Planning for an Early Retirement: 6 Smart Investment Options

Traditionally, workers have looked forward to retirement around age 65, influenced largely by the Social Security Administration’s guidelines, which have recently increased the full retirement age to 67 for those born in 1960 or later. This made retirement in your 50s seem like jumping the gun. However, with the rise of the FIRE (Financial Independence, Retire Early) movement, many are now aspiring to retire as early as their 30s or 40s. To make this happen, sacrifices in lifestyle and spending are often necessary. Here’s a look at six smart financial strategies for those considering early retirement.

Regular Investment Account

Many retirement planners suggest maximizing contributions to tax-advantaged accounts. But for early retirement, these accounts can present hurdles. Tax-advantaged plans like IRAs and 401(k)s generally impose a 10% penalty for withdrawals before age 59½, plus income tax on amounts taken out. While exceptions exist, a regular, taxable investment account could be just what you need to access your funds without hefty penalties in your early retirement years.

Roth IRA

The Roth IRA blends the benefits of tax-deferred growth with the ability to access your contributions easily. Unlike traditional retirement accounts, contributions to a Roth IRA can be withdrawn at any time without taxes or penalties. Note, however, that while contributions come out tax-free, earnings generally can’t be accessed without penalty until age 59½. This option offers security and flexibility for funds needed during early retirement.

Municipal Bonds

While municipal bonds may not deliver significant growth, they can provide a steady stream of tax-free income, an attractive feature for those looking for a buffer as they transition to early retirement. Particularly beneficial for individuals in high tax brackets, the after-tax yield can significantly enhance tax-free earnings, providing a smart choice for tax-savvy early retirees.

Real Estate

Investing in real estate can provide both appreciation in property values and ongoing rental income. Historically, property values in favorable locations tend to rise, and rental properties can offer a reliable cash flow. This dual benefit enables many in the FIRE community to sustain their lifestyle well into their retirement years, often building a portfolio of rental properties that fund their lives.

Index Funds

For those aiming to retire before their 50s, a portion of your investments should be put into aggressive growth strategies, yet with caution against high-risk ventures. Index funds, particularly those tracking the S&P 500, typically offer long-term growth potential without excessive risk. Historically, the S&P 500 has rebounded from market downturns, making it a prudent option for early retirement investors looking for stability along with growth.

High-Yield Savings

While high-yield savings accounts are not direct investment vehicles for retirement, they play a crucial role in a well-rounded early retirement plan. With a robust emergency fund in place, unexpected costs won’t derail your financial future. Look for accounts offering high yields—many online banks now provide rates of 2% or more, significantly higher than the national savings average of just 0.13%.

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This article originally appeared on GOBankingRates.com: Want To Retire Early? Here Are the 6 Best Types of Investments

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