5 Tips to Retire by 45 With Financial Freedom - Slavic401k (2024)

Could you retire early? There are many who believe the age for retirement is most appropriately post-age 45. Surely, it’s possible with proper planning from the very beginning. But how?

The FIRE (Financial Independence, Retire Early) movement is a philosophy that just may help. Let’s better understand whether or not this would be a realistic option for you.

Pioneered by Vicki Robin and Joe Dominguez in their book, Your Money or Your Life, the FIRE movement is based on saving as much as possible – up to 70 percent of your annual income – and aggressively investing to save enough money to eventually lead a self-sufficient life. Once they have saved approximately $1 million, roughly 30 times their yearly salary, they stop working and live off smaller withdrawals from their portfolio.

Solid investment decisions combined with disciplined lifestyle choices determine whether or not early retirement is an attainable goal. Here are five tips taken from those successful at the FIRE lifestyle that can be applied to anyone at any income level.

1. Start Saving and Investing Early

Suppose you start saving now rather than later. In that case, you will not only have more saved up throughout your lifespan but also enjoy the benefits of compounding interest. On the other hand, beginning much later will cost you significantly when you finally decide to finance your retirement.

If you don’t have a lot of money to invest, it can be hard to reach retirement early. So one of the core principles of FIRE is to divert finances away from unnecessary purchases and into investments.

When you have plans to retire early, it’s essential to be conscious of your finances. You might want to downgrade the type of lifestyle you live and avoid any frivolous spending now so you can reach your retirement goals sooner.

2. Don’t Be Too Conservative When Investing

The key to retirement is saving the most at a young age and investing wisely. When assessing your risk threshold, younger investors tend to have a more aggressive portfolio mix with a longer-term outlook. This is different from the risk profile of someone who is at or nearing retirement and might have a more conservative approach.

Investors are often surprised to learn that while short-term investments, like CDs or Treasury bills, maybe safer on a long-run basis, stocks have outperformed and will do better for your FIRE portfolio.

3. Maximize Your 401(k) Contributions and Company Match

One of the best ways to secure your retirement is a company-sponsored 401(k) plan. Many companies offer a retirement savings plan that includes employer match benefits. This means that your employer will match a percentage of your 401(k) contributions.

Maxing out retirement account contributions means that you’ve reached the limit determined by the Internal Revenue Service (IRS). The limit can change year-to-year, but in 2021 it is $19,500 for account holders under the age of 50.

These contributions are tax-deferred and maximize potential earnings for individuals looking for financial independence. You can learn more about 401(k) contributions and company match on our blog.

4. Use a Health Savings Account

If you have a high deductible health plan, it is worth looking into establishing a health savings account – or HSA. An HSA is a tax-advantaged savings account for qualifying medical expenses. Contributions are deductible, earnings grow tax-free, and withdrawals are tax-free if used to pay for qualified medical expenses.

Another bonus is the money in your health savings account can also be invested. If you are careful not to spend it all, the balance (as mentioned above) can also grow tax-free.

One way to think of HSA is a tax-free, long-term savings account. To learn more about HSAs and how they work, read our blog post: Using A Health Savings Account: What You Need to Know.

5. Multiple Sources of Income Are a Must

Many people hope to retire early using investments. But it might be just as tricky without multiple sources of income. If you lose your job, having a backup source of revenue will make it easier. Having various sources of income is an excellent financial strategy—not just for those who want to retire early but as a general rule of thumb.

Multiple sources of income are a critical aspect of securing financial stability. In addition, other sources such as investment portfolio and rental income can help you generate a bigger monthly paycheck – allowing you to save more.

You can also supplement your income into retirement by continuing or establishing a side gig. For example, suppose you’re planning on retirement in your 40’s. In that case, it’s the perfect time to pursue a passion project – like opening an Etsy shop to sell your handmade items or collectibles – for additional income!

It is never too early to start working towards your FIRE goals. If you’ve always wanted to retire early or think financial independence is the key to your happiness, start by following these tips, and you will be on the right path!

Subscribe to our blog for more financial wellness tips and retirement savings information.

5 Tips to Retire by 45 With Financial Freedom - Slavic401k (2024)


5 Tips to Retire by 45 With Financial Freedom - Slavic401k? ›

With the $1,000 per month rule, if you plan to withdraw 5% of your savings each year, you'll need at least $240,000 in savings. If you aim to take out $2,000 every month at a withdrawal rate of 5%, you'll need to set aside $480,000. For $3,000, you would aim to save $720,000.

How much do I need in a 401k to get $2000 a month? ›

With the $1,000 per month rule, if you plan to withdraw 5% of your savings each year, you'll need at least $240,000 in savings. If you aim to take out $2,000 every month at a withdrawal rate of 5%, you'll need to set aside $480,000. For $3,000, you would aim to save $720,000.

What is the $1000 a month rule for retirement? ›

The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).

What is the 45 rule for retirement? ›

Fidelity's 45% rule states that you should plan to save and invest enough to replace at least 45% of your preretirement income. This rule assumes that you retire at age 67 and have no pension income, other than Social Security.

How to prepare for retirement at 45? ›

  1. Figure out how much you'll need to retire early.
  2. Plan your tax strategy for retirement bliss.
  3. Find a financial advisor that gets you.
  4. Take advantage of retirement plans.
  5. Come up with a plan and stick to it.
  6. Start investing ASAP.
Apr 19, 2024

Can I retire at 62 with $400,000 in 401k? ›

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

How much 401k should I have at 45? ›

By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary.

How much does the average retired person live on per month? ›

Retirement Income Varies Widely By State
StateAverage Retirement Income
47 more rows
Oct 30, 2023

What is the 3 rule in retirement? ›

Follow the 3% Rule for an Average Retirement

If you are fairly confident you won't run out of money, begin by withdrawing 3% of your portfolio annually. Adjust based on inflation but keep an eye on the market, as well.

What is the average Social Security check? ›

Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.

How much money do you need in the bank to retire at 45? ›

At ages 41 to 45, you should have saved 3.4 times your current salary. At ages 46 to 50, you should have saved 4.6 times your current salary. At ages 51 to 55, you should have saved 6.0 times your current salary.

Is retiring at 45 a good idea? ›

If you can retire between 41 – 45, you will have made enough money to not have much career regret walking away. Further, you're still young enough to enjoy your wealth and fleeting time. The only challenge with retiring by age 45 is if you have children. Once you have kids, your Provider's Clock starts ticking loudly.

Can I retire at 45 and collect social security? ›

You can stop working before your full retirement age and receive reduced benefits. The earliest age you can start receiving retirement benefits is age 62. If you file for benefits when you reach full retirement age, you will receive full retirement benefits.

How to retire with no savings? ›

If you determine you need more than Social Security income to meet your retirement needs, consider these options:
  1. Set a detailed budget to minimize expenses. ...
  2. Downsize your home. ...
  3. Continue working. ...
  4. Take advantage of tax-advantaged retirement plans. ...
  5. Open a traditional or Roth IRA.
Jan 31, 2024

Where should I be financially at 45? ›

As a general rule of thumb, you'll want to have saved three to eight times your annual salary, depending on your age: 40: At least three times your salary. 45: Around four times your salary. 50: Six times your salary.

How much pension should I have at 45? ›

Average pension pot: age group
AgeAverage pension pot
1 more row
Mar 19, 2024

How long will a $500000 401k last? ›

How long will $500k last in retirement? $500k can last you for at least 25 years in retirement if your annual spending remains around $20,000, following the 4% rule. However, it will depend on how old you are when you retire and how much you plan to spend each month as a retiree.

How long will $300,000 last in 401k? ›

$300,000 can last for roughly 26 years if your average monthly spend is around $1,600. Social Security benefits help bolster your retirement income and make retiring on $300k even more accessible. It's often recommended to have 10-12 times your current income in savings by the time you retire.

How long will $600,000 last in retirement? ›

You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement.

Is $500,000 401k enough to retire? ›

Key takeaways: Most people in the U.S. retire with less than $1 million. $500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income.

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