The dream of retiring early and becoming extremely wealthy is one many people strive for. In fact, a 2023 NerdWallet survey discovered that 25% of Americans who aren’t yet retired but plan to retire do so before age 50, and 18% want to retire during their 50s.
There is, however, a slight problem. For financial independence, FIRE advocates saving between 50% and 70% of your income. Many people might not be able to manage this since the median weekly earnings for full-time workers were $1,145.
Does that mean it’s impossible to retire and build extreme wealth? Of course not. This dream can become a reality by choosing the right financial products and strategies.
1. High-Yield Savings Accounts
High-yield savings accounts are a good option for growing your wealth over time, even if they aren’t glamorous. Unlike traditional savings accounts, these accounts offer higher interest rates, so your money works harder for you while remaining accessible.
Bankrate, for example, found that the top high-yield savings pay much higher APYs than the national average of 0.58 percent. These include:
- BrioDirect: 5.35% APY
- TAB Bank: 5.27% APY
- UFB Direct: 5.25% APY
- Popular Direct: 5.20% APY
- EverBank (formerly TIAA Bank): 5.15% APY
If you want to maximize your earnings, you should look for accounts with competitive interest rates and low fees.
Moreover, high-yield savings accounts are best used for saving goals you intend to meet within three to five years. Even though short-term goals are technically possible, the shorter the time your money spends in the account, the less interest has time to accrue
2. Certificate of Deposit (CDs)
Another tried and true way to grow your wealth is by investing in CDs. CDs earn a higher interest rate than standard savings accounts when you deposit money for a fixed period, usually from a few months to several years. The FDIC insures CDs, making them a safe investment option that preserves capital and generates a steady return.
Choosing a Certificate of Deposit (CD) can seem overwhelming, but by breaking it down into smaller parts, you can make a confident decision. Here’s a step-by-step approach:
Decide on a timeframe.
Most bank and credit union CDs have a maturity period between three months and five years. For this reason, consider your savings goals and when you will need the funds. In general, shorter terms offer more flexibility, while longer terms offer higher interest rates.
Take a look at different options.
There are different types of CDs. Therefore, explore different types, such as:
- No-penalty CDs. There are no fees associated with early withdrawals.
- Bump-up CDs. During the term, you can increase the interest rate once.
- High-yield CDs. Often online banks offer the best rates.
Check out the best rates.
Compare rates at different credit unions and banks after you have selected a term and type.
Choose a place to park your money.
It is important to consider convenience and return when making your final decision. If you’re looking for the best rate, stick with a familiar bank or opt for a new institution that offers the highest rate. Remember that FDIC insurance limits per account are $250,000 each.
Setting the right deposit amount.
Choose a deposit amount that exceeds the CD’s minimum requirement if possible.
Please keep in mind that this is just a starting point. Before making a decision, do your research and compare your options.
3. Municipal Bonds
Various states, cities, counties, and other governmental entities issue municipal bonds to raise money for public works projects like roads, schools, and other infrastructure. These municipal securities pay regular interest payments at maturity and return the original investment or principal amount. People in higher income tax brackets may find these bonds particularly attractive because the interest paid on them is usually tax-free.
A municipal bond mutual fund may be a good investment idea for risk-averse investors who want to earn a regular tax-free income. These mutual funds are believed to protect capital and offer more frequent dividends than other bonds. They also offer greater stability than those primarily focused on equities and alternatives.
To be honest, municipal bonds won’t benefit your early retirement portfolio much. Nonetheless, most successful FIRE candidates will benefit from earning tax-free income, as having a large income is helpful when trying to retire early.
4. Index Funds
When it comes to your portfolio, you will need to get pretty aggressive if you wish to retire early and build wealth. At the same time, it’s also not a wise idea to take unnecessary risks with speculative investments, such as crypto. As such, in order to improve your chances of retiring early and building wealth, you must balance risk and reward with index funds.
Due to their low fees and consistent returns, index funds are popular choices for building wealth over the long term. They provide broad diversification across hundreds or thousands of stocks by tracking an index, such as the S&P 500.
It should be noted that past performance does not guarantee future results, but the S&P 500 has always recovered from even the most severe bear markets and made new record highs. If you’re looking for long-term growth from an S&P 500 index fund, take this into account.
5. Exchange-Traded Funds (ETFs)
Would you like to spread your investments across different assets at a reasonable cost? You can’t go wrong with ETFs.
Like index funds, ETFs offer diversification and low costs but trade on an exchange like a stock. This means you can buy and sell ETFs throughout the trading day at market prices. ETFs cover many asset classes, including stocks, bonds, and commodities, allowing you to build a well-rounded investment portfolio tailored to your risk tolerance and financial goals.
Furthermore, ETFs are tax-efficient, so you keep a greater portion of your profits.
6. Dividend-Paying Stocks
In dividend stocks, shareholders receive a portion of a company’s profits regularly. The best dividend stocks are those in well-established companies that increase their dividend payments over time. Among the top dividend stocks, the average dividend yield is 12.69%.
