Early retirement is associated with a longer life span and improved health, according to multiple studies. Americans are jumping on this opportunity and 3 million have retired early since 2020. The problem is that 49% of adults between the ages of 55 and 66 have no personal retirement savings, which makes early retirement unattainable. So, what are the best ways to build a retirement fund so you can retire early?
Invest in an IRA
You need to be 62 before you qualify for Social Security and 65 to get Medicare. This means you need to have a good retirement plan in place that you can access before these ages if you want to retire early. IRAs are accessible from when you are 59.5 years of age, which makes them ideal for early retirees. You can even take cash out of them before this age, although a 10% penalty will be charged. You can get around this with the Substantially Equal Periodic Payments (SEPPs) plan. This is a 5-year plan which uses formulas to give you an annual sum of cash from your IRA without penalties.
Choosing an IRA
There are lots of different types of IRAs you can invest in. These include traditional ones, Roth, spousal, and gold. A gold IRA allows you to invest precious metals into your IRA, such as gold and platinum. Gold IRAs are ideal for people who aren’t far off retirement age and want a secure investment. Metals have a pretty stable price so there’s little risk involved. Plus, you can start making withdrawals when you’re 59.5 years old. To get the best deal when investing in precious metals, compare annual fees. Also, look for a company that promises to buy back metals at the current market rate, so you don’t lose out.
Other IRA options
Roth IRAs have hit the headlines recently due to the market being down. People wanting to retire early have certainly been taking advantage of this as Roth conversions were up by 18% during the first quarter of 2022, compared to the same period in 2021. One of the biggest benefits of investing in Roth IRAs at any time is tax-free growth. But invest now and the amount you earn tax-free could be even bigger. For example, if you move a $100,000 traditional IRA into a Roth today, you’ll only pay tax on $80,000. As your $80,000 grows in the Roth the excess money made will be tax-free. Roth IRAs are good if you plan on retiring in 5 years’ time or later. You can withdraw cash penalty-free from a converted Roth IRA 5 years after opening it, regardless of your age. This also makes them attractive to people planning to retire early.
Making the most of your IRA
Yahoo! reports that the average IRA balance is $134,900. While this is a nice amount, it’s probably not enough to comfortably retire early. This is why you need to do everything you can to increase the amount in your IRA before you retire. Each year, make sure you put in the full amount allowed. This will save you money as you won’t have to pay income tax on this figure. If you’re over the age of 50 you also have the option to make a catch-up contribution of up to $1,000 which is highly recommended.
Millions of people dream of retiring early. To do this successfully, you need a decent retirement fund, so make sure you fully utilize your IRA and all that it offers.