/a>, and that\u2019s what you want to happen.<\/p>\n\n\n\n\nThe more earned income and investment income you can shelter from taxes, the better.<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nNow there is a basic problem with retirement savings, at least in regard to early retirement. If you begin taking withdrawals from your retirement accounts before you reach age 59 \u00bd you will not only be subject to income taxes on the withdrawals but also the 10% early withdrawal penalty<\/a> as well.<\/p>\nBut there\u2019s a way around that dilemma \u2013 it\u2019s the Roth IRA<\/a>.<\/p>\nStep 5: Set up a Roth IRA Conversion \u201cLadder\u201d<\/h2>\n
You don\u2019t have to contribute to a Roth IRA every year in order to get the benefits of the Roth IRA. You can set it up by doing a Roth conversion<\/a> from other retirement accounts, such as a 401(k) plan and a traditional IRA. <\/p>\n\n(That\u2019s another big reason why you should always max out your retirement savings, especially if you want to retire at 50).<\/p>\n<\/blockquote>\n
Roth IRAs enable you to take tax-free withdrawals from the plan once you reach age 59 \u00bd, and have been in the plan for at least five years.<\/p>\n
How Does That Help You if You Want to Retire at 50?<\/h3>\n
Roth IRAs Have a Loophole.<\/strong> Contributions to a Roth can be withdrawn free from taxes and the early withdrawal penalty.<\/p>\nAfter all, since there were no tax savings going in, there was no tax liability going out. <\/p>\n
(Taxes and penalties, however, do apply to the earnings from the account, however, the contribution withdrawal rules don\u2019t require a pro-ration between contributions and earnings the way traditional IRA withdrawals do.)<\/p>\n
That contribution withdrawal loophole makes the Roth IRA perfect for early retirement. You can make this happen by doing a series of annual Roth IRA conversions from your other retirement accounts.<\/p>\n
Are you with me so far?<\/p>\n
There is one difference between contribution withdrawals from a regular Roth IRA and a Roth conversion. Since you are not making direct contributions with Roth conversions, but rather converting balances from other accounts, the IRS has a five-year rule on early withdrawals.<\/p>\n
\nRoth IRA 5 Year Rule<\/h4>\n\nAt least five years must pass between the time a balance is converted and it\u2019s withdrawn from the account<\/strong>.<\/em> If it\u2019s withdrawn sooner, it\u2019s still not subject to ordinary income tax, but it will be subject to the 10% early withdrawal penalty.<\/p>\n<\/div>\n<\/div>\nYou can avoid this by making a series of annual conversions to a Roth IRA, in what is known as a Roth conversion ladder.<\/strong><\/em><\/p>\nBasically, what you do is decide how much money you will need to live on when you retire, and then convert that amount each year for five years.<\/p>\n
As long as you stay five years ahead, you will always have a sufficient amount of Roth funds to live on, and you can withdraw them free of both income taxes and penalties.<\/p>\n\n\n\n\nEXAMPLE:<\/strong> Let\u2019s assume that you need $40,000 per year in order to live on in retirement at age 50. You have several hundred thousand dollars in your 401(k) plan, so five years from now (in 2022), beginning at age 45 you start making annual conversions to your Roth IRA of $40,000. Once you turn 50 (in 2027), you can begin taking those withdrawals from the Roth IRA each year, free from taxes and penalties.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\nTo illustrate, your Roth conversion ladder will look like this <\/strong><\/p>\n\n
Table of Contents<\/h3>\n<\/div>\n\n\n- Can You Really Retire at 50?<\/a><\/li>\n
- Important Considerations if Retiring at 50 Is a Real Goal<\/a><\/li>\n
- 7 Steps to Retire at 50<\/a><\/li>\n
- Step 1: Start Saving EARLY!<\/a><\/li>\n
- Step 2: Save More Than Everyone Else<\/a><\/li>\n
- Step 3: Invest and Invest Aggressively<\/a><\/li>\n
- Step 4: Maximize Your Retirement Savings<\/a><\/li>\n
- Step 5: Set up a Roth IRA Conversion \u201cLadder\u201d<\/a><\/li>\n
