Yahoo Movies What’s the Earliest You Could Retire?
Depending on the kind of work you do and other life goals, you may be hoping to retire as early as possible.
While smart financial strategies can make this possible, there are lots of important considerations to think through when trying to arrive at the earliest number, including how many post-retirement years you’ll have to fund and how purposeful you’ll feel.
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Financial experts explain what you need to think about in determining your own earliest retirement age.
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Focus On What You’ll Spend, Not Save
Chris Urban, CFP, RICP and founder of Discovery Wealth Planning, feels that people thinking about early retirement often focus on the wrong thing: what to save, and not what you’ll be spending.
“I think it’s wiser to focus on how much you are going to be spending in retirement,” he said, suggesting that building the biggest net worth won’t necessarily make you ready for retirement. “You could be worth $50 million and have a $49 million boat with no money to live on, or have a $1 million net worth but only spend $1,000 on expenses a year, have no mortgage, live in a low cost area and be living a great life.”
Other expenses to consider, according to Chad Harmer, managing director at Harmer Wealth Management, include leisure activities, long term care expenses, debts and a mortgage.
You need to consider the financial implications of your lifestyle goals, as well, Hamer suggested, which, for younger people, are likely to be wider and more varied than when you’re older.
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Simplify Your Budgeting
When you begin to put together a budget with early retirement in mind, Urban suggested you not get too granular with it, but simply arrange your expenses into big picture categories, unless you know you have wasteful spending habits.
“If you’re confident you’re not wasting money, you can estimate monthly living expenses into this fixed/discretionary bucketing system. That will help you look at the big picture,” he said.
Project What Will Change
It’s helpful to forecast whether things are going to stay relatively the same in retirement or if they’ll change, such as your living situation, for example.
“Do you plan to move, and if so, are you going to sell your house? What will you do for housing in the new state?” Urban asked.
You will also want to consider other important information, such as how taxes are different if you’re moving, or if there will be any life events or transitions that may result in movements of a large amount of money.
“Think through those bigger transitions where the financial implications could be more serious,” Urban said.
Consider Healthcare
Perhaps the biggest concern for people retiring early is healthcare, said Tyler Meyer, a CFP and retirement planner with QED Wealth Solutions and founder of the finance blog Retire to Abundance.
You can’t qualify for Medicare until you’re 65 or older, so an early retirement can pose a conundrum for that expense. For a couple retiring in your 50s, healthcare can run into several thousands of dollars per month for a couple, he explained.
He’s seen people figure out creative solutions, such as keeping their income as low as possible in order to qualify for affordable healthcare.
In another circumstance, “a client looking at early retirement got on a board of directors of a local utility company, which will provide him with health insurance,” he explained. “[With that] in place, that gives him the freedom to make that change.”
How Aggressively Should You Save for Early Retirement?
When you’re in the “accumulation phase,” of saving for retirement, Urban said you want to accumulate as much as possible.
The best ways to do this, he said, can be things like contributing to any employer-matching retirement plans to get that free money and to take advantage of health savings accounts.
Additionally, he recommended utilizing as many different kinds of retirement accounts as you can. “If you can build up assets in accounts with different tax treatment to healthy balances, it will give you the greatest flexibility in retirement as you start drawing down in a way that’s more tax friendly.”
Are you Over- or Underestimating Retirement Savings?
It’s also important to take a clear eyed approach to how much you’re saving, especially if you hope to retire early.
Urban said he finds his clients tend to underestimate what they have, sometimes because they’ve forgotten to calculate in Social Security or dividends from investments like real estate. But it’s just as important not to overestimate.
Consider Hybrid Retirement
Having enough income to live off for an extended number of years means that many early retirees may want to engage in what Meyer called “hybrid retirement,” which can be working part time or taking a few days off per week.
“It just makes so much sense to use [part time work] as a transition into retirement, especially if it allows you to delay pulling money out of those retirement accounts,” Meyer said.
In addition to income considerations, Meyer pointed out the many social and emotional factors tied in with a job.
“You can only play so much golf,” he said. “You have a desire for significance in your life. If you’re not retiring to something or actively going to contribute to the world, you’re going to be bored and feel purposeless in your retirement, especially if you’re young.”
As with most kinds of financial planning, it’s a good idea to seek the advice of a financial professional before you make any big moves.
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This article originally appeared on GOBankingRates.com: What’s the Earliest You Could Retire?
