Early retirement is a remarkable achievement, but it is not for everyone.COVID-19 has had a tremendous impact on the economy, causing a lot of ambivalence in financial markets, and this includes retirement. Suppose you have been working for years at a dead-end job with no job satisfaction. In that case, it is easy to see early retirement as the natural solution, especially given how much pressure many people are under to work, make a living and pay the bills.
Still, the fact is that not everyone needs to retire earlier than usual, neither should they want to do so. The process of retirement is a very different route from the one that most people follow for a reason, and it’s not one that any of us should go down without being fully aware and prepared for the risks and potential pitfalls. Here are five things to think about when considering early retirement.
Figure out whether you are in a financial position to retire
A certified financial planner can advise you on how to run the numbers to see if you are financially independent, but if you are looking for a more straightforward way to assess your expenses, here is an example:
- Monthly expenses (including taxes): US$10,000
- Monthly income streams (pension, Social Security, etc.): US$4,000
- Monthly gap: US$6,000
- Annual gap: US$72,000
- Necessary nest egg to fund gap: US$72,000/.04 = US$1.8 million
This formula uses the 4% rule, which is by no means infallible. If you are significantly below the target, you need to minimize your expenses to consider yourself more financially prepared to retire.
Know what you spend money on
To comprehensively map out a retirement plan, it is crucial to have a solid grip on your monthly expenses. When you become a retiree, it is imperative to deliberately calculate your steps and know your income and expenditures are every month. The most crucial determinant factor of your ability to retire is the monthly expenses you have and if you will have enough money left.
According to experts, the most straightforward way to come up with an accurate monthly number is to take all debits from the bank accounts over two years and divide them by 24.
Online banking makes this process even easier. Expenses are an integral part of life, and there will never be a point in your life when you don’t have expenditures. It is essential to build this into your retirement budget.
Get serious about lifestyle changes
Making certain lifestyle changes could close the gap between the amount you need for retirement and the total amount that you are estimated to have in 10 years. Here are some things to consider:
Get out of debt
Debt sucks the fun out of retirement. It has the potential to keep you from enjoying the retirement of your dreams. As long as you have a massive amount of debt, you won’t be able to put away as much for retirement.
Lower your retirement budget
This means that you can make an active decision to live modestly by spending less than you earn. To do this, you can significantly cut back on extra expenses that could put a dent in your overall plans.
Retire later
A decade more on the job gives you ample time to save money, and it also gives your compound interest more time to work for you and accumulate.
Get a second job
Investing your time in looking for more work will give you the opportunity to beef up your savings and enable you to reach your overall goal much faster.
Envision what you want retirement to look like
To fully understand the extent of retiring early, it is essential to understand what an average day in your new retired life will look like. To be successful, it is imperative to note what activities you will do every day and how those activities will ultimately help you save some money down the line toward retirement.
What will healthcare look like?
Healthcare costs can be astronomically high. It is vital to seriously consider what healthcare will look like for you as you venture into retirement. To be successful at hatching out a good healthcare plan, it is imperative to map out a strategy that will cover premiums, copays and out of pockets costs. Whatever your overall objective is, it is important to think critically through your plans and consider what route you want to take to have good healthcare.
Have a tip or story? Get in touch with our reporters at [email protected]
