What It Realistically Takes to Retire By 50

You've probably heard about a tech employee who hit it rich when their company went public, or an average Joe who's rolling in the dough after a lottery win. While those people would undoubtedly have no trouble retiring early, it takes a lot more for the average person to do so.

If you're dreaming of early retirement, here's the old-fashioned (but in no way easy) way to make it a reality.

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Know your number

The first step is to estimate how much you'll spend each year in retirement and translate that amount into a well-balanced target portfolio. For example, make a list of all expected expenses, including housing, transportation, food, and healthcare.

Where you plan to live will make a difference. Living in a lower-expense area will help stretch your dollars. If you've ever considered moving to a less expensive country, now is the time to examine what that would take.

Be sure to factor inflation into your budget. While the Federal Reserve aims to keep the inflation rate at 2%, a rate of 2.5% to 3% may be more realistic.

Plan for gaps

Since you won't be eligible for Medicare until 65, you'll need an alternate source of medical insurance until then. That means building premiums, deductibles, and out-of-pocket expenses into your overall budget.

Most retirement accounts won't allow you to make withdrawals from your account before age 59½ without paying a 10% penalty. If you're going to retire early, you'll need to build a penalty-free account (or two) to cover your 50s. This is a point in the planning process where an experienced retirement or financial advisor can be worth their weight in gold. An advisor can lay out which accounts give you the freedom you need to access your funds.

Don't forget to build an emergency fund. Part of the money you're saving for your post-retirement life should go toward building a robust emergency fund. This is for two reasons: The worst time to sell investments from a retirement account is during market downturns, and an emergency fund can help prevent that. An emergency fund will also come in handy when a surprise financial situation arises -- such as a roof that needs repair or a transmission that needs replacement.

The hard part

Once you know how much you need to save, the hard part begins. For the average worker, retiring early typically means:

• Living below your means, with housing, transportation, and lifestyle costs intentionally low.
• Investing heavily in a diversified portfolio, often with a strong allocation for stocks for growth.
• Taking advantage of any retirement account matches offered by your employer.
• Automating contributions to all savings and retirement accounts so you're not tempted to spend the money.

Realistically, retiring by 50 usually involves years of frugality and a willingness to take on a part-time job if you have trouble staying on track. While it's certainly not easy, it is doable.

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