Did you know that Americans typically retire before the age of 65? But what’s surprising is that it isn’t because their finances are in such good shape that they can afford to do so.
The median retirement age is 62, and the main reason retirees stop working early is that they have to. Health issues, a disability, and factors outside their control are the main reasons Americans retire early, according to a recent survey from the Employee Benefit Research Institute.
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Ideally, people would be retiring early because they can afford to do so, not because they’re forced due to factors they can’t control and that may result in more stressful retirement years. One way you can put yourself in a stronger financial position and retire early because your finances allow for it is by investing your savings. And there are two exchange-traded funds (ETFs) that can help you with that: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Vanguard Total Stock Market Index Fund ETF (NYSEMKT: VTI).
A fund that mirrors the S&P 500 (SNPINDEX: ^GSPC) can be a great investment, since it will give you exposure to the best stocks on the market, including Apple and Microsoft. And the Vanguard S&P 500 ETF has a light expense ratio of 0.03%, which ensures that fees aren’t eating up a big chunk of your gains. With a median market cap of more than $260 billion, you aren’t taking on a big risk with volatile investments in this type of ETF, which is why it can be ideal for long-term investors who just want a fund to put money into on a regular basis.
Over the past decade, the fund has achieved total returns, including its dividend, of around 250%. That averages out to a compounded annual growth rate (CAGR) of 13.4%, which is higher than the S&P 500’s long-run annual average of around 10%. In the long run, that rate may come down, especially with many growth stocks trading at elevated levels right now. However, with some excellent diversification and room for the fund to help you achieve significant long-term returns, this can make for a solid investment that can help you retire early.
A more diverse fund to hold is the Vanguard Total Stock Market Index. It contains more than 3,600 stocks and also has a low expense ratio of 0.03%. By giving investors exposure to large-, mid-, and small-cap stocks, there’s even less risk to individual stocks than with a fund that mirrors the S&P 500.
