Early retirement is the wish for many but is this pure fantasy or might it actually be doable? Here’s a list of 10 things to consider while planning early retirement.
- Have I saved enough?
Champagne taste on a beer budget? Maybe not. The key here is to understand how your nest egg—and other sources of income like social security and pensions—translate into a sufficient annual cash flow stream that you won’t outlive.
- Speaking of Social Security. Make sure you know what your estimated benefit is and that you have considered the optimal filing strategy for yourself and your spouse. You can get your estimate very easily at SSA.gov by clicking on “my Social security.”
- Have you been maximizing contributions to your retirement plans for a long time? This should also ensure you’ve received every bit of your company’s match, if offered. Free money!!
- Is, or has, your retirement plan been consistently invested for long-term growth? In fact, if you’re still decades away from retiring, you have the great freedom to not have to worry about markets tanking. A solid case can be made that the more markets tank, the better off you’ll be in the long run, considering you have accumulated so many low-cost shares and that markets long-term trend has always been up.
- Think about what you might want to be doing in this early “retirement.” Maybe you just want to take on a new kind of gainful employment that is much more enjoyable and satisfying—even if the pay is lower. Any earned income in your retirement will lessen the drain on your nest egg thereby increasing its projected longevity. Don’t overlook the benefits or part-time earnings either.
- The flip side to this equation is maybe your working days are totally over and you’ll be spending a whole lot more on recreation. Your retirement expenses might even be higher than those in your working days. Make an honest self-evaluation of your projected expenses part of your plan.
- Remember, there are a whole lot of hours in every day that need to be filled. I can promise you that actively “managing” your investment nest egg on a day-to-day basis will dramatically increase the likelihood that your retirement itself will come to a premature end. Find a healthy and productive hobby, or two!!
- Don’t try to create an investment plan that produces enough interest and dividends for you to live on so that you’ll never need to invade the principal. “But Andrew, isn’t that exactly what I’m supposed to do?” you ask. This is so common a “strategy” that I’d almost be surprised if prospective clients I’m just getting to know didn’t propose this. Great in theory, extremely unrealistic in practice!
- Don’t ever forget those dreaded “Miscellaneous” expenses. If you’re diligently putting together a budget that just barely reconciles, I can pretty much guarantee you it will fail due to the “Oh yeah, I never thought of that” items.
- Find something you love to do and you’ll never work a day in your life. Now you don’t even need to retire … Good luck all!