Laws regarding the minimum age for retirement account withdrawals and receiving social security retirement benefits have led to the belief that retirement is an event that is meant to happen sometime between the ages of 60 and 65. The truth is that the rising cost of living and the burden of debt means many people aren’t able to stop working at that age. As a result, many experts are encouraging younger people to think about obtaining financial freedom rather than planning for retirement.
What Is Financial Freedom?
Financial freedom is the term for a level of financial security that allows someone to stop working and maintain their standard of living. It differs from retirement, the concept of quitting work at a certain age. Anyone can theoretically obtain financial freedom because it’s not tied to age.
For younger adults, the concept of financial freedom can lead to building savings habits earlier in life. This is because, for many people in their 20s, 30s, and even 40s, retirement age seems like a long way off. As a result, many people find themselves with little to no savings and must work.
How Much Money Do You Need to Retire Comfortably?
There is no set answer to the question of how much money you need to retire comfortably. To determine the amount of savings you require to obtain financial freedom, consider:
- Your current income
- Amount of debt that you have
- When your debt will be paid off
- How much you spend monthly on that debt
- Total amount of your other monthly expenses
- What expenses may be eliminated if you were no longer working, such as gas for your daily commute and parking fees at the office
By carefully examining all the above, you can determine what amount of money you’ll need to maintain your standard of living when your only income is social security.
Building Your Retirement Plan
Once you have determined what amount of savings is necessary to help you achieve financial freedom, you can choose a target age for obtaining it. When doing so, be realistic about your prospects. Think about how much money you already have saved for retirement and factor in increases in the cost of living. After setting a target age, you can develop a savings plan.
A financial advisor can help you invest the money wisely to grow your savings while allowing you to maintain enough liquid assets to cover your current expenses. Don’t think that advisors are only for the very rich. Anyone wishing to obtain financial freedom can benefit from the expert advice of an experienced advisor, and some even specialize in investments for middle-class individuals.
How To Retire Debt Free and Wealthy
Being truly financially free usually means retiring debt free. If you’re saddled with debt, you’ll have less money available to cover your living expenses and may find yourself unable to retire or have to work a part-time job. There is no single way to set yourself up for a debt-free retirement. However, those who hope to be living debt free in retirement can follow these tips:
- Make more than your monthly minimum payment on credit cards: All credit card statements provide information about how long it will take you to pay off the balance at the minimum payment versus making a higher payment. Use that information to guide you as you plan how much to pay.
- Prioritize debt with the highest interest rate: Compare the rates on all of your loans and credit cards, and then focus on paying off the one that costs you the most in interest first. Even if this means only making minimum payments on some credit cards in the meantime, this strategy can help you get out of debt faster due to the effects of compounding interest.
- Create a monthly budget: Establish a monthly budget and stick to it. Living within your means without relying on debt is crucial to setting yourself up for a debt-free retirement.
- Consolidate debts and close credit cards: Consolidating your debt at a lower interest rate can lower costs and put a definite end date on your debt payments. Just make sure you close the credit cards that you consolidate so you don’t end up racking up more debt again.
- Sell life insurance policies you no longer need: Many older adults no longer need their life insurance policies because their children are grown and financially independent. If you’re age 75 or older, selling your policy can give you access to cash that you can use to pay off credit cards or your mortgage.