- Step 6: Live Beneath Your Means<\/a><\/li>\n
- Step 7: Stay Out of Debt<\/a><\/li>\n
- Yes, You Can Retire at 50<\/a><\/li>\n
- Retiring at 50 \u2013 The Ultimate Guide<\/a><\/li>\n
- What Investments Should I Consider if I Want to Retire at 50?<\/a><\/li>\n
- The Bottom Line \u2013 How to Retire at 50 in 7 Easy Steps<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n
It\u2019s a big bold claim \u2013 retire at 50? Yeah, sure. A lot of people out there dream of early retirement<\/a> \u2013 who wouldn\u2019t love to hang up the office keys and jump off the 9-5 train sooner rather than later? <\/p>\nBut while it\u2019s possible to retire at 50 and have plenty of time left in life to have new experiences, it takes careful planning and a will of steel. <\/p>\n
You\u2019ll need to carefully manage your budget, invest in efficient high-yielding assets<\/a>, and review the numbers regularly so you can work towards retiring at a reasonable age without sacrificing your lifestyle along the way. <\/p>\nSo if you\u2019ve got ambition and self-discipline, maybe you really can retire at 50!<\/p>\n
Important Considerations if Retiring at 50 Is a Real Goal<\/h2>\n
If you want to retire at 50, there are some important considerations to take into account. <\/p>\n
For starters, you\u2019ll need a good grasp of money. That means understanding the stock market, planning for debt and savings, and investing in yourself<\/a> through education or entrepreneurial ventures. <\/p>\nJust as important is managing your health \u2013 after all, no one wants to retire only to have their retirement cut short! Make sure you\u2019re exercising regularly and eating a balanced diet. <\/p>\n
And lastly, it never hurts to start visualizing what you want your life post-retirement to look like. It could be travel, starting up a business from home<\/a>, or simply spending more quality time with loved ones. <\/p>\nWhen I was working with retirees, I would often ask them to share what a perfect day would look like for them in retirement. It really helps paint a clear picture of your future expectations for the next chapter in your life.<\/p>\n
\n\n\n\nBefore Retirement Tip :<\/strong> Visualize what your \u201cperfect\u201d day looks after you retire. <\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nWhatever it is that lights your fire in the present moment will be a huge influence for not only deciding when you\u2019re ready for retirement but how you plan on approaching that retirement<\/a> once it\u2019s here.<\/p>\nLooks now look at the 7 steps needed to retire at 50..<\/p>\n
7 Steps to Retire at 50<\/h2>\n
1. Start Saving EARLY!<\/a><\/p>\n<\/p>\n2. Save More than Everyone Else<\/a><\/p>\n<\/p>\n3. Invest and Invest Aggressively<\/a><\/p>\n<\/p>\n4. Maximize Your Retirement Savings<\/a><\/p>\n<\/p>\n5. Set up a Roth Conversion \u201cLadder\u201d<\/a><\/p>\n<\/p>\n6. Live Beneath Your Means<\/a><\/p>\n<\/p>\n7. Stay Out of Debt<\/a><\/p>\n<\/p>\nThere are all different ages that people want to retire at, and for most people, it\u2019s probably something like as soon as possible!<\/strong><\/em> But let\u2019s focus on how to retire at 50 since it\u2019s a doable goal for a lot of people.<\/p>\nHow can you make it happen?<\/p>\n
Step 1: Start Saving EARLY!<\/h2>\n
If you\u2019re 25 right now, then you should start saving to retire at 50 now \u2013 as in immediately. The best way to prove the point is with a couple of examples.<\/p>\n
If you decide to put off saving to retire at 50 for another five years \u2013 when you are 30 \u2013 and you begin saving $10,000 per year, invested at an average annual rate of return of 7%, then by the time you\u2019re 50 you will have $425,341.<\/p>\n
But if instead, you decide to start saving right now \u2013 again, $10,000 per year, invested at an average annual rate of 7% \u2013 then by the time you are 50, you will have $656,227 saved.<\/p>\n
That\u2019s a difference of more than $230,000, just for beginning to save and invest five years sooner.<\/p>\n
