BRONWYN L. MARTIN
As a financial advisor, I’ve seen firsthand how much planning it takes to retire early. Deciding to leave the workforce (and say goodbye to your steady paycheck) sooner than you previously planned can bring up a lot of considerations. If you’re intrigued by the idea of retiring early, read on for some suggestions on how to evaluate whether pushing up your retirement date is within your reach.
Describe your dream retirement. A realistic early retirement plan does not occur by chance. It requires careful planning and conscious action. Before you figure out how to make early retirement a viable option, take time to imagine what kind of life you want to lead when you leave your primary career. Where will you live? What kind of activities do you plan to carry out? These are the types of questions that will help you define what you want your retirement to be like.
Measure your target. Many retirees find that they spend more money in the early years of retirement because they have more time to travel and pursue hobbies. If this fits your retirement vision, be generous in your estimate of how much money you’ll need each year. Once you have an estimate of how much it will cost, you will be able to better map out the steps you need to take to save enough money to finance it.
First decide which source of income you will use. Once you know how much your early retirement will cost, you’ll want to determine the order in which you’ll make your investments. How much income you need, the tax treatment of your investments, and the timing of when you’ll receive Social Security are factors you’ll need to consider when planning how you’ll build your paycheck in retirement.
Adjust your savings and spending today. Once you have a clear idea of how much your dream retirement will cost, you can evaluate the potential trade-offs and sacrifices needed to make it happen. This will likely require reducing expenses while maximizing the amount you save.
Continue investing for growth. It is common for retirees to adjust their investment allocations to be more conservative to protect their principal from potential market downturns or increased volatility. While this may make sense to some, it’s important that your portfolio at least keeps pace with inflation. After all, retirement can easily last decades. Even modest inflation can have a meaningful impact during this time period. Including inflation in your forecasts can help you preserve your purchasing power throughout retirement.
Don’t ignore health expenses. Many retirees are surprised to see how much of their budget is devoted to medical expenses. Don’t be one of them. Make finding health insurance a top priority. And consider the pros and cons of purchasing long-term care insurance.
Be flexible. There are no guarantees in life or investing. Unexpected events can occur at any time, and many have financial consequences. Consider what your options might be if your savings fall short, such as setting your retirement date, spending it, or perhaps taking some of it away.[1]Do a full-time job and make sure you have the right insurance to cover your various assets.
Retiring early is a big dream. If you want help deciding whether pushing up your retirement date is realistic for you and how far, talk to a financial advisor. Together, you can review your goals, investments, risk tolerance, and other factors that will help you make retirement decisions with confidence.
Bronwyn L. Martin is a Financial Advisor and Certified Financial Advisor at Martin’s Financial Advisory Group, the financial asset advisory practice of Ameriprise Financial Services LLC in Kennett Square and Havre de Grace, MD. He specializes in fee-based financial planning and wealth management. strategies and has been implemented for over 23 years. To contact him: www.ameripriseadvisors.com/bronwyn.x.martin.
