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How to Achieve Financial Independence and Retire Early

By U.S. News & World Report

Many Americans now expect to retire after age 65. But that hasn’t stopped a growing group from aiming for early retirement. These big savers often retire at 55, 45 or even in their 30s.

That may seem impossible if you frame retirement in a traditional sense. When you think retirement means not working any more, retiring at 45 may seem impossible or even undesirable. But there’s also another way to think about retirement that focuses on financial independence.

[See: 10 Alternatives to Full-Time Retirement.]

The idea of FIRE. FIRE stands for financial independence and retire early. Many super savers manage to be work-free at an early age. But you can also achieve early retirement by reframing the idea of retirement that you are saving up for.

Instead of focusing on retirement as a time of complete ease and relaxation, some savers strive for a different goal. For them, retirement doesn’t mean no work. It means not having to work long hours at a job you dislike. It means having the freedom to work flexibly, travel if you feel like it, spend time with family and pursue goals that don’t provide a salary. For many people, retirement is a time to start a new business or volunteer heavily. For others, retirement involves spending time managing their investments.

Instead of focusing on not working ever again, you can focus on being financially independent enough to take risks and make choices.

Make big sacrifices for big gains. Many members of the FIRE community have a huge savings rate that’s often 50 percent or more of their gross pay. They often achieve this goal by making deep lifestyle sacrifices.

These savers usually buy a much smaller home than they could afford. You’re likely to see them driving an older vehicle, or only owning one family vehicle. It could mean they don’t eat out often and go on cheap family vacations. Some savers also sacrifice time to make more money through a side gig.

The sacrifices they make to achieve this savings rate vary. But these savers know they’re making frugal choices now in return for the huge payout of financial independence. By working hard and saving big for a few years, they can have plenty of time later to explore other interests and travel.

It’s easy to delay saving for retirement because that goal is far away. But take the time to understand why you’re saving. Thinking about your future self could help you make more sacrifices and end up with a bigger retirement nest egg.

[See: 10 Ways to Make Extra Money in Retirement.]

Consider partial retirement. If your only conception of retirement involves sandy beaches for two decades, you may have to work well past 65 to get there. Funding a life of complete ease takes a huge amount of savings.

But what if you look at retirement through a different lens? Instead of doing nothing, consider retirement as a time to pursue new interests, including projects that make some income.

If you have always wanted to switch careers, you could retire early and launch your new venture. If you want to start selling your handmade goods, financial independence lets you do that, too.

Even if you don’t plan to pursue new passions in retirement, looking at retirement as an opportunity for flexible work can help you retire sooner. You may not be able to completely retire on your savings, but perhaps you could cut back to working 20 hours per week. That might give you the freedom and relaxation you’re looking for.

[See: How to Reduce Your Tax Bill by Saving for Retirement.]

Learn to manage your investments. Paying close attention to your investments can save you money, especially if you seek out low cost funds. Some 401(k) accounts have limited investment options and high fees. This can quickly eat into your earnings and seriously impact your ability to retire early or meet other financial goals. While you should always save enough to get the 401(k) match, after that you can look for lower cost investments in an IRA or investment account.

Saving for retirement in a 401(k) or IRA can qualify you for valuable tax breaks, but you can only save a limited amount in these tax preferred accounts. If you have a high savings rate, you will need to do additional investing in taxable accounts. This isn’t a bad thing, since it means you’re maxing out your tax-advantaged retirement accounts. But it does mean you need to learn to manage taxes on your investments wisely, so you can save more money over time.

More from U.S. News

How to Max Out Your 401(k) in 2017

How to Save $1 Million by Retirement

9 Ways to Avoid 401(k) Fees and Penalties

How to Achieve Financial Independence and Retire Early originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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