\n\n\nLearn more about the best compounded interest investments<\/a><\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\nStep 2: Save More Than Everyone Else<\/h2>\n
It\u2019s a common belief that you can retire just by saving 10% or 15% of your annual income. And that may be true, if you plan to retire at 55<\/a> or even 60, and have 35 or 40 years to save and invest money.<\/p>\nBut if you\u2019re serious about retiring at 50, you\u2019re going to have to save more than anyone else. That might mean saving 20% of your income, or maybe 25% or even 30%. <\/p>\n
Heck, if you\u2019re much older than 25 or 30, you\u2019ll have to save between 40% and 50% of your income if you hope to retire at 50.<\/p>\n
What You Can Do Is Start Out Saving 20%.<\/em><\/h4>\nBut each time you get a pay raise or promotion with an even bigger pay raise, instead of spending the extra money, commit it to savings. After a few years of steady pay increases, you should be able to increase your savings rate to 30% or even more.<\/p>\n
Saving such a large percentage of your income accomplishes two very important goals:<\/strong><\/p>\n1. It obviously enables you to reach your savings goals faster<\/p>\n<\/p>\n
2. But just as important, it conditions you to living on less money than you earn<\/p>\n<\/p>\n
That second point will be really important when you actually do retire. The less money that you need to live on, the sooner and more effectively you\u2019ll be able to retire.<\/p>\n
Step 3: Invest and Invest Aggressively<\/h2>\n
I probably don\u2019t have to tell you that you\u2019re not going to be able to retire at 50 by investing in interest-bearing assets, like certificates of deposit<\/a>. Interest rates of 1% per year or less just won\u2019t cut it.<\/p>\nYou\u2019ll have to invest in stocks, and that\u2019s where the great majority of your money will need to be invested at all times. The stock market has returned an average of between 9% and 11% over the past 90 years<\/a> and that\u2019s the kind of growth that you\u2019ll need to tap into if you want to retire at 50.<\/p>\n<\/div>\nSince you\u2019re probably well under 50 now, you can afford to keep 80% to 90% of your savings invested in stocks. That\u2019s the best way to get the kind of return on your investments that you\u2019ll need to build the kind of portfolio you\u2019ll need to make early retirement a reality.<\/p>\n
\n\n\n\nRetiring requires investing with some degree of risk<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nAll the rewards of aggressive investing come with some risk, so you want to make sure you invest with a solid platform. <\/p>\n
Here are my top picks for all of you bold investors itching for early retirement:<\/strong><\/p>\n\n- Ally Invest:<\/strong> With Ally Invest<\/a>, you can opt for do-it-yourself investing or professional account management with Ally\u2019s robo-advisor. Ally starts out by helping you establish your risk tolerance, where you can opt for \u201cAggressive growth\u201d<\/strong> and put the majority of your investments into stocks.\n
Ally Invest offers some of the lowest trading fees on the market, 24\/7 customer service, and professionally managed portfolios to meet your investment goals. Try Ally Invest today<\/a>.<\/li>\n<\/ul>\n\n- Betterment:<\/strong>\u00a0Betterment<\/a> offers investors an alternative robo-advising experience, completely automating your investment experience. The software maximizes your returns with tax loss harvesting and helps you reach your specific retirement goals with RetireGuide.\n
The service automatically rebalances your portfolio to keep you on track to your goals. With a low annual management fee and no trade fees, you can start investing with Betterment<\/a> easily.<\/li>\n<\/ul>\n\n- M1 Finance:<\/strong> Rather than assessing risk tolerance, M1<\/a> focuses on helping you target your investment goals and stay on track to reaching them. When you invest with M1 Finance<\/a>, you can choose from 60 expertly designed investment \u201cpies\u201d<\/strong> made of up to 60 ETFs and stocks, or create your own.\n
M1 then manages your investments, rebalancing your account as needed. M1 gives you fee-free account management and trades, and requires low initial investments, making it a great choice for aggressively investing for early retirement.<\/li>\n<\/ul>\n
\n\n\n<\/div>\nOpen an Account<\/a><\/div>\n\n\n- Commission-free investing<\/li>\n
- Allows fractional shares in stocks, ETFs<\/li>\n
- Small minimum investment: $100<\/li>\n<\/ul>\n
<\/a><\/div>\n<\/div>\n<\/div>\nStep 4: Maximize Your Retirement Savings<\/h2>\n
Taxes are one of the underestimated obstacles of early retirement planning. Not only do they reduce the income you have available for savings, but they also take a chunk out of your investment returns.<\/p>\n
For example, if you earn 10% on your investments, but you\u2019re in the 30% tax bracket, your net return is only 7%. That will slow your capital accumulation.<\/p>\n
But there is a way around that problem, at least partially. You should maximize your tax-sheltered retirement contributions.<\/p>\n
Not only will that reduce your taxable income from your job, but it will also shelter the investment earnings in your investment portfolio so that a 10% return will actually be a 10% return.<\/p>\n
If your employer offers a 401(k) plan<\/a>, you should make the maximum contribution you\u2019re allowed to. That would be up to $22,500 per year. If your employer offers a matching contribution<\/a>, that\u2019s even better.<\/p>\nYou should also plan to make contributions to a traditional IRA<\/a>, even if those contributions won\u2019t be tax deductible due to income limitations<\/a>. The investment earnings in the account will still accumulate on a tax-deferred basis<\/a>, and that\u2019s what you want to happen.<\/p>\n\n\n\n\nThe more earned income and investment income you can shelter from taxes, the better.<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nNow there is a basic problem with retirement savings, at least in regard to early retirement. If you begin taking withdrawals from your retirement accounts before you reach age 59 \u00bd you will not only be subject to income taxes on the withdrawals but also the 10% early withdrawal penalty<\/a> as well.<\/p>\nBut there\u2019s a way around that dilemma \u2013 it\u2019s the Roth IRA<\/a>.<\/p>\nStep 5: Set up a Roth IRA Conversion \u201cLadder\u201d<\/h2>\n
You don\u2019t have to contribute to a Roth IRA every year in order to get the benefits of the Roth IRA. You can set it up by doing a Roth conversion<\/a> from other retirement accounts, such as a 401(k) plan and a traditional IRA. <\/p>\n\n(That\u2019s another big reason why you should always max out your retirement savings, especially if you want to retire at 50).<\/p>\n<\/blockquote>\n
Roth IRAs enable you to take tax-free withdrawals from the plan once you reach age 59 \u00bd, and have been in the plan for at least five years.<\/p>\n
How Does That Help You if You Want to Retire at 50?<\/h3>\n
Roth IRAs Have a Loophole.<\/strong> Contributions to a Roth can be withdrawn free from taxes and the early withdrawal penalty.<\/p>\nAfter all, since there were no tax savings going in, there was no tax liability going out. <\/p>\n
(Taxes and penalties, however, do apply to the earnings from the account, however, the contribution withdrawal rules don\u2019t require a pro-ration between contributions and earnings the way traditional IRA withdrawals do.)<\/p>\n
That contribution withdrawal loophole makes the Roth IRA perfect for early retirement. You can make this happen by doing a series of annual Roth IRA conversions from your other retirement accounts.<\/p>\n
Are you with me so far?<\/p>\n
There is one difference between contribution withdrawals from a regular Roth IRA and a Roth conversion. Since you are not making direct contributions with Roth conversions, but rather converting balances from other accounts, the IRS has a five-year rule on early withdrawals.<\/p>\n
