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Early Retirement Planning: 5 Best Tax Efficient Investments

For many people, early retirement can be a dream. Even if you love your career, having time out to do all of those things that you’ve not had time to do before can be the goal as you enter your later years. But for many, it will only ever be just that; a dream. It does take some planning and motivation to know what to do in order to make early retirement happen. It sounds fairly straightforward, right? But unfortunately, it isn’t as simple as just saving extra money each month. You do need to have a certain drive in order to get it done and be able to achieve your dream.

One of the reasons why it isn’t always straightforward and simple to retire early is because you’ll need to access your retirement funds earlier. You’ll also need them to last you longer. If you retire in your mid-fifties, rather than your mid-sixties, you’ve got a whole ten years worth that you need, compared to most people that choose to retire in their sixties. Another reason why it is less than straightforward is because you are likely to need to look at different ways to invest your money, especially compared to a traditional retirement savings account. Not only because you are likely to want a greater return, but also because you will be wanting to access the funds before you are sixty. And a traditional 401 K can have fines for doing so.

So if you’re working and your employer is paying into a pension scheme for you, you will still want to keep that on. So you’re likely to want to look for other ways to invest, alongside your regular job. So you need to look at planning your retirement a little different than normal.

You need to eliminate generalizations or ‘rules of thumb’ if you’re looking to retire early.

There is something generally known as the 4% rule when planning retirement. Financial professionals have found that for anyone that retires, they will take out 4% each year that they are retired. Even when that is adjusted slightly for inflation, it calculates that the average person could be likely to run out of money in their retired years. And this is generally for people that retire in their sixties. What about people that are looking to retire when they are in their forties over even fifties? So as this general 4% rule is not going to be relevant, then having two separate retirement portfolios could be just what you need.

While there are many articles out there that will help you to understand a ‘normal’ retirement and how to plan for it, there are very few about retiring early. So read on for some of the best investments and advice that are going to help you to retire early.


If You’re Employed, Then Check the Pension Scheme

Not all pension schemes have been created equal. So you do need to check and fully understand what is on offer, if you work for a company that does offer this. Some pensions that employers can have, will start giving out payouts when you leave employment, and even if you are younger when sixty that you plan to do that. So you need to know what the deal is with your employer. You also need to think about insurance and if that is going to be covered if you are a retiree that is eligible to claim. Check the fine print, and then double check it; you don’t want to be missing out.

Consider Property Investment

Investing in property is going to be a good thing that you can start now in your younger years, and reap the benefit of later on in your retirement years. You could invest in property now, so that when you get to retirement, you could sell them on to take the profit. You could keep adding to your portfolio, of course, but it is something that does allow you that flexibility. Like any investment, though, you need to make sure that you’re going to be doing it at the right time. Are you investing in the right area too? Some housing markets are always slowly increasing. Others have been quite stagnant and could remain that way.

So once you’ve looked into that, checked the sums, and used a mortgage calculator to see how much it is going to cost you, you’ll be able to check if it is going to be something that can work for you. If done well, it is going to be something that will give you much more returns than any bank account would. Plus, you can always sell up and pocket the cash if you need to.

Tax Exempt Bonds

If you’re looking for another wise way to invest your money, then have you thought about tax exempt bonds before? They can offer a way to generate income without having to do very much, as well as being an efficient way to manage your tax. You’ll be able to get some yield from your tax exempt bonds, all the while not having to pay federal income tax on said yield. Your state of residence is also likely to offer municipal bonds as well. That means you can avoid paying federal income tax, as well as any state taxes. When you’re still gaining an income from both bonds but not paying income tax, you’re doing pretty well.



If you’re looking for the long-game and to get a stake in some businesses, then having long-term stocks and shares can be a good way to go. The tax on any gains from stocks and shares is currently capped (though worth checking if you do choose to go ahead with it). So any gains from the stocks and shares that you buy, won’t all be taxable. Plus you only have to do that when you sell your shares or get the money from them. So if you’re pretty savvy when it comes to stocks and shares, and you’re in it for the long-haul, it could work pretty well for you.

Life Insurance Cash Policy

If you have life insurance, then it may have a cash policy. Whereby you can withdraw a set amount of cash from it. However, the cash value isn’t taxed until it is actually withdrawn, but more than likely earns interest during that time it is just sat there. You will just need to check the fine print on the policy, though. If you withdraw too much it could invalidate your policy and cost you and your family more in the long run. Plus another tip, get life insurance for this as early on as you can; policies will go up and up and up the older you get when you take one out.

In an ideal world, saving and planning for an early retirement will still need some of the same principles as any way of saving or planning for a regular retirement; you’ll want to reduce taxes and look for ways to make money but over time. It can also meaning to live quite frugally so that you can save more money over time. You’ll be working fewer years if you retire early, so less time to save and put away cash. But the bottom line is that you need to be looking for things that will maximize the cash that you do have and give you the best returns. Being able to retire with enough money can give such peace of mind and help you to enjoy those years in your life.

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