Additionally, investors can reinvest dividends if they do not need the income stream. Dividend reinvestment allows you to snowball your investment returns over time by benefiting from the power of compounding.
In general, dividend-paying stocks offer retirees a steady income, which makes them an attractive investment. I cannot emphasize enough the importance of finding companies that consistently pay dividends and have a solid financial record.
7. Real Estate Investment Trusts (REITs)
By investing in real estate trusts, investors gain access to the real estate market without having to own or manage properties directly.
Dividends are paid to investors from these investment vehicles through the ownership and operation of income-producing properties, such as office buildings, apartments, and shopping centers. Portfolios that include REITs can benefit from their diversification, income, and capital appreciation possibilities.
Platforms like Fundrise can help you get your feet wet in the real estate market. You can invest as little as $10 (or even more) in a portfolio of properties across the country with potentially higher returns than if you concentrated your risk and money on one property.
8. Retirement Accounts (401(k), IRA)
To build wealth and retire early, it is crucial to maximize contributions to retirement accounts such as 401(k)s and IRAs. Investing in these accounts offers significant tax advantages, allowing your investments to grow tax-deferred or tax-free.
To diversify your tax exposure in retirement, consider participating in both traditional and Roth IRAs and taking advantage of employer match contributions in 401(k) plans.
On the downside, tax-advantaged retirement plans, such as IRAs and 401(k)s, cannot be withdrawn before age 59 ½ without incurring a 10% penalty, and you must pay income tax on everything you withdraw. As such, you should not access your tax-advantaged retirement money before 59 ½, although there are a few limited exceptions. So, if you plan to retire early, a regular, taxable investment account is the best option.
However, when it comes to saving for an early retirement, a Roth IRA may be your best option, at least for part of your money. When you retire, you can withdraw tax-free both your contributions and earnings from a Roth IRA, just as you can with a 401(k) or traditional IRA.
It does come with one small catch, though. There is a 10% early withdrawal penalty for Roth IRA withdrawals before age 59 ½, as with most traditional retirement accounts. In any case, you may withdraw your contributions tax and penalty-free at any time.
9. Annuities
The benefits of annuities include boosting retirement savings and providing a dependable source of income in retirement. In addition, these investments can help you manage market volatility, the possibility of outliving your savings, and the risk that inflation will consume your retirement savings.
If you’ve maxed out your 401(k) and IRA contributions for the year, you can still invest in them, and they are not subject to IRS contribution limits. If you choose a Due Fixed Annuity, you get 3% a month on your money.
Overall, annuities can offer a pension-like cash flow during retirement, much like the paycheck you received while working.
However, annuities are not right for everyone. Their complexity, higher fees, and lack of flexibility make them less attractive than some other savings options. In addition, depending on the plan you choose, your heirs may receive nothing when you die, even if you contributed much less than you received.
10. Health Savings Accounts (HSAs)
There is no better way to achieve financial independence than with a Health Savings Account (HSA). There are several impressive tax benefits associated with it. Mainly, in an HSA, you don’t pay taxes on contributions, withdrawals, or earnings. This is referred to as a “triple tax advantage” by experts.
In addition to covering healthcare costs, HSAs can also be used to save for retirement. This means that investing in low-cost index funds or ETFs can allow you to take advantage of stock market growth while covering current and future medical expenses as well.
You should keep in mind that HSAs have contribution limits. HSA contributions are limited to $4,150 for self-only coverage and $8,300 for family coverage as of 2024. An additional $1,000 can also be contributed by individuals 55 and older.
11. Taxable Brokerage Accounts
Investors who wish to retire early can benefit from taxable brokerage accounts because they provide flexibility and liquidity. While these accounts are subject to capital gains taxes, they do not have contribution limits and do not restrict withdrawals, making them ideal for funding early retirement.
In these accounts, you can maximize wealth accumulation by strategically managing your taxable income and capital gains.
12. Alternative Investments
Venture capital, peer-to-peer lending, cryptocurrency, and peer-to-peer lending can provide diversification and higher returns than traditional investments. There is, however, a higher risk and volatility associated with these investment opportunities, which requires careful research.
Therefore, consider allocating a small portion of your portfolio to alternative investments as a means of enhancing returns and reducing risk.
13. Robo-advisors
Investors are drawn to robo-advisors for their simplicity and low costs. Opening a robo-advisor is much easier than opening a brokerage or mutual fund account and building your own portfolio of funds. In fact, using a robo-advisor is essentially as simple as following these steps:
- Choose which robo-advisor, such as Betterment, SoFi, Wealthfront, or Vanguard, you want to work with and sign up.
- To determine your goals, timeline, and risk tolerance, the robo-advisor will ask you a series of questions.
- Last but not least, fund your account.
Yep. You’re done! You can then invest your money in the portfolio created by the robo-advisor using the information you provided.
Ultimately, investors who are looking to invest for the long term can find robo-advisors attractive alternatives to mutual funds and exchange-traded funds (ETFs).