\nRoth IRA 5 Year Rule<\/h4>\n\nAt least five years must pass between the time a balance is converted and it\u2019s withdrawn from the account<\/strong>.<\/em> If it\u2019s withdrawn sooner, it\u2019s still not subject to ordinary income tax, but it will be subject to the 10% early withdrawal penalty.<\/p>\n<\/div>\n<\/div>\nYou can avoid this by making a series of annual conversions to a Roth IRA, in what is known as a Roth conversion ladder.<\/strong><\/em><\/p>\nBasically, what you do is decide how much money you will need to live on when you retire, and then convert that amount each year for five years.<\/p>\n
As long as you stay five years ahead, you will always have a sufficient amount of Roth funds to live on, and you can withdraw them free of both income taxes and penalties.<\/p>\n\n\n\n\nEXAMPLE:<\/strong> Let\u2019s assume that you need $40,000 per year in order to live on in retirement at age 50. You have several hundred thousand dollars in your 401(k) plan, so five years from now (in 2022), beginning at age 45 you start making annual conversions to your Roth IRA of $40,000. Once you turn 50 (in 2027), you can begin taking those withdrawals from the Roth IRA each year, free from taxes and penalties.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\nTo illustrate, your Roth conversion ladder will look like this <\/strong><\/p>\n\n
- \n
- Can You Really Retire at 50?<\/a><\/li>\n
- Important Considerations if Retiring at 50 Is a Real Goal<\/a><\/li>\n
- 7 Steps to Retire at 50<\/a><\/li>\n
- Step 1: Start Saving EARLY!<\/a><\/li>\n
- Step 2: Save More Than Everyone Else<\/a><\/li>\n
- Step 3: Invest and Invest Aggressively<\/a><\/li>\n
- Step 4: Maximize Your Retirement Savings<\/a><\/li>\n
- Step 5: Set up a Roth IRA Conversion \u201cLadder\u201d<\/a><\/li>\n
- Step 6: Live Beneath Your Means<\/a><\/li>\n
- Step 7: Stay Out of Debt<\/a><\/li>\n
- Yes, You Can Retire at 50<\/a><\/li>\n
- Retiring at 50 \u2013 The Ultimate Guide<\/a><\/li>\n
- What Investments Should I Consider if I Want to Retire at 50?<\/a><\/li>\n
- The Bottom Line \u2013 How to Retire at 50 in 7 Easy Steps<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n
It\u2019s a big bold claim \u2013 retire at 50? Yeah, sure. A lot of people out there dream of early retirement<\/a> \u2013 who wouldn\u2019t love to hang up the office keys and jump off the 9-5 train sooner rather than later? <\/p>\n
But while it\u2019s possible to retire at 50 and have plenty of time left in life to have new experiences, it takes careful planning and a will of steel. <\/p>\n
You\u2019ll need to carefully manage your budget, invest in efficient high-yielding assets<\/a>, and review the numbers regularly so you can work towards retiring at a reasonable age without sacrificing your lifestyle along the way. <\/p>\n
So if you\u2019ve got ambition and self-discipline, maybe you really can retire at 50!<\/p>\n
Important Considerations if Retiring at 50 Is a Real Goal<\/h2>\n
If you want to retire at 50, there are some important considerations to take into account. <\/p>\n
For starters, you\u2019ll need a good grasp of money. That means understanding the stock market, planning for debt and savings, and investing in yourself<\/a> through education or entrepreneurial ventures. <\/p>\n
Just as important is managing your health \u2013 after all, no one wants to retire only to have their retirement cut short! Make sure you\u2019re exercising regularly and eating a balanced diet. <\/p>\n
And lastly, it never hurts to start visualizing what you want your life post-retirement to look like. It could be travel, starting up a business from home<\/a>, or simply spending more quality time with loved ones. <\/p>\n
When I was working with retirees, I would often ask them to share what a perfect day would look like for them in retirement. It really helps paint a clear picture of your future expectations for the next chapter in your life.<\/p>\n
\n\n\n\nBefore Retirement Tip
:<\/strong> Visualize what your \u201cperfect\u201d day looks after you retire. <\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\nWhatever it is that lights your fire in the present moment will be a huge influence for not only deciding when you\u2019re ready for retirement but how you plan on approaching that retirement<\/a> once it\u2019s here.<\/p>\n
