Retiring Early

Most of us fantasize about being able to retire at a young age. For a number of Americans, it is not just a fantasy, but a reality. A few even manage to do it by the time they reach their 30s. There are different ways that people approach an early retirement strategy, but one aspect is consistent for most – it requires careful planning.

The appeal of early retirement is obvious. Along with having more free time, fewer demands and reduced stress, you also benefit from the advantage of still being in the prime of your health. A benefit of leaving fulltime work well before a traditional retirement age is the ability to do more physically than if they wait until age 65 or later to retire.

Like most other aspects of life, one of the biggest concerns in plotting out an early retirement strategy is how to pay for it. This becomes even more significant when you consider that Americans today enjoy longer life expectancies than ever before. For instance, if you manage to retire in your 50s, you could easily spend three-to-four decades in retirement, possibly longer than the span of time you spent working fulltime.

Setting Priorities
One thing is almost certain when it comes to early retirement – you need to take action to make your dreams a reality. First, you must commit yourself to saving as much as you can during your working years in order to meet your financial goals for an extended retirement. The sooner you plan to retire, the more serious you need to be about saving.

This means making sacrifices in your current lifestyle: work hard, spend little, save a lot and spend wisely. The key is to stay out of debt except for a home mortgage, invest as much as possible and make sure both parties (in the case of married couples or partners) have a shared vision and commitment.

Plan for Your Dreams
Drawing up a financial plan that can provide a roadmap to early retirement may be one of the most important steps in the process. The more specific your plan can be about matters such as how much you intend to save from your current paycheck, how the money will be invested and an expected rate-of-return on your investments, the more helpful it will be. Determining how much money you will need in retirement is one of the biggest challenges. This is where the guidance of a financial advisor can make a big difference. You want to be certain you are realistic about the cost of living once you do retire.

For many people, expenses can easily be kept lower in retirement. However, those who want to take advantage of the free time to travel or pursue hobbies will be spending more on those pursuits in retirement than was the case in their working years.

As you grow older, healthcare costs become a major concern. This too will need to be accounted for in your planning process. So will the fact that inflation will eat away at the value of your savings. If the cost of living goes up by an average of 4 percent per year, your expenses will double in less than 20 years.

Keep in mind that if you retire before age 62, you will not have the option of tapping Social Security benefits until that time. Also, by not earning an income in the years leading up to a more traditional retirement age, your Social Security payments will be lower in the future, had you kept working.

The option of early retirement can be open to just about anybody, as long as you plan ahead. Some people manage to live on just a few hundred dollars per month once they retire. Most of us will need more than that, but early retirement is not just for the wealthy. A number of hard-working Americans who have been diligent about saving, wise with their investments and realistic about their lifestyle have managed to leave the working world behind at a relatively young age. They’ve begun pursuing the rest of their life while there is a lot of it left to live.

June 13, 2008