Retirement Strategy: Preparing to Retire Early
Do you dream of retiring before you turn 60? How about before you turn 50? If so, you might want to think twice before you make the move. If your heart is set on leaving work early, be sure you leave with the right mindset and the right estimation of your financial potential.
Here’s the good news: 79% of Americans are confident that they are on track with their savings and able to retire how and when they want.
However, despite this confidence, another study revealed that people actually have less than half of the recommended retirement savings. That’s only $71,500 (median amount) of the $286,400 that they should have by age 60.
Moreover, the soaring inflation continues to affect people’s spending priorities. In fact, the number of non-retired individuals saving for retirement is down to 63% from 93% pre-pandemic, as more reallocate their budgets to cover for the rising cost of living.
If you’re like most Americans, your retirement expenses will be roughly 75–80% of your pre-retirement expenses. So, you need to determine if the income derived from your 401(k), 403(b), pension, or other sources can generate that, while also factoring inflation into the equation.
Remember, you can’t receive any Social Security benefits before age 62, and even then it’s not advisable because you’ll get 25% to 30% less of the monthly amount you were supposed to get when you reach your full retirement age.
With recent advances in health care, you might become a centenarian. That means your income streams may need to last 20, 30, 40, or even 50 years. Any income streams that you have today may need to be supplemented or adjusted due to unforeseen needs and inflation.
Many new retirees make the mistake of withdrawing income at too high a rate in the first few years after leaving work. They live “high on the hog” for a while, only to discover, to their chagrin that their retirement nest egg is shrinking because they are spending more than their portfolios can earn back.
Additionally, you may also have to pay for health insurance if you retire before age 65. All of this may point you in the direction of part-time employment rather than total retirement.
Leaving work behind can be exhilarating. But after the first few months of fun, you may also face the question, “Now what?” Early retirement is better with a plan for purposeful and meaningful living regardless of your finances.
If you do a Google or Yahoo! search with the right keywords, you’ll come across a number of articles about people who chose to retire late. They kept working out of passion or necessity. If that’s not for you, and you don’t want to work much longer, talk to me, and we’ll take a look and see if you are financially prepared to retire. I’ll share my professional insight and discuss your options.
How do you picture your future?
If you are like many people who are contemplating retirement, your view is likely more pragmatic compared to your parents. This doesn’t mean you must have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have lots of potential to design the life you want.
With that in mind, here are some key things to think about.
What do you absolutely need to accomplish?
If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a short list of life goals. While they may have nothing to do with money, the financial decisions you make may be integral to achieving them.
What would revitalize you?
Some people retire with no particular goals at all. Others are simply burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special.
Others have known for decades what dreams they will pursue, and yet, when the time to do so arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.
You may want to revisit that shelved business plan and decide to finally open up your dream restaurant. If you have business in mind, then you should include your projected capital in the computation of your target retirement savings.
In retirement, time is your most valuable asset. With more free time and opportunities for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before or motivated to work again in a new context.
Who should you share your time with?
Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.”
Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).
Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers.” If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (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?
We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. You can also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit.
Ditching landlines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales or making donations can have financial benefits while also helping you reduce clutter, either generating cash or a federal tax deduction.
However, always remember that the quality of your life should not be compromised by your drive to save up for the future. Frugality is good but it is not the key to reaching retirement, building wealth is. If any, excessive frugality can bring about potential issues that may hurt not only your present, but also your future.
How are you preparing for retirement?
This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with a financial professional experienced in retirement approaches is a smart move.
There are many different methods of acquiring wealth and retirement strategies that will suit your financial goals. You have your 401(k)s, Individual Retirement Arrangements (IRAs), Keogh Plan, and more.
Deciding on your strategy is the defining point of your journey to retirement. It’s important to talk to a financial advisor you can trust so you can go from being “on track” to expecting a comfortable future.
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The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your financial advisor, attorney, or tax advisor. For additional information and disclosures, please visit our website at www.mbewealth.com. MBE Wealth Management, LLC is a registered investment advisor.
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