Looks now look at the 7 steps needed to retire at 50..<\/p>\n
7 Steps to Retire at 50<\/h2>\n
1. Start Saving EARLY!<\/a><\/p>\n<\/p>\n
2. Save More than Everyone Else<\/a><\/p>\n<\/p>\n
3. Invest and Invest Aggressively<\/a><\/p>\n<\/p>\n
4. Maximize Your Retirement Savings<\/a><\/p>\n<\/p>\n
5. Set up a Roth Conversion \u201cLadder\u201d<\/a><\/p>\n<\/p>\n
6. Live Beneath Your Means<\/a><\/p>\n<\/p>\n
7. Stay Out of Debt<\/a><\/p>\n<\/p>\n
There are all different ages that people want to retire at, and for most people, it\u2019s probably something like as soon as possible!<\/strong><\/em> But let\u2019s focus on how to retire at 50 since it\u2019s a doable goal for a lot of people.<\/p>\n
How can you make it happen?<\/p>\n
Step 1: Start Saving EARLY!<\/h2>\n
If you\u2019re 25 right now, then you should start saving to retire at 50 now \u2013 as in immediately. The best way to prove the point is with a couple of examples.<\/p>\n
If you decide to put off saving to retire at 50 for another five years \u2013 when you are 30 \u2013 and you begin saving $10,000 per year, invested at an average annual rate of return of 7%, then by the time you\u2019re 50 you will have $425,341.<\/p>\n
But if instead, you decide to start saving right now \u2013 again, $10,000 per year, invested at an average annual rate of 7% \u2013 then by the time you are 50, you will have $656,227 saved.<\/p>\n
That\u2019s a difference of more than $230,000, just for beginning to save and invest five years sooner.<\/p>\n
\n\n\nLearn more about the best compounded interest investments<\/a><\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\nStep 2: Save More Than Everyone Else<\/h2>\n
It\u2019s a common belief that you can retire just by saving 10% or 15% of your annual income. And that may be true, if you plan to retire at 55<\/a> or even 60, and have 35 or 40 years to save and invest money.<\/p>\n
But if you\u2019re serious about retiring at 50, you\u2019re going to have to save more than anyone else. That might mean saving 20% of your income, or maybe 25% or even 30%. <\/p>\n
Heck, if you\u2019re much older than 25 or 30, you\u2019ll have to save between 40% and 50% of your income if you hope to retire at 50.<\/p>\n
What You Can Do Is Start Out Saving 20%.<\/em><\/h4>\n
But each time you get a pay raise or promotion with an even bigger pay raise, instead of spending the extra money, commit it to savings. After a few years of steady pay increases, you should be able to increase your savings rate to 30% or even more.<\/p>\n
Saving such a large percentage of your income accomplishes two very important goals:<\/strong><\/p>\n
1. It obviously enables you to reach your savings goals faster<\/p>\n<\/p>\n
2. But just as important, it conditions you to living on less money than you earn<\/p>\n<\/p>\n
That second point will be really important when you actually do retire. The less money that you need to live on, the sooner and more effectively you\u2019ll be able to retire.<\/p>\n
Step 3: Invest and Invest Aggressively<\/h2>\n
I probably don\u2019t have to tell you that you\u2019re not going to be able to retire at 50 by investing in interest-bearing assets, like certificates of deposit<\/a>. Interest rates of 1% per year or less just won\u2019t cut it.<\/p>\n
You\u2019ll have to invest in stocks, and that\u2019s where the great majority of your money will need to be invested at all times. The stock market has returned an average of between 9% and 11% over the past 90 years<\/a> and that\u2019s the kind of growth that you\u2019ll need to tap into if you want to retire at 50.<\/p>\n
<\/div>\nSince you\u2019re probably well under 50 now, you can afford to keep 80% to 90% of your savings invested in stocks. That\u2019s the best way to get the kind of return on your investments that you\u2019ll need to build the kind of portfolio you\u2019ll need to make early retirement a reality.<\/p>\n
