Dreaming of escaping the 9-5 grind earlier? It may not be as far fetched as you think. Ric Edelman, founder of The Truth About Your Future, joined TheStreet to discuss the steps Americans can take to achieve early retirement.
Related: Dave Ramsey unveils the major steps to your early retirement
Full Video Transcript Below:
CONWAY GITTENS: And so what are some other secrets to to a successful early retirement planning?
RIC EDELMAN: Well, the best thing, the number one piece of advice is simply to spend less than you earn. Too many Americans spend more than they earn. And the biggest problem is that they turn to credit cards since they don’t have the cash available. What they do is they put that expense on a credit card, whether it’s dinner out this week or buying a refrigerator. And what you’re doing when you use a credit card is that you’re obligating future income, which means the money you haven’t yet earned is already spoken for. By the time you get that income next month’s paycheck or the paycheck three months from now, you’ve already spent it by virtue of the credit card purchase today. And that means when the expense shows up in three months for something new, you don’t have the money because you’ve already spent the money on the prior purchase. And this creates the credit card spiral, and that’s a death trap.
So the solution is to spend less than you earn. Don’t spend money that you don’t already have. That’s the number one thing. The number two thing is to increase your savings. And the single best way to do that is in your retirement plan at work. If you have a 401. K or a 403b or you work for the government with a thrift savings plan wherever you happen to work, chances are they offer a retirement account of some type. Most Americans are not participating at all. Or if they are, they’re not contributing the maximum that they’re allowed. So that’s what you really want to do is go to your boss and tell them you want to increase your contribution to the retirement account. This is painless. It’ll come right out of your paycheck. You won’t even know it’s happening. It’s all on a pre-tax basis. Many employers will actually match your contributions. That’s free money for you. And that is a wonderful way to jump start your savings that too many Americans ignore.
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CONWAY GITTENS: So we have a lot of people come through here and they give us different numbers. What’s your number in terms of the percentage of your income that you should stock away to that retirement account?
RIC EDELMAN: Well, I’m going to scare you, but give me a moment. 25% that’s a scary paycheck. 25% of your income. But but, but, but don’t worry. It’s not as horrible as it sounds, because that includes your social security contribution and that between you and your employer is already about 15% So of the 25% you’re already halfway there. Then if you join your retirement plan at work and you put in 5% of your pay, many bosses will match that with maybe $0.50 on the dollar or 100 cents on the dollar, which means that’s another 7 and 1/2 or 10% just between social security and your 401. K you’re near that 25% goal. So my point is real simple. You need to be saving more than you are, however much you’re saving. Save more. I have never encountered a client ever in my 35 years of doing this. No client has ever yelled at me because they saved too much. So the big lament is that people aren’t saving enough. You need to save more. However much you’re saving. Increase it. You’ll be glad you did.
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