People work because they like to work or because they have no choice. Some of them find work that they love, and at best, they may ease off on their workload because of other interests or commitments. Others work to earn money and build a nest egg for their later years. In either case, you can always pursue your dream of early retirement if you have prudently planned your finances.
How Do You Make Early Retirement A Reality?
How do we know when we have enough money to live on? This requires determining a reasonable estimate of how much money we will need after retirement, after adjusting for cost inflation, and the foreseeable future trends of the economy. While the economy and inflation are factors that can be uncertain, we can have greater control over our basic needs and even build a cushion for the extras.
We can start by understanding our present financial standing and then make a plan for early retirement. Ask yourself the below questions, and the answers should help you make a detailed plan to turn your dream of early retirement a reality.
Are You Debt-free?
Being debt-free means you have no future payments to account for in your budget. Therefore, ensuring that your debts are cleared has to come first. Your monthly expenses may need to be cut down drastically while you are still working so you can pay off your debts that much faster.
Have You Saved Enough?
Saving money towards retirement from the time you start working may sound a little restrictive. But, it is a sound step towards building enough savings to retire on. It’s an added incentive if you plan to retire early and pursue other interests. Whether you have saved adequately can depend on your financial needs post-retirement. Retiring before social security kicks in could mean that your savings should cover the expenses that would have otherwise been covered through your social security.
Is Your Healthcare Covered?
Healthcare is one of the most significant expenses and can make a deep dent in your savings unexpectedly as many people know since the ACA law went into effect driving up health care costs and limiting choices. Retiring earlier than the age when you become eligible for Medicare means having a backup for health insurance. There are two ways to achieve this. You can either go on your partner’s health insurance plan or get coverage through private health insurance. Starting a Health Savings Account (HSA) earlier would be helpful.
Can You Stick To Your Budget?
Retirees have to live on a fixed income, and it is usually lower than they had when they were employed. So, creating a reduced monthly budget and sticking to it is imperative. You may want to start this plan a few months before you retire to get into the habit. To be safe, have two lists drawn up: one that covers only the basic expenses that you can’t do without, and the other a slightly relaxed budget to include a few you don’t need but would like to have.
Some of us may manage to save substantially with a basic budget bringing the retirement age even closer. Others may desire a slightly relaxed lifestyle and may plan a later retirement. Regardless of the plan, a healthy financial lifestyle is one where you have a budget, and you cultivate the habit of staying within that budget.
Have You Made The Right Investments?
Fixed income post-retirement suggests that you aim to maintain rather than grow your income. This means that you must plan for lower-risk investments. While the returns may be lower, they are also less risky investments. Talking to a financial planner when you are still working and can make a few investments to help you later would be wise.
Do You Have A Plan For Unexpected Expenses?
If nothing else, the COVID-19 or Wuhan virus pandemic has taught us that life is unpredictable. Unexpected expenses may crop up post-retirement. It’s smarter to have a backup plan by either accumulating a few assets that can be sold for better returns or building them into your savings plan. You may still have to prepare yourself for taking up some part-time work that can tide you over.
Retirement brings about a profound change in our lives, no matter whether it happens early or late. It would be wise to think beyond financial security and include other retirement aspects such as the free time now that you are not working. Perhaps, a plan to occupy yourself with something you have always wanted to do but never could is in order? Having a backup plan for happy times post-retirement could be a poignant incentive to make you work towards early retirement.