\n\n\n\nRetiring requires investing with some degree of risk<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
All the rewards of aggressive investing come with some risk, so you want to make sure you invest with a solid platform. <\/p>\n
Here are my top picks for all of you bold investors itching for early retirement:<\/strong><\/p>\n
- \n
- Ally Invest:<\/strong> With Ally Invest<\/a>, you can opt for do-it-yourself investing or professional account management with Ally\u2019s robo-advisor. Ally starts out by helping you establish your risk tolerance, where you can opt for \u201cAggressive growth\u201d<\/strong> and put the majority of your investments into stocks.\n
Ally Invest offers some of the lowest trading fees on the market, 24\/7 customer service, and professionally managed portfolios to meet your investment goals. Try Ally Invest today<\/a>.<\/li>\n<\/ul>\n
- \n
- Betterment:<\/strong>\u00a0Betterment<\/a> offers investors an alternative robo-advising experience, completely automating your investment experience. The software maximizes your returns with tax loss harvesting and helps you reach your specific retirement goals with RetireGuide.\n
The service automatically rebalances your portfolio to keep you on track to your goals. With a low annual management fee and no trade fees, you can start investing with Betterment<\/a> easily.<\/li>\n<\/ul>\n
- \n
- M1 Finance:<\/strong> Rather than assessing risk tolerance, M1<\/a> focuses on helping you target your investment goals and stay on track to reaching them. When you invest with M1 Finance<\/a>, you can choose from 60 expertly designed investment \u201cpies\u201d<\/strong> made of up to 60 ETFs and stocks, or create your own.\n
M1 then manages your investments, rebalancing your account as needed. M1 gives you fee-free account management and trades, and requires low initial investments, making it a great choice for aggressively investing for early retirement.<\/li>\n<\/ul>\n
\n\n\n<\/div>\nOpen an Account<\/a><\/div>\n
\n- \n
- Commission-free investing<\/li>\n
- Allows fractional shares in stocks, ETFs<\/li>\n
- Small minimum investment: $100<\/li>\n<\/ul>\n
<\/a><\/div>\n<\/div>\n<\/div>\n
Step 4: Maximize Your Retirement Savings<\/h2>\n
Taxes are one of the underestimated obstacles of early retirement planning. Not only do they reduce the income you have available for savings, but they also take a chunk out of your investment returns.<\/p>\n
For example, if you earn 10% on your investments, but you\u2019re in the 30% tax bracket, your net return is only 7%. That will slow your capital accumulation.<\/p>\n
But there is a way around that problem, at least partially. You should maximize your tax-sheltered retirement contributions.<\/p>\n
Not only will that reduce your taxable income from your job, but it will also shelter the investment earnings in your investment portfolio so that a 10% return will actually be a 10% return.<\/p>\n
If your employer offers a 401(k) plan<\/a>, you should make the maximum contribution you\u2019re allowed to. That would be up to $22,500 per year. If your employer offers a matching contribution<\/a>, that\u2019s even better.<\/p>\n
You should also plan to make contributions to a traditional IRA<\/a>, even if those contributions won\u2019t be tax deductible due to income limitations<\/a>. The investment earnings in the account will still accumulate on a tax-deferred basis<\/a>, and that\u2019s what you want to happen.<\/p>\n
\n\n\n\nThe more earned income and investment income you can shelter from taxes, the better.<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
Now there is a basic problem with retirement savings, at least in regard to early retirement. If you begin taking withdrawals from your retirement accounts before you reach age 59 \u00bd you will not only be subject to income taxes on the withdrawals but also the 10% early withdrawal penalty<\/a> as well.<\/p>\n
But there\u2019s a way around that dilemma \u2013 it\u2019s the Roth IRA<\/a>.<\/p>\n
