Tips to consider for early retirement1
Imagine never answering to a boss again or stressing over work deadlines. Imagine having the freedom to do what you want, whenever you want – because you’re retired.
Now imagine you’re only 50 years old!
Early retirement has long been the dream for many. And for many, it will remain a dream unless you hit the lottery or come into a significant financial windfall. For the rest of us, it will take a lot more than luck to retire early.
Early retirement requires significant, practical planning and discipline. And that planning needs to start as early as possible, so you can save enough financial assets that will last your lifetime.
If you’re having thoughts about an early retirement, here are a number of tips to consider before taking the big step:
Start Planning Now
The sooner you put a plan in place, the better your chance of achieving your dream. Try to imagine what you want to do in retirement, and what it will cost. Forecast a financial goal and monitor your progress toward achieving that goal. Keep in mind, if you retire at 50, you may need to provide enough income to support yourself for 40 years or more.
You may be young and healthy today, but you have no idea how you’ll be in 30 years. Keep health care costs and inflation in mind to fully understand just how much money you’re going to need.
Start Saving More Now
If you make sacrifices today, you might not have to make sacrifices after you retire early. Put yourself on a tight budget and stick with it. You’ll find extra money at the end of the month by taking a lot of small steps – like skipping that expensive coffee and making your own; or turning the heat down and grabbing that favorite sweater; or finding higher interest rate checking accounts – and you can put that money to work by investing it for growth. And be mindful of debt; you don’t want to take too much into retirement, especially high-interest credit card debt.
Create an Income Plan
In retirement, you won’t have a regular paycheck to rely on; it’s important to consider how you’re going to replace 75% or more of your last annual income – preferably beyond your stock and bond investments. In the U.S., Social Security will help, but if you retire at 50 you may not qualify for minimum Social Security benefits until after age 62; full benefits until after age 66; or maximum benefits at age 70.
You will be able to determine the annual income withdrawals your portfolio will allow. If it’s not enough to provide the quality of life you seek, consider enhancing your income with rental property or a part-time job in an area you’ve always wanted to explore, like becoming an adjunct professor at a nearby university.
Maximize Your Defined Contribution Plan
If your employer offers a defined contribution plan, maximize your contribution to take advantage of tax-free compounding. You’ll also benefit by receiving your employer’s matching contribution.
Invest for Growth
Early retirees have less time to save before exiting the workforce, so you want your money to grow as much as possible. You also don’t want to lose it. How to you balance both objectives? Work with a financial advisor and tell them about your goal to retire early. They can build you a portfolio of growth investments to and through retirement that are aligned with your risk tolerance and your timing.
Keep in mind, you may need to get used to some degree of market risk during retirement in order to make your assets grow and last.
Life Insurance for Early Retirement?
If you retire early and still have financial obligations to others, like your children; or if you have a mortgage and you want your family to be able to pay it off in the event of your death – you owe it to them to protect their future. Low-cost term life insurance gives you the protection you need at a cost that may fit into your budget. And some policies even come with benefits programs that offer discounts on household items to help you save even more.
1 Foresters, their employees and life insurance representatives, do not provide, on Foresters behalf, financial, estate, tax or legal advice. Individuals should consult their financial, estate, tax or legal advisor regarding their situation.
420727 CAN/US (06/22)