1. Know how much you'll be spending each year
This is the foundation of building a strong retirement strategy. When you know what you're spending each year, you can better estimate how much money you'll need to save to last the rest of your life. Then, with that number in mind, you can determine the amount you should be saving now to reach that goal by your desired retirement age.
Rather than taking a wild guess at how much you'll spend each year during retirement, really think about your future costs. Do you plan to travel a lot in retirement? Do you have a long list of home renovation projects you want to tackle? Or do you plan to spend most of your time catching up on your reading and enjoying time with family? Your costs in retirement could be similar to what you're spending now or vastly different. But you won't know until you create a rough budget to estimate your future spending.
Once you have this number in mind, subtract the amount you expect to receive from other sources of income (Social Security benefits, a pension, etc.) to figure out how much of your retirement income will need to come from your savings. Keep in mind, though, that you can't claim Social Security until you're at least age 62, so if you retire before that, you won't be able to depend on that income quite yet.
Next, run your information through a retirement calculator to see how much you should aim to save by retirement age. From there, your results will give you an estimate of your overall retirement savings goal, as well as what you'll need to save each month to achieve it. Also, remember that if your employer offers matching 401(k) contributions, those should factor into your monthly saving goal too -- meaning you may not have to save as much on your own as you think.
In our next step, we will discuss the second step you need to take to prepare for an early retirement.