Early retirement – how to get there

beachchairA dream of many people is to retire early. Leaving the daily 9 to 5 grind at age 60, 55, or even earlier, and having the day and the rest of your life free to do as you please, is an appealing vision. But how do you actually get there? For most people there are ways to make the dream a reality, but it takes planning and some adjustments.

Money is the number one issue. Many retirees worry about not having enough to live on for the rest of their lives. Most private employers no longer provide pensions to workers retiring now. Social Security currently makes up the bulk or retirement income for over half of retirees, but it might not be enough to sustain your lifestyle.

The solution is either having more savings, or learning to live on less. In today’s low-interest environment, which many experts think might last for a while, just putting your savings in a CD or money market fund and living on the interest isn’t an option, unless you have lots of savings put away. So most people need a mixture of dividend-paying stocks, bonds, and savings accounts to provide both growth and security. The amount of funds you put in each category depends on your time frame and risk tolerance.

Money you’ll need in the next few years should go in conservative investments; money you won’t need for a decade or more can be put in equities. So if you’re retiring in your fifties and planning for a 30-year retirement, you can put the funds you’ll need in the first few years in bonds and CDs, and put the rest in stocks, transferring it later as you go along.

Plan your investments and withdrawals carefully

Some people feel compelled to take bigger risks with their savings in order to make up time. But this can be a losing strategy. Particularly in the first few years of retirement, a sudden downturn in the stock market can significantly derail your retirement plans.

By the same token, many people tend to spend more lavishly in the first years of retirement, because they feel they finally have time to enjoy that boat or pursue that expensive hobby. Again though, drawing down your savings early in retirement can force painful choices later on. You need to be prudent with withdrawals from your nest egg.

Lower your expenses or raise your income

Another option is to downsize your lifestyle. Many retirees are successfully doing just that, and living quite comfortably. Moving to a smaller, more inexpensive home, or even to a city or state with lower taxes and living expenses, might pay off in the long term.

Working part-time is a popular option. But depending on your location and field, you might have difficulty finding part-time work that fits your schedule and income needs. In addition to looking for steady part-time employment, you can also look for project-type jobs, where employers hire workers seasonally or for limited-term projects.

You’ll also need to take into account healthcare costs. These go up for many people as they get older. If you leave your job, you might also lose your health insurance and you’ll need insurance to bridge the gap before ou’re eligible for Medicare. The good news here is, with health care reform, you’ll likely find it easier than before to find affordable health insurance, regardless of your health condition.

 

 

 

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