Early retirement planning: Helpful tips
Ending full-time employment before the full retirement age is a mixed bag. The major benefit is that the liberty, but with that comes a higher longevity risk.
Living for a longer period without full-time employment creates certain challenges that can be dealt with through proper planning.
Early retirement planning also gives individuals an opportunity to attain financial independence earlier. The following planning tips can help with that goal.
Quick debt elimination or reduction
Before you can accumulate wealth, you must ensure that you are not in the red. Early retirement suggests that should eliminate or reduce debt at a faster rate. Often, completely eliminating debt before retirement is unlikely. However, debt can be a burden which can jeopardize your dreams of retiring early or make you suffer financially because of that decision.
Do a robust retirement calculation to estimate your needs
Regardless of how early or late you plan to retire; you should undertake a retirement calculation. This needs assessment should tell you how much you need to save now; how much you should spend in retirement; and the impact of inflation on your retirement fund. Conducting a post-retirement analysis to determine how long your money would last can also help you to evaluate/re-evaluate your goals.
Obtain lifetime medical coverage
Medical or health coverage is necessary to protect your life savings from unforeseen medical expenses. It also affords you far better coverage than you may have been able to afford on your own. When planning to retire early, your life savings are more vulnerable since early retirees spend longer periods of their lives in retirement. In addition, as you get older, more health ailments are common. Protection products – especially health coverage – are even more critical in an early retirement plan.
Place emphasis on capital growth
The dream of any retiree is to have a retirement fund that is impervious to the depleting effect of poor spending, hefty medical bills or inflated living expenses. Saving alone cannot help you to accumulate a fund adequate enough to do all of that; capital growth is mandatory. Investing in growth options not only ensures better accumulation before retirement, but also protects the real value of your initial investment.
How to Retire Happy, Wild, and Free offers inspirational advice on how to enjoy life to its fullest. The key to achieving an active and satisfying retirement involves a great deal more than having adequate financial resources; it also encompasses all other aspects of life -- interesting leisure activities, creative pursuits, physical well-being, mental well-being, and solid social support.
Allow pension plans/ annuities to mature beyond your retirement age
Withdrawing from annuities and individual pension plans at the time of early retirement may be a bad idea. This is because shorter accumulation periods do not help with compounded interest. In addition, annuities have lower annuitization rates at earlier ages. It is usually more advantageous to annuitize pension plans in stages or until you really need them.
Early retirement planning merely increases the importance of proper financial planning. Other tips for retiring early include the basics for sound retirement planning:
a) Maximize employer's pension/ savings plan – this would give individuals increased returns on contributions, since contributions are normally matched by employers.
b) Diversify your income – this involves having money work for you and creating multiple retirement income streams.
c) Incorporate prudent financial management tools and concepts – these include, but are not limited to, budgeting, financial goals and portfolio diversification.
Those who plan to retire early should be more deliberate, meticulous and disciplined. Strict adherence to financial and retirement plans are crucial in overcoming several disadvantages of early retirement.
Mary Lloyd lays out a whole new paradigm for doing this and shows you how to assess what you really want and need--physically, mentally, emotionally, and spiritually--to make retired life the most rewarding time of all. Supercharged Retirement will help you conquer the emotional and personal challenges of stepping out of the workforce with solutions that work specifically for you.
Related hubs on retirement
- Early retirement: The disadvantages of retiring early
While the definition of retirement is changing somewhat, early retirement refers to situations where persons retire before the mandatory age and without alternative employment. As one can imagine, there are several disadvantages of this move.
- Retirement calculations: Determining how much you'll spend in retirement
Estimating how much you may spend in retirement is vital in estimating how long your retirement savings will last. This information facilitates planning and would leave individuals in a better position to cover future expenses adequately.
- Retirement risks: How to protect retirement income from inflation and tax risks
Inflation and taxation erode your income at any stage of life. With retirement income, particularly fixed income, the effects are far more significant.
- Retirement risks: A comprehensive overview
For some retirees, retirement is an era of hope and fulfilment. For others, it is a minefield, littered with risks and pitfalls. The difference between the two groups is that one manages the risks of retirement far better than the other does.
More by this Author
In broad terms, inflation is the general increase in prices because of a change in the money supply or the availability of goods. It is not merely a macro-economic concept, since it is relevant to the finances of...
Retiring early is not a decision to take lightly. You should only consider early retirement when you consider how the retirement risks will affect you.
Using standard costing has inherent merits and demerits. The demerits include limitations of the model, lack of accord over how it should be used and a potentially negative effect on the workforce.