14. Personal Loans
In contrast to credit cards, personal loans have a fixed term and a monthly payment schedule. In contrast to a credit card, you are not tempted to overspend with a personal loan because you can budget your monthly payment and only borrow as much money as you need. As an additional benefit, personal loans often have lower interest rates than credit cards.
Therefore, you may want to consider lenders such as Credible. Here you can compare personal loan offers from different lenders. Even better? When you fill out the application, you’ll receive real personal loan quotes in just two minutes.
15. Term Life Insurance
A term life insurance policy pays a death benefit to the beneficiaries during the term of the policy. The policyholder has the option of renewing the policy for another term, converting it to permanent coverage, or letting the term policy lapse.
If you want to compare policies, Policygenius is a great place to start. In addition, this site provides coverage for those who are over the age limit for other companies or have certain health conditions. As well as quotes for a variety of policy types, Policygenius offers coverage options up to $10 million, terms ranging from 10 to 40 years, and whole-life quotes.
16. Wealth Management Apps
In an uncertain world, keeping your finances in order is absolutely essential. With the help of wealth management apps, you can enjoy peace of mind.
With wealth management apps, you can boost your net worth and achieve your financial goals by providing comprehensive financial oversight and automating investment strategies.
Among them are Empower‘s no-cost budgeting app and its extensive wealth accumulation tools, retirement planning tools, and fee analysis tools. By connecting your bank accounts, credit cards, student loans, mortgages, and other budget line items, Empower gives you a comprehensive financial overview.
17. Personal Finance Books
Obviously, reading a book won’t literally build your wealth. You can, however, educate yourself about a variety of topics by reading personal finance books, such as investing, budgeting, mortgages, annuities, insurance, and retirement planning.
To help you get started, check out the following book suggestions we’ve put together:
- The Top 16 Financial Books of All Time
- The 10 Best Books For Saving Money
- 10 Retirement Books to Help Get You Prepared
- The 12 Best Personal Finance Books for the Savvy Reader
- The Best 15 Books on Frugal Living You Need to Read
Putting It All Together
With the right financial products and strategies, you can retire early and build extreme wealth. In order to achieve this, though, you’ll need a diverse mix of savings, investments, and retirement accounts, all tailored to your risk tolerance and financial goals.
At the same time, keep the following in mind:
- There is no “one size fits all” answer. Market conditions and individual circumstances greatly affect the choices of financial products and strategies. In some cases, suggesting specific products could be misleading as well as irresponsible.
- “Extreme wealth” is subjective and risky. Aiming for unrealistic wealth accumulation often involves high-risk investments that are likely to fail. Making responsible financial decisions and focusing on sustainable growth makes more sense.
- Early retirement requires careful planning. Taking early retirement requires substantial financial security.
Regardless, you can still build your path to early retirement and extreme wealth today.
FAQs
How can I get started with building wealth and retiring early?
Making a financial plan is the best way to start building wealth and retiring early. In addition to your investment strategy, your retirement goals should be incorporated into your plan. For help developing a plan that works for you, you should also consider working with a financial advisor.
How much money do I need to retire early?
Depending on your desired lifestyle, your expected retirement expenses, and your life expectancy, you will need a certain amount of money to retire early. However, saving 25-30 times your annual expenses is a good rule of thumb.
What are the best financial products to retire early?
The best option for you depends on your personal circumstances, risk tolerance, and investment goals, so there is no single “best” financial product for retiring early. There are, however, a number of popular options for saving for retirement, such as:
- 401(k)s and IRAs. The benefits of these accounts include tax-deferred growth and potential tax deductions.The benefits of these accounts include tax-deferred growth and potential tax deductions.
- Index funds and ETFs. These are passively managed investment funds that track market indexes such as the S&P 500. As well as being less expensive than actively managed funds, they can provide exposure to a diversified portfolio of investments.
- Individual stocks and bonds. Investing in these can be riskier than other types of investments, but they may also bring higher returns.
- Real estate. Investments in real estate can be a good way to build wealth over time, but they are generally illiquid and require a lot of money up front.
- Starting a business. It is very rewarding to own your own business, but it is also very risky and requires a lot of effort.
How can I start building wealth?
There are many things you can do to start building wealth, such as:
- Saving money. To build wealth, you must regularly save money. Putting away 10% of your income each year is a good goal.
- Investing your money. Over time, investing your money can help you grow your wealth. You should, however, research investments thoroughly and choose ones that are suitable for your risk tolerance and investment objectives.
- Paying off debt. Debt can be a major obstacle to building wealth. The best thing you can do if you have high-interest debt is to pay it off as soon as possible.
- Living below your means. Living below your means is the key to saving and investing more money.
What are some of the risks of investing?
Every investment involves some level of risk, with the greatest risk being losing money. Other risks, such as inflation and interest rate risk, must also be considered. Before investing, it is important to understand the risks involved.
Image Credit: Karolina Grabowska; Pexels
