Retirement isn’t just a distant dream; it’s a goal you can achieve sooner than you think with the right strategy. Whether you work a 9-to-5 job, take on seasonal gigs, or run your own business, there are ways to fast-track your retirement. In this post, we’re going to answer some of the most common questions people have about retiring early, and show you how three different people—Emily, Jake, and Sarah—are planning to retire early using smart financial tools.
Meet Emily: The 9-to-5 Professional
Emily works a steady 9-to-5 job at a marketing firm. She’s been there for years, and while she enjoys her work, she dreams of retiring early to travel the world.
Emily’s Strategy:
- 401(k): Emily takes full advantage of her company’s 401(k) plan, contributing the maximum amount each year. She also makes sure to get every penny of the employer match—it’s like free money for her retirement.
- Roth IRA: In addition to her 401(k), Emily opens a Roth IRA, where she invests in a mix of stocks and bonds. The Roth IRA gives her tax-free growth, which means she won’t pay taxes on withdrawals in retirement. This is especially important since she will retire early and will need to stretch her savings.
- HSA (Health Savings Account): Emily also contributes to an HSA, which she uses as an extra retirement account. She saves receipts for medical expenses and plans to use her HSA funds tax-free in the future. By keeping her HSA funds invested, she’s building a cushion for healthcare costs in retirement.
Emily’s smart use of these tools means she’s on track to retire by 55, with the option to retire even earlier if her investments grow well.
Meet Jake: The Seasonal Worker
Jake works as a ski instructor in the winter and a fishing guide in the summer. His income fluctuates, but he loves the flexibility his seasonal work gives him. Jake isn’t tied to a desk, but he’s still serious about retiring early.
Jake’s Strategy:
- Roth IRA: Because Jake’s income varies, he focuses on maxing out his Roth IRA each year. The flexibility of a Roth IRA allows him to contribute when he has a good season and skip a contribution if money is tight. Plus, the tax-free withdrawals in retirement are a huge benefit.
- Traditional IRA: Some years, Jake’s income is lower, which means he’s in a lower tax bracket. During these years, he contributes to a Traditional IRA to get the upfront tax deduction. This helps him lower his tax bill while still saving for retirement.
- Brokerage Account: Jake also invests in a taxable brokerage account. Since he plans to retire before 59½, he wants access to some of his savings without penalties. He invests in a mix of index funds and individual stocks, giving him a diversified portfolio that can grow over time.
Jake’s plan allows him to balance the ups and downs of seasonal work while still building a solid nest egg. He’s aiming to retire by 50, giving him plenty of time to enjoy his favorite outdoor activities.
Meet Sarah: The Entrepreneur
Sarah runs her own graphic design business. As an entrepreneur, she doesn’t have a 401(k) through an employer, but she has plenty of options to build her retirement savings.
Sarah’s Strategy:
- Solo 401(k): Sarah sets up a Solo 401(k) for herself. This plan allows her to contribute as both the employee and the employer, which means she can save up to $69,000 ($75,000 if 50 or older, for 2024) each year. The tax advantages are huge, and the higher contribution limits help her save faster.
- SEP IRA: In years when her business does particularly well, Sarah contributes to a SEP IRA. This plan allows her to put away even more for retirement, reducing her taxable income and giving her business a financial cushion.
- Roth IRA: Sarah also contributes to a Roth IRA. She likes the idea of having a mix of tax-free and tax-deferred accounts in retirement. Plus, the Roth IRA gives her flexibility if she wants to retire before 59½.
- HSA: Sarah sets up an HSA to cover future healthcare costs. She uses it as another retirement account, letting the funds grow tax-free and planning to use them for medical expenses in retirement.
With these tools, Sarah is on track to retire by 45, giving her the freedom to explore new business ventures or simply enjoy life on her terms.
Common Retirement Questions Answered
Before wrapping up, let’s quickly revisit the common retirement questions we’ve answered in
this post:
- How can I retire early?
- What retirement accounts should I use?
- How can I save for retirement if I have a fluctuating income?
- What if I want to access my retirement savings before age 59½?
- How can entrepreneurs save for retirement without an employer-sponsored plan?
- How can I minimize taxes while saving for retirement?
- What’s the best way to plan for healthcare costs in retirement?
The Charlie Planner Team: Your Guide to Early Retirement
Whether you’re like Emily, Jake, or Sarah, the dream of early retirement is within reach. The key is to use the right tools and strategies that fit your lifestyle and financial situation. From 401(k)s to Roth IRAs and HSAs, there are plenty of ways to build your retirement savings and retire on your own terms.
The Charlie Planning Team is here to help you map out your path to early retirement. Just like a personal trainer helps you get in shape, we can guide you toward financial freedom. With personalized advice and smart planning, you can turn your early retirement dreams into reality. So, how soon do you want to retire? Let’s get started on making it happen.