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Smart Planning for Early Retirement

Posted April 21, 2021

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Thinking of early retirement? It sounds like a dream come true if you are hoping for it; conversely, life might put you on the path to retire earlier than you anticipate. The timing of your retirement is a factor you will want to plan for carefully. Do you have enough money in savings? Have you thought through when you will draw Social Security? Could factors outside your control threaten your new retiree lifestyle? While thinking of the benefits you will enjoy in early retirement, you must weigh your financial outlook to determine how early retirement can work for you.

Retiring Early

Seniors looking forward to retirement have a world of options to spend their newfound freedom. Deciding how you will fill your time is the first step of your early retirement plan. Will you be spending time with family, volunteering for an organization, or pursuing a hobby? Then, knowing what your lifestyle will look like, you will want to create a budget around it.

Your budget should include detailed amounts, including one-time expenses like travel and repairs and how much you can fund from savings and investments. Contrary to what you might think, expenses do not decline in retirement; they grow with new time to spend and more enjoyable experiences. When you retire sooner, your retirement plan has less time to compound. To meet more years of your needs, your savings accounts and IRAs must stretch further.

Your Social Security benefits will not reach as far if you collect sooner, either. Waiting a few years to retire is often to your advantage. Taking benefits at 62 rather than 67 lowers your benefits by 30%. Waiting until 70 grants you a 24% increase over the benefits you receive at “full retirement age.” If waiting to collect is just not an option, married couples often find an advantageous strategy is staggering benefits. Your money will last longer if one partner delays taking their benefits.

Traveling in retirement

Healthcare expenses, unfortunately, also increase with your age. If you retire before you are eligible for Medicare at 65 and your former employer does not offer a plan to retirees, the health insurance coverage will be a costly added expense. Health insurance rates increase dramatically over the years and can reach a four-figure monthly payment after 55.

Once you have pulled together all the numbers in your budget, your “retire-ability” can be estimated with a common rule of thumb. The 25x Rule is calculated by multiplying your estimated annual retirement income by 25. As explained by Forbes Advisor, your combined amounts in savings and investments should meet or exceed this number to support your retirement expectations. Even then, be aware that factors outside your control, like rising inflation or low investment returns, can throw off the best estimations.

Like the changing weather, planning for early retirement is like preparing to enjoy a sunny day but carrying an umbrella when it inevitably rains. A key strategy in setting up your financial situation is acknowledging there will likely be a time to adapt and plan resources to address the unexpected. As a result of factors beyond your control, it might be necessary to adjust your spending habits, