How to Retire Early with MCM?
Crunch some numbers and get ready to work hard
Wondering how to retire early? Lots of people would like an early escape from the rat race, whether it is to travel, pursue a passion project, start a business, volunteer, or just stop working.
However, retirement planning is tricky enough when you plan to work until your full retirement age. It is even more so if you want to stop working years—or even decades—sooner.
Can it be done? Absolutely. But unless you are independently wealthy—and few people are—it will take work and discipline. Here are five key steps to take.
1) Think about taxes now !!!
Not saving for retirement, of course, means you are paying more in taxes than you need to.
“The government has incentivized saving,” said Chad Parks, founder and CEO of the retirement plan provider Ubiquity Retirement and Savings in San Francisco.
An easy calculation you can make to help you understand how this works, Parks says, is to imagine someone who pays around 30% of their salary in taxes.
If this person can set aside $1,000 a month, $300 of that is the money that would otherwise have gone to taxes, Parks said. “The out-of-pocket is only $700 to be able to save $1,000,” he said. “I call it the government match.”
What Plan MCM offers? SEP IRA Plan-Adding 25% of your salary to a tax deferred account for free
The simplified employee pension IRA is a great boone. SEP IRA accounts have higher savings limits than a traditional IRA, but contributions are calculated differently. As a MCM employee, we contribute 25% of your salary as SEP IRA contribution. For example, if your annual salary is $180,000, MCM offers additional 25% which is $45,000 as SEP IRA contribution on top of your salary. The SEP IRA contribution of $45,000 has a tax shelter of 30% (roughly). So, the total salary package looks like this, $180,000 + $45,000 + $13,500. In summary, your realized a benefit of $58,500 on top of your salary of $180,000, which is 32.5%.
2)Use the magic of compound interest.
You’ve probably read about this before, but the best way to understand it is to see it in front of you.
Yes, we did that math correctly. If two people put the same amount of money away each year ($5,000), earn the same return on their investments (6 percent annually) and stop saving upon retirement at the same age (67), one will end up with nearly twice as much money just by starting at 22 instead of 32. Put another way: The investor who started saving 10 years earlier would have about $500,000 more at retirement. It’s that simple.
3) Take inventory
Leif Dahleen, the blogger behind the Physician on FIRE, retired from anesthesiology at age 43. He says the first step for any aspiring early retiree is to take inventory of their finances.
“There are two things you need to know in order to make a plan for the future,” he told Business Insider. “First, you should calculate your net worth. This can be done in a matter of hours.”
“The second thing you need to calculate is your annual spending. You may be able to guesstimate this based on credit-card statements and your checking account habits,” Dahleen says. “It’s a good idea to set up semi-automated tracking with an app to verify how much money actually goes out the door every year.”
4) Establish your target number
After outlining your version of early retirement, it’s time to establish how much money you need to make it a reality.
Early retiree and self-made millionaire Grant Sabatier suggests having between 25 and 30 times your expected annual expenses saved or invested, plus a year’s worth of expenses in cash. In his book “Financial Freedom: A Proven Path to All the Money You Will Ever Need,” Sabatier shares the formula he used to calculate his “target number,” which he then broke down into monthly, weekly, and even daily savings goals.
This part may be difficult to calculate on your own, especially when there are multiple scenarios to consider, like how a possible recession would affect your investments. A good financial planner can help you crunch the numbers and send you home with an actionable plan to achieve your goal — and even hold you accountable, if you want.
5) Live below your means
It’s very difficult to build substantial, long-term wealth if you spend more than you earn. When you’re working toward early retirement, it’s imperative to live below your means as it’s the only way to save and invest aggressively.
Focusing on reducing your biggest expenses, which are probably housing, transportation, and food, can go a long way in the effort to increase your savings rate.
Depending on how much you spend, you’ll generally aim for one of three categories of early retirement: FIRE, leanFIRE, and fatFIRE. LeanFIRE is when someone has saved up 25 times their annual expenses and lives on a “lean” budget, spending less than the average American. By contrast, someone who achieves FatFIRE spends more than the average person.
Most of the MCM employees can just use the 4% magic retirement number and expect to generate $100,000 per year income out of retirement accounts alone without accounting for social security etc.
So, the question is why wait? Just talk to us, we will get you started in the right retirement path just like other MCM employees are.