Most people consider 65 as the age of retirement, but you don’t have to wait that long. If you’re ready, you could retire before you turn 60, or even before you turn 50. However, before you take the first step toward retirement, it is incredibly important to be sure you are leaving the workforce with the right mindset and the correct estimation of your financial potential.
Retire with a realistic picture of your income needs.
A common mistake made when preparing for retirement is assuming that your daily expenses will reduce by more than half of what they are currently. The truth is, if you’re like most Americans, your retirement expenses will still be roughly 75–80% of your pre-retirement expenses.
Your financial professional can help you determine if the income derived from your 401(k), 403(b), pension, and/or any other sources can generate that. Remember, you can’t receive any Social Security benefits before age 62.
Retire with the idea that you’ll live to be 100.
With recent advances in health care, it is very possible you could become a centenarian. That means your financial situation needs to support the next 20, 30, 40, or even 50 years after retiring. Any income streams that you have today may need to be supplemented or adjusted due to unforeseen needs and inflation.
There is nothing wrong with enjoying the freedom and potential of retired life, but many new retirees make the mistake of withdrawing income at too high a rate in the first few years after leaving work. They discover quickly that their retirement nest egg is shrinking because they are spending more than their portfolios can earn back. Additionally, depending on your situation, you may have to pay for your own health insurance if you retire before age 65. For these reasons, it is important that you and your financial professional create a long-term strategy for your finances.
Retire with purpose.
Leaving work behind can be exhilarating. As previously mentioned, retired life is full of potential for crossing off “bucket list” items and seizing opportunities. But after the first few months of fun, you may also face the question, “Now what?” Regardless of your finances, early retirement is better with a plan for purposeful and meaningful living.
An internet search with the right keywords will provide a number of articles about people who chose to retire late. They kept working for one reason or another, sometimes out of necessity, but just as often out of genuine passion for their field. If you do not fall into this category, and you feel certain that the timing is right for your early retirement, your next step should be to schedule a meeting with your financial professional.
How do you picture your future?
On a related note, if you are like many who are contemplating retirement in the current economic climate, your view is likely more pragmatic compared to your parents. That doesn’t mean your retirement lifestyle must be plain, boring, and unfulfilling. Even if your retirement financial situation is not where you would prefer it to be, you still have plenty of potential to design the life you want.
With that in mind, here are five important questions to ask yourself about your future:
What do you absolutely need to accomplish?
If you could only get four or five things done in retirement, what would they be? It is likely that at some point in your life, you have created a shortlist of life goals, and preparing to enter retirement provides a perfect opportunity to create a new list. These goals might not directly involve money but they will provide a framework for you and your financial professional to work with when considering your future financial needs.
What would revitalize you?
Some people retire with no particular goals at all; some are simply burnt out by their current lifestyle. Inevitably, their ambition returns after weeks or months of rest and they start to imagine the adventures they could pursue to make these years special, either lifelong dreams or new passions. In retirement, time is your most valuable asset and you get to decide how you spend it.
Who should you share your time with?
This might be one of the most profound choices you make in retirement. The quick, obvious answer for many would be “family,” though who that entails can be very different in today’s world. Some have nuclear families, blended families, extended families, and for some, they consider their friends or even employees to be their family.
The freedom of retired life includes spending more or less time with your family, but regardless, you probably don’t want to spend your time around “dream stealers.” If you have a grand dream in mind for retirement, you may encounter people who complicate it or urge you not to pursue your passions - hopefully, these people are not in close proximity to you. Reducing their psychological impact on your retirement will increase your happiness.
How much will you spend?
Just like pre-retirement, you won’t be able to control all your expenses, but you do have the choice for some ways to cut down spending. You may have already considered how you can downsize: losing one or more cars (including the insurance costs of them) and relocating somewhere with an extensive public transit system; ending landlines and/or cable TV (or at least the premium package if keeping cable is important to you); clearing overall clutter through garage sales or donations can have financial benefits as well, either through sales or a federal tax deduction.
This article is for informational purposes only and is not a replacement for real-life advice, so always be sure to discuss your personal situation with your financial professional before making any huge decisions.
How are you preparing for retirement?
This is the most important question of all. If you feel like you need more preparation for the future or have had to reexamine your existing strategy in light of recent changes in your life, it may be that early retirement is no longer the correct path for you.
Your financial professional can help you decide if retirement is in your near future and create the best strategy for getting your life where it needs to be for retired life, whenever that may be.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.