I want to retire early as a millionaire, so financial planners say I need to do 5 things right now to manage risk

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• I've been working hard to get my finances in order, so I asked financial planners what steps to take next.
• I need to diversify my portfolio and also make sure I have the right mix of investment accounts.
• As my income increases, I need to be wary of the temptation to increase my spending.

After spending most of my 20s making a mess of my finances, I've worked overtime to clean up my act in my 30s. I've started saving for retirement, putting cash into an emergency fund, investing in index funds, and sticking to a strict budget. 

I've also found myself obsessed with trying to retire before I'm 50, and as a millionaire. Since I'm less than 16 years away from that time, and my net worth is nowhere near seven figures, I'm actively doing what I can now to make that goal happen. Even though I'm investing, saving, and working on bringing in new income streams to grow my net worth, I'm scared of something unplanned happening that will push me further from my overall plan.

To make sure I'm managing as much risk now as possible, here's what financial advisors say I need to consider if I want to retire early as a millionaire. 

1. Continue to diversify my portfolio

I started investing in index funds, individual stocks, and cryptocurrency a few years ago. As I continue to grow my investment portfolio, financial planner Evon Mendrin says it's a good idea to diversify it even further to help with risk.

"Concentration drives wealth-building, and diversification helps protect it," says Mendrin. "It usually takes a concentration in your career or investments to build enough wealth for early retirement — putting all of your time to be the best in one profession, or benefiting from company stock options."

Mendrin recommends investing in thousands of stocks in the U.S. and across the world (such as through index funds or exchange-traded funds) instead of in a small number of companies, and having the right mix of stocks, real estate, bonds, cash, and other assets to build wealth for retirement.

2. Address any debt 

As I work hard to save and invest, one thing that could get in the way of my millionaire retirement plan is taking on too much debt.

Financial planner Jay Zigmont says that if you can pay off all of your debt (including your house), then retiring early becomes much easier since you can put more of your income into investments.

3. Secure the right insurance 

When planning for the future, it's easy to forget what we need right now to handle any potential financial emergencies. This is why Zigmont says it's so important to make sure you have the right insurance in place.

"Many people do not think about insurance until they need it, which may be too late," says Zigmont. "Make sure you have appropriate coverage on your home and cars, including an umbrella policy. Make disability and health insurance a priority. By the time you reach 50, either have a plan for long-term care out of your retirement funds or a long-term care insurance policy in place."

4. Have 3 different kinds of investment accounts 

In addition to diversifying investments, financial planner Lauren Anastasio says you can reduce the risk associated with changes in the tax code, which will undoubtedly occur between now and your retirement, by having investments in three different types of accounts: taxable, tax-deferred, and tax-free growth.

"A taxable account is one that is not designated for retirement, like a personal brokerage account, which you can make penalty-free withdrawals from at any time," says Anastasio. "A tax-deferred account is one that often receives tax-deductible contributions but taxable withdrawals during retirement, like a pre-tax 401(k) or traditional IRA. A tax-free growth account would be a Roth 401(k), Roth IRA, or HSA."

This strategy allows you to pick and choose which accounts you draw from before and during your retirement to maximize your income, reduce your tax burden, and ensure continued growth of your money.

"Working with a tax advisor can help you be strategic about when and from which account to pay yourself in retirement to vastly reduce your tax bill," Anastasio adds.

5. Don't spend more as you make more 

As you get closer to retirement or you find yourself in a position of making more money, financial planner Charles H. Thomas III says to beware of lifestyle inflation, since it's a risk that can throw your plans off track. 

"When you get a raise at work, it's tempting to spend that raise on a more comfortable lifestyle," says Thomas. "Instead, think about how part of your increased salary can be saved or used to pay down some debt. Over time, the habit will get easier and you'll still have a comfortable lifestyle."

This article was originally published in May 2022.