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- If you want to retire early, start early and look at your expenses, income, and assets.
- How long you have to retire depends on when retirement occurs, and it may be worth waiting a bit.
- Your savings plan should include short-term, medium-term and long-term investments with varying levels of risk.
When I first read “Your money or your life,” It changed the way I think about money. But I didn’t pay much attention to the second half of the book, which lays out his plan to retire early.
Withdraw money? This is something others do!
But over the years, retirement has become more attractive. Lately I’ve been thinking about what early retirement might look like. I spoke with certified financial planner Bryan Cannon, CEO of Cannon Advisors and author of the book. “Unplanned Withdrawal” To get early retirement advice.
The first step is to start planning early
Of course, the first step is the same as the first step to a good retirement at any age: Start planning and saving early. “The best candidates are the ones who plan it well in advance,” says Cannon. He suggests starting with “a good accounting of expenses in relation to income and assets.”
“First you need to determine your goals,” he said. “Make them realistic for your situation.” A longer retirement may involve making some lifestyle changes. For example, if you are an avid traveler, can you continue this into retirement, or would it make more sense to scale back?
I’m calculating what I need for retirement
There are various figures floating around about how much you should save for retirement, often in the millions. A retirement calculator can help you understand your plan.
But Cannon noted that the amount you need in savings depends on your situation. “Pensioners can retire at the age of 55 and there is no cut in their income,” he said. Real estate and other assets are possible sources of income to fund early retirement.
Cannon said many of his clients who are ready to retire around age 60 are postponing their retirement dates to take more advantage of government benefits like Social Security. Most people can start collecting Social Security at age 62, but if you wait, your monthly benefit increases and reaches the maximum for those who start claiming at age 70.
Health insurance is another consideration. “The majority of people who are considering early retirement are stuck with Medicare because of healthcare costs,” Cannon said.
3 bucket plan
Cannon suggested creating an emergency fund to deal with sudden expenses like a medical event or home or car repairs, which is the foundation of your retirement plan. Keep at least three to six months of living expenses in a liquid investment for it to grow.
This prevents you from making an unplanned withdrawal from your investment account; This can result in a high cost if you have to withdraw funds during a market downturn.
Beyond that, Cannon outlined a retirement plan that includes three investment packages. The first bucket is short-term investments, meaning money you’ll spend in the next three years. It should be very liquid without much volatility. There won’t be much growth in this bucket either.
The second part is medium-term investments; It is the money you will withdraw three to five years in the future. When you withdraw from your short-term account, you replenish it with money from the medium-term fund. These investments may carry slightly more risk but also higher potential returns.
The third bucket is the growth bucket. You can take more risk and earn more profit because you will not use these funds for at least five years. You can fund early retirement by rotating money between three buckets.
When you need to retire early
Sometimes early retirement is not a choice. Injury, illness or an ill-timed job loss forces many people into retirement before they are ready. Now is the time to create your retirement plan.
“You can’t stick your head in a hole and assume everything is going to be okay,” Cannon said. “Not having a plan is still a plan, just not a good plan.”
He noted that there are many ways to earn extra income during retirement that weren’t possible even a decade ago, such as renting a spare room on Airbnb, renting garage space or selling through an online marketplace.
Last tip: Pay off your debt. “The most successful people come into retirement debt-free, have a budget and stick to it,” Cannon said.
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