Step 5: Set up a Roth IRA Conversion \u201cLadder\u201d<\/h2>\n
You don\u2019t have to contribute to a Roth IRA every year in order to get the benefits of the Roth IRA. You can set it up by doing a Roth conversion<\/a> from other retirement accounts, such as a 401(k) plan and a traditional IRA. <\/p>\n
\n
(That\u2019s another big reason why you should always max out your retirement savings, especially if you want to retire at 50).<\/p>\n<\/blockquote>\n
Roth IRAs enable you to take tax-free withdrawals from the plan once you reach age 59 \u00bd, and have been in the plan for at least five years.<\/p>\n
How Does That Help You if You Want to Retire at 50?<\/h3>\n
Roth IRAs Have a Loophole.<\/strong> Contributions to a Roth can be withdrawn free from taxes and the early withdrawal penalty.<\/p>\n
After all, since there were no tax savings going in, there was no tax liability going out. <\/p>\n
(Taxes and penalties, however, do apply to the earnings from the account, however, the contribution withdrawal rules don\u2019t require a pro-ration between contributions and earnings the way traditional IRA withdrawals do.)<\/p>\n
That contribution withdrawal loophole makes the Roth IRA perfect for early retirement. You can make this happen by doing a series of annual Roth IRA conversions from your other retirement accounts.<\/p>\n
Are you with me so far?<\/p>\n
There is one difference between contribution withdrawals from a regular Roth IRA and a Roth conversion. Since you are not making direct contributions with Roth conversions, but rather converting balances from other accounts, the IRS has a five-year rule on early withdrawals.<\/p>\n
\nRoth IRA 5 Year Rule<\/h4>\n
\nAt least five years must pass between the time a balance is converted and it\u2019s withdrawn from the account<\/strong>.<\/em> If it\u2019s withdrawn sooner, it\u2019s still not subject to ordinary income tax, but it will be subject to the 10% early withdrawal penalty.<\/p>\n<\/div>\n<\/div>\n
You can avoid this by making a series of annual conversions to a Roth IRA, in what is known as a Roth conversion ladder.<\/strong><\/em><\/p>\n
Basically, what you do is decide how much money you will need to live on when you retire, and then convert that amount each year for five years.<\/p>\n
As long as you stay five years ahead, you will always have a sufficient amount of Roth funds to live on, and you can withdraw them free of both income taxes and penalties.<\/p>\n
\n\n\n
\n EXAMPLE:<\/strong> Let\u2019s assume that you need $40,000 per year in order to live on in retirement at age 50. You have several hundred thousand dollars in your 401(k) plan, so five years from now (in 2022), beginning at age 45 you start making annual conversions to your Roth IRA of $40,000. Once you turn 50 (in 2027), you can begin taking those withdrawals from the Roth IRA each year, free from taxes and penalties.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n To illustrate, your Roth conversion ladder will look like this
<\/strong><\/p>\n\n
- M1 Finance:<\/strong> Rather than assessing risk tolerance, M1<\/a> focuses on helping you target your investment goals and stay on track to reaching them. When you invest with M1 Finance<\/a>, you can choose from 60 expertly designed investment \u201cpies\u201d<\/strong> made of up to 60 ETFs and stocks, or create your own.\n
- Betterment:<\/strong>\u00a0Betterment<\/a> offers investors an alternative robo-advising experience, completely automating your investment experience. The software maximizes your returns with tax loss harvesting and helps you reach your specific retirement goals with RetireGuide.\n
- Important Considerations if Retiring at 50 Is a Real Goal<\/a><\/li>\n
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:<\/strong> Visualize what your \u201cperfect\u201d day looks after you retire. <\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n![](\"https:\/\/www.goodfinancialcents.com\/wp-content\/uploads\/2019\/04\/m1-finance-logo-e1596133379952.png\"){kind=logo}
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<\/figure>\n