Generation X, Millennials, and Generation Zers Retirement Alert: 6 Things to Today with your IRA or 401(K) to Retire 1–5 Years Earlier

Rocket Dollar account holders have the power to invest in any asset class allowed by the IRS. Our expert team created this list of 6 action items to do in your finances to retire 1–5 years earlier than expected.

You may not be able to retire decades earlier. By making small but concrete changes to your finances, you can retire earlier than expected. Additionally, you also reduce your potential tax bill by saving extra money for retirement.

Preparing for retirement is a long and sometimes complicated process.

Do you want to retire early? These are six strategies from the Rocket Dollar team to help you retire sooner.

1. Go 50/50 With Bonus Money - Supplement your 401(k) or IRA

“Bonus money” is cash you get above and beyond your usual budgeted income. Some examples of bonus money include:

• Overtime pay
• A holiday or performance bonus
• Money from an inheritance
• Extra income payments from picking up extra shifts
• Cash from a side hustle
• Funds from selling off things you no longer need
• Your next raise
• Additional funds from a career promotion or moving to a new employer

Whatever the source, bonus money is money you’re not counting on and not used to having. That means you won’t miss it if you save it instead of spending it. Saving everything is no fun, and hard to keep you motivated, but you can split the bonus 50/50 each time. Half of it goes in your 401(k) or IRA, and the other half you get to spend however you prefer.

2. Cut One Expense Per Month and Apply Funds to Your 401(k) or IRA

Go over your bank and credit card statements for the last three months with an eye for reducing one monthly expense. That might be casually eating out, a subscription you rarely use, or the costs associated with a second family car you don’t need.

Whatever the expense is, spend one month not using it. If your quality of life isn’t reduced significantly by its absence, remove it from your life and put the money toward retirement. If you find you do miss it, choose another item and try going without it instead. However, Rocket Dollar experts recommend applying those funds to your 401(k) or independent retirement account.

Aim for something that costs $50 to $100 a month. Anything less won’t make a significant difference unless you choose several smaller items that add up to $50 to $100. For most people and families, there are many opportunities to slash monthly costs.

3. Kill Your Credit Card Debt

The average credit card annual interest rate is 16.01%. Typical returns on a 401(k) range from 5% to 8% annually. That means the interest you lose by maintaining a credit card balance is two to three times the interest you gain on a retirement account.

First, maximize any fund-matched contributions to retirement accounts available through your employer. The tax benefits, coupled with the added funds, outweigh the difference in interest in almost every situation. After that, though, make a short-term goal of eliminating credit card debt.

Once you’ve paid off your credit cards, take the money you were spending on those monthly minimums and put it directly into your retirement savings. Then, use the 50/50 rule described above to both accelerate your retirement and live a little more extravagantly with the extra cash savings.

4. Sweat the Small Stuff

The basics of retirement savings are simple: Contribute pre-tax earnings to an account that earns interest during your working life, then live off the proceeds in your later years. However, a handful of smaller details can seriously increase the size of your retirement nest egg and how quickly you can quit working.

Small tweaks that can make a big difference include:

• Check your investments to make sure you’re paying the lowest fees possible
• Take advantage of “catch-up” contribution options if you’re over 50 years old
• Use retirement savings to lower your tax burden each year, and invest your tax refund into further retirement savings
• Understand your employee retirement benefits to maximize what you get out of them
• Find ways to avoid fees for all of your banking, which you can then put toward retirement
• See how your Health Savings Accounts interacts with retirement savings, and determine if you can increase your savings programs

The list of possibilities is quite long, and some of them are complex. Consider scheduling a meeting with a financial advisor who doesn’t charge for consultations. They can help you make sure you’re on track.

5. Set Financial Goals & Beef Up Your 401(k) or IRA

While not as concrete as most other strategies on this list, that doesn’t make it less critical. If you make a vague resolution to save more money for retirement, you might save some extra. However, if you set a specific goal, you’ll find you make faster progress than you thought you would — and at a much more rapid pace than if you set no goals.

Example goals might be:

• Put $50 a week into a retirement account
• Slash expenses by $100 a month
• Pay down $5,000 in credit card debt this year
• Have $12,000 extra in your retirement savings by the end of next year

Setting clear, concrete goals is a trick of human psychology that works surprisingly well.

6. Increase Your Income

Reducing expenses is one way to find the money for retirement, but it’s rarely as powerful as increasing your income. That’s because your payments will remain mostly static, barring significant life changes, so any extra income is bonus income you can spend to improve your financial situation.

The best source of extra income is negotiating a raise at your job. It gives you extra money for no additional work. The second best is a promotion, which also gives you extra money but comes with new responsibilities and added time and stress.

Outside your job, you can find part-time work or a “side hustle” to bring in extra dollars. Whether you drive for Uber or Postmates, do online contract work like translation or surveys, or start a small business, you can find a way to turn your passion into extra income. Once you do, put that income toward your retirement so you can quit both jobs as early as possible.

Final Thought

One serious challenge of retirement planning is how the process feels overwhelming and the end goal remote. Beat this by focusing on one thing you can do today. It might be from this list. It might be something else entirely. Completing just one item lets you concentrate your efforts on something less overwhelming. Plus, it helps you stay focused so you can earn those extra five years of retirement life.

Did you know that you can invest securely and easily in Real Estate, Startups, and more? Open a Self-Directed Solo 401(k) or Self-Directed IRA with Rocket Dollar and put your money to work.