4 Best Practices of Early and Happy Retirees

1. $1000-Bucks-a-Month Rule. This $1,000-Bucks-A-Month Rule can keep you focused on the future of your retirement as you put money aside today. The rule is simple: for every $1,000 you hope to have each month for retirement, you need to save $240,000. This number comes from the following equation: $240,000 x 5 percent withdrawal rate = $12,000. $12,000 divided by 12 months in a year is $1,000 per month for your retirement. This thousand dollars should be seen as an extra source of income each month. It can be used to supplement your Social Security income, your pension, any part-time work you take on or other sources of income.

2. RIDD (Rent, Income, Dividends, Distributions). This is a great method to implement when planning an early retirement and also comes with a motivating acronym: RIDD. Rid yourself of that 9 to 5 job and the feeling like retirement is too far off to enjoy planning. Broken down, RIDD stands for four things: rent, income, dividends and distributions.

  • Rent. This one sounds simple, but the benefits are enormous. Owning a rental property is a source of income that you can rely on in retirement. If you’re renting a property you own for $1,500 a month, you’re pocketing that money. Remembering the $1000-Bucks-a-Month Rule with this method can make early retirement seem even more attainable.
  • Income, dividends, and distributions. These three things work together: income from bonds, dividends from stocks, and distributions from investments that are neither bonds nor stocks. Depending on how much weight is in each category, an income producing portfolio should be able to produce an annual “cash flow” in the 4 to 5 percent range. Early retirees should plan on withdrawing around 4 percent each year. So imagine that you have $1,000,000 total in your investments. You’ll be able to withdraw $40,000 a year to add to your rental property income.

3. Rule of 72. While saving in any way is important, it’s helpful to know that putting the money you won’t touch for a while (such as your retirement funds) into investments rather than a savings account can help grow your future income. With the Rule of 72, you can calculate how long it will take your money to double in an investment with a fixed interest rate.

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