Before you clock out for the last time and head for Boca Raton, we want to share some important information with you about retiring early. Early retirement may sound intriguing, but have you considered every detail? Assuming you have done some research yourself, you may have considered a financial advisor, top insurance companies, and a place of residence. It’s crucial to also include smaller, yet important, topics such as emergencies and family well-being must not be ignored.
So, before you get your heart set on early retirement, here are a few things you should consider.
What does it mean to retire early?
Most people consider retiring early to be prior to the time you’re eligible to access Medicare benefits at the age of 65. The IRS has granted some civil service employees, such as firemen and police officers, access retirement benefits early, penalty free.
If that doesn’t include you, we encourage you to read on. While the idea sounds great, you have to ask yourself why. So, why do you want to retire early? Some choose this route due to declining health or work ability, but others may want to be able to travel the world, or simply because they feel they can.
What to consider before you take on early retirement
If you want to retire early, you may have a general idea about what to think about and how to plan for it. However, you want to make sure you are considering every detail. Early retirement is not for everyone and there are a vast amount of concerns that should be considered first.
How do you plan to support your family?
Considering that you have planned this for some time, you may have a pretty good idea of how you plan to support your family by paying bills and saving for future emergency expenses. Since your Social Security checks will likely not be as large had you waited, you must consider other forms of income.
Your income could include your 401k distribution, passive income such as a rental property or return on investments. Just as you would if employed, plan to have an emergency fund of about three to six months of expenses saved up in case you find yourself in a bind. Keep in mind, you may still have parents that you are taking care of and children of your own. (More on that here).
Where will you get health care?
You likely had pretty good health coverage and possibly some subsidized premiums while in the workforce. When you retire early, you will have to cover that cost yourself for you and your family. There are many insurance companies to research and also examine the health exchange marketplace.
Thankfully, there are no restrictions on pre-existing conditions so you should be able to find coverage. Depending on your current health and your budget, you will want to pay attention to deductibles and premiums closely and not simply choose the cheapest option. This will be one of the largest costs you will face. If your employer won’t cover your health care insurance once you retire, finding affordable health insurance should be a top priority when determining if you can actually retire early.
How will you plan for financial hardships and emergencies?
Take a good, hard look at your liquid assets. If something devastating comes up, you will want to have a plan. As stated earlier, an emergency fund of about three to six months of expenses is a good starting point. In the event that things go south, determine what’s accessible to you so you don’t find yourself in a hole.
Where will you live?
Does the sale of your current house impact your retirement? Whether or not the equity in your house plays a role, make sure that you consider housing costs. If you plan to move, what’s the cost of living in the new place? Check out this list of the best and worst states to retire.
You have to consider the costs of home maintenance, utilities, internet, etc. Is where you want to live accessible via public transport or will you need a vehicle to get around? Gas costs and maintenance are also considerations when looking where to live. Do you have access to businesses that you need or do you have to travel farther for simple goods like groceries? What about important matters such as health care? Evaluating all of these factors will also help you determine if your living arrangements make sense for early retirement.
How will you stay healthy?
It is no secret that when some people retire, their health declines, sometimes rapidly. Without the connectedness of the workplace and the structure of the day-to-day, it can be easy to let ourselves slip. Considering is a daily schedule, healthy, planned meals, and plenty of exercise will help you stay healthy during early retirement. Keeping in mind, being healthy isn’t only physical, it is mental, emotional, and potentially spiritual. Keep connected to groups, churches, gyms or classes. Spend your time with like-minded people who share similar values and beliefs about money.
Having a health plan in place for your early retirement will ensure you stay sharp.
How will you spend your time?
You used to spend 40+ hours at work. Now what? Sure, it sounds tempting to relax and catch up on a television series, but that is not sustainable. Post-retirement depression is a real thing. Spending too much or too little time can drastically affect your well-being.
Finding a good balance between family, hobbies, and self-care is an important aspect of early retirement. And, remember, you will likely be dealing with this for longer since you are considering early retirement.
How will you find fulfillment and meaning post-career?
What’s going to bring you fulfillment after your career? As previously stated, keeping connected to local offerings is important. You may have been defined by your career for a long time. Make sure you have an idea of who you are or want to be now.
If you have a family, maybe your calling now is to be more involved with them, or maybe it is world travel and volunteering. Nurture your spark or sadly, it may extinguish.
If you have one, does your partner have the same goals as you do?
Nothing will hurt more than realizing you and your partner do not see eye-to-eye about early retirement. Finding common ground about goals is just as important as wealth management. If you’re a spender and your partner is a saver, you may have conflicting ideas on how much is needed to retire early. Also, your partner may not be ready to retire. How will you manage issues that arise with conflicting schedules?
Taking the time to discuss your goals and aspirations with your partner before early retirement will ensure you’re both on the same page.
The bottom line
Although it may seem ideal to exit the workforce early into retirement, there are many challenges that if not spearheaded, can often cause depression, financial distress, anxiety, and poor health. Making sure you have met frequently with a financial planner, set goals and considered the above obstacles, you can benefit from the fruits of your wealth management and retire early.
If you’re looking for an early retirement planning partner who can help you realize your financial goals, we have retirement planning offices in Redmond, Seattle, Mill Creek, the Tri-cities region, and Denver. Our firm focuses on helping retirees and those preparing for retirement achieve financial freedom by creating a plan that shows them how they can have the income they need and want until they turn 100.
If you’re ready to take the first step to achieving your retirement goals, our team is ready to assist you. We’ve helped hundreds of couples and individuals smoothly transition into retirement with confidence, and we’d like to do the same for you.