I can retire early after paying off $300,000 in debt. This is how I did it

Saving for retirement amid high prices, holidays, and other financial plans isn’t easy.

According to the study, in 2022, approximately 41% of American adults stopped saving for retirement due to rising costs of living. US News Review 2023. Even more troubling is that nearly a third of them gave up their retirement savings in 2022 to stay afloat. If you feel overwhelmed or burdened by others financial debt or goals, you are not alone.

As a financial coach, I know first-hand what it’s like to pay off debt while pursuing your investment goals. I now have enough money to retire early, but it hasn’t been easy. Things have changed significantly since I made my first 401(k) contribution almost 17 years ago. deficit of pension savings even wider.

If optional work seems decades away, you may feel like you have a lot of time. Waiting to take steps toward retirement is a time you won’t go back to. Saving for retirement is It’s difficult, but with an active financial plan, ongoing education, and the right emotional support, you can take small steps today to help you build a rewarding future in your golden years. If you feel overwhelmed or burdened by others financial debt or goals, you are not alone.

Read more: The $1 Rule Helped Me Get Out of Debt and Retire Early—And It Can Help You, Too

Take steps to prepare now, even if you’re not ready to save

Saving enough to enjoy your retirement years is definitely a challenge, especially as housing costs and other essential expenses continue to rise without wages keeping pace. Many of my students age 50 and older have delayed retirement because they simply cannot afford to live on their current savings. Others may have deferred contributing to a retirement fund until their debt is paid off or their income increases.

After coaching thousands of people to achieve their financial goals, my biggest regret is that they all wish they had started sooner. There will probably never be a “perfect” time. There are ways to save more money for retirement without investing. Here’s how I recommend you start:

Open accounts now so they’ll be available when you’re ready.
Use features like watchlists to follow investments you’re interested in and learn their trends and nuances over time.
Pay high interest debt such as credit cards to increase your cash flow. Once the debt is paid off, you can put some of that money toward retirement savings while working toward your next debt.
Follow financial experts like those CNET Financial Experts Council for hands-on learning and inspiration.
Talk to people who have successfully retired and remind yourself that it is possible.

The more armed you are with financial knowledge, the easier it will be for you to get started.

Social Security Can Help, But It’s Rarely Enough

If you’re counting on Social Security benefits to help you through retirement, I encourage you to do a little research. I learned this first hand Social Security Benefits often do not stretch far enough. When my parents retired, they relied solely on these benefits to survive. When my father passed away, we learned that only a portion of his benefits would go towards caring for my mother. Even with full benefits, Social Security alone is rarely enough to cover medical expenses. My mom struggled with diabetes and a failing kidney, both of which required… health care costs beyond what Social Security covers.

To better plan, figure out how much you expect to receive from Social Security in retirement. maximum monthly Social Security benefit depends on retirement age. For example, if you retire in 2024:

at age 62 your maximum benefit will be US$2710
full retirement age, your maximum benefit will be US$3822
at age 70 your maximum benefit will be US$4873

The longer you wait to retire, the greater your benefit. If you have to retire early, your benefits will be lower.

Take advantage of the Roth IRA

Regardless of age, the first place I recommend keeping your retirement funds is in a Roth IRA or, if your employer offers it, a Roth option in your 401(k). About 88% of 401(k) plans offered a Roth account in 2021, nearly double the number 10 years ago, according to the agency. Plan Sponsor, Council of the Americas.

Because you contribute to a Roth IRA with after-tax dollars, when you withdraw funds from Roth IRA When you retire, you won’t have to pay taxes on any money. More importantly (and this is what most people miss), you also won’t pay taxes on the gains made since your initial contributions.

If you contribute $5,000 to a traditional IRA or 401(k) and that amount grows to $25,000, you’ll pay taxes on the entire $25,000 when you withdraw the funds. If you contribute to a Roth 401(k), you won’t pay taxes on the extra $20,000. This is a huge advantage.

For 2024 you can deposit $7000 the total amount across all your IRAs, whether traditional (pre-tax) or Roth (after-tax), and the limit goes up to $8,000 if you’re 50 or older. Contributing $7,000 a year may seem like a lot at first, but if you divide that amount by 365 days a year, you’ll need to save $19.18 a day, or about $575 a month, to reach the IRS limit. The sooner you start, the more time your money will work for you thanks to the power compound interest.

For example, let’s say you start with $0 today and invest $575 monthly to reach a maximum of $7,000. If you continue at the same pace for 10 years and earn a 10% interest rate, you’ll have an extra $111,562 to live on in the future.

However, a Roth IRA has income limits. In 2024, you’ll phase out the full amount if you earn more than $146,000 if you file a single tax return, or $230,000 if you’re married filing a joint return. I recommend turning to a traditional IRA if you exceed the income limit for contributing to a Roth IRA. My biggest regret in my own financial journey was not realizing the power of a Roth IRA sooner.

Use convenient investment tools

Just ten years ago, investing was much less transparent and much more complex. We will no longer have to settle for the expensive and confusing mutual funds that our parents and grandparents had to choose from. Instead, we can start saving for retirement within minutes thanks to rapidly evolving digital tools and accessibility online banking and investment platforms.

I have a 401(k) through my company and recently switched my traditional and Roth IRAs from a legacy financial services provider to Fidelity, which is more user-friendly and customizable and includes education on every investment. Even if you’re not self-employed, check out your company’s investment platform to see what options are available to you. You may be able to take control of where you invest your money.

It was even more encouraging to see more. environmental, social and governance indicators, also known as ESGoptions are available to investors. For example, you can now choose retirement investments based on social or environmental factors, such as a company’s carbon emissions, waste management practices or commitment to employee diversity.

Take advantage of high savings and CD rates

Our Current climate with high rates can help you earn a little more as you get closer to retirement. While high yield savings account doesn’t have to be your main retirement account, it can serve as a useful supplement. Having at least one month’s worth of emergency savings in your HYSA can reduce the risk of withdrawing money from your retirement fund during tough times.

This monthly reserve should include the amount needed to cover your housing, utilities, transportation, food and healthcare expenses so you can start to stop waiting for your next paycheck and pay your bills.

If your risk appetite is not high enough to invest in the stock market, real estate or other alternative investments, certificates of deposit help me save a little more money while reducing the temptation to spend it immediately.

For example, I decided to set aside an amount insured by the Federal Deposit Insurance Corporation in CD for one year earn more than 4% on a down payment on a house this year, which will help me afford a mortgage on a larger house.

CDs are a great starting point for investing for anyone who is afraid of losing money. They can help you diversify your total assets, but over time you won’t earn as much as you would if you invested in the stock market.

Once you’ve maxed out your contributions to tax-advantaged retirement accounts, if you’re willing to invest with a little more risk, consider investing with an online platform or robo-advisor to grow your money through index funds, exchange-traded funds. and other types of investments.

Don’t wait. Your future self will thank you

The sooner you start your retirement savings journey, the faster your money will grow. Even if you’re not ready to take the plunge and start saving just yet, exploring different retirement accounts and brushing up on different savings strategies can make prioritizing your future a little easier.

When you’re ready, schedule regular contributions to stay on track and grow your retirement savings. This way, you’ll get into the habit of contributing and can adjust your budget based on your retirement savings, needs, and other financial goals.