If you want to retire early, one of the most effective ways to get there is through super saving. By being extremely frugal in your spending and funneling a large chunk of your paycheck directly into savings, you can rapidly build wealth and reach financial independence at a surprisingly young age — even as young as 40.
The common retirement savings benchmark is between 10%-15%, but retirement “super savers” often contribute far beyond that — sometimes as high as 90% of their income.
The key is to make your retirement savings an absolute priority in your budget. That means cutting back on spending and even putting some other savings goals on the back burner in order to meet your early retirement goals. With sacrifice and discipline, your retirement nest egg can quickly grow.
Here are some tips to super save your way toward financial independence and early retirement.
Live Well Below Your Means
The cornerstone of super saving is drastically cutting discretionary spending so that you can maximize your savings.
First, track your expenses and try to identify areas where you can cut back. This includes small changes — like making your coffee at home — to larger changes, like moving into a cheaper home or apartment, driving older cars, and taking staycations instead of expensive trips abroad.
Other ways to cut back include limiting how often you eat out, embracing a minimalist wardrobe and canceling unused or underused subscriptions.
Where you live often plays a huge role in how much you need to retire. If you currently live in a very high-cost area, relocating can massively cut your cost of living. Moving to a less expensive state or country can help you save more, as you’re often spending less money for the same quality of life.
Increase Your Income
Outside of just cutting costs, you may also want to boost your income to bring in more funds to save. This can give you an extra boost to save aggressively for early retirement.
At your current job, you can see how feasible it is to get a raise or promotion. You can also consider side hustles like freelancing, tutoring, rideshare driving, or starting an online business to generate extra money each month that goes straight to savings. It may also be smart to build up a passive income side hustle to generate cash once you retire, so you can continue receiving cash flow without putting in much work. This could include selling digital products (like eBooks or online courses) or managing rental properties.
Make Savings Your No. 1 Priority
To retire, you should estimate needing about 25-33 times your desired annual spending saved up so that you can safely withdraw 3-4% each year. This withdrawal rate historically allows portfolios to last 30-plus years. So if you aim to spend $50k annually in retirement, strive to save up $1.25 — $1.7 million. Review your target number annually as you progress on your journey.
To retire in your 40s, you should strive to save at least 50% of your gross income. Saving less than 10% each pay period is unfortunately unlikely going to be enough to retire early. But that doesn’t mean you need to start at 50% right away.
Instead, try to work up to that amount. Start by saving 20%, then 30%, then 40% before you reach your annual contribution goal. Saving half of your income can accelerate your financial independence.
Automate transfers from your paychecks so you don’t forget (or are tempted to spend it). Most employer-sponsored retirement plans can automatically take money out of your paycheck and put it toward your account.
Whenever you get a bonus, raise, or income windfall, try to put all of it towards your retirement goal. Spending more as you make more, known as lifestyle creep, can delay reaching your early retirement goal.
Maximize Retirement Account Contributions
Maxing out tax-advantaged retirement accounts, including 401(k)s and IRAs, should be a cornerstone of your super-saving strategy.
If possible, try to meet the maximum contribution limit on your retirement accounts. In 2024, the limit for 401(k) contributions is $23,000, and the limit for IRAs is $7,000.
Contributions to these two accounts are pre-tax, which can reduce your taxable income now. Your money will grow tax-deferred until you reach retirement.
Even if you can’t contribute up to the maximum, contribute at least enough to get any available matching contributions from your employer. This is free money you don’t want to miss out on.
If your employer offers a Roth 401(k) or Roth IRA, contribute to these if possible. Roth allows tax-free growth, which helps your savings last longer into retirement. Total contribution limits still apply across accounts, based on account type.
Automate contributions from your paycheck to make the habit easy and hands-off. Start small if needed, but try to increase 1-2% each year. View savings as a required bill to pay yourself first before spending on wants.
Diversify Your Retirement Savings Accounts
Most standard retirement accounts like 401(k)s and IRAs have penalties if you withdraw money before age 59 1/2 . This can make getting at your money earlier challenging.
That’s why it’s smart to diversify your retirement saving fund across account types to bridge expenses in your 40s until your standard retirement accounts become penalty-free.
First, aim to build up after-tax investment accounts alongside retirement savings accounts. Non-qualified investing accounts don’t receive the same tax perks, but can provide flexibility and let you access money whenever you need it.
Consider using a blend of different account options with varying liquidity, risk, and growth. This can include taxable brokerage accounts, saving accounts, CD ladders and Series I savings bonds, all of which can complement more restricted retirement funds.
Roth accounts allow you to withdraw your original contributions at any time, both tax and penalty-free. This provides some liquidity that can supplement other income streams before you reach 59 1/2. Just be careful that you’re only withdrawing your deposits and not tax-free investment earnings.
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