Here are the secrets to planning for an early retirement

Ric Edelman, Founder of The Truth About Your Future, joins TheStreet to share some tips about how you can plan for early retirement.

Transcript

00:00And so what are some other secrets to a successful early retirement planning?

00:07Well, the best thing, the number one piece of advice is simply to spend less than you earn.

00:12Too many Americans spend more than they earn, and the biggest problem is that they turn to

00:16credit cards. Since they don't have the cash available, what they do is they put that expense

00:22on a credit card, whether it's dinner out this week or buying a refrigerator. And what you're

00:27doing when you use a credit card is that you're obligating future income, which means the money

00:33you haven't yet earned is already spoken for. By the time you get that income, next month's

00:38paycheck or the paycheck three months from now, you've already spent it by virtue of a credit

00:43card purchase today. And that means when the expense shows up in three months for something

00:48new, you don't have the money because you've already spent the money on the prior purchase.

00:52And this creates the credit card spiral, and that's a death trap. So the solution is to spend

00:58less than you earn. Don't spend money that you don't already have. That's the number one thing.

01:04The number two thing is to increase your savings. And the single best way to do that is in your

01:09retirement plan at work. If you have a 401k or a 403b or you work for the government with a

01:15thrift savings plan, wherever you happen to work, chances are they offer a retirement account of

01:20some type. Most Americans are not participating at all, or if they are, they're not contributing

01:26the maximum that they're allowed. So that's what you really want to do is go to your boss and tell

01:32them you want to increase your contribution to the retirement account. This is painless. It'll come

01:38right out of your paycheck. You won't even know what's happening. It's all on a pre-tax basis.

01:42Many employers will actually match your contributions. That's free money for you.

01:47And that is a wonderful way to jumpstart your savings that too many Americans ignore.

01:53So we have a lot of people come through here and they give us different numbers. What's your number

01:58in terms of the percentage of your income that you should stock away to that retirement account?

02:05Well, I'm going to scare you, but give me a moment. 25 percent. That's scary, right?

02:1225 percent of your income. But don't worry. It's not as horrible as it sounds because that includes

02:19your social security contribution. And that, between you and your employer, is already about

02:2415 percent. So of the 25 percent, you're already halfway there. Then if you join your retirement

02:31plan at work and you put in five percent of your pay, many bosses will match that with maybe 50

02:38cents on the dollar or 100 cents on the dollar, which means that's another seven and a half or

02:4310 percent. Just between social security and your 401k, you're near that 25 percent goal.

02:50So my point is real simple. You need to be saving more than you are. However much you're saving,

02:58save more. I have never encountered a client, ever, in my 35 years of doing this. No client

03:04has ever yelled at me because they saved too much. So the big lament is that people aren't

03:10saving enough. You need to save more. However much you're saving, increase it. You'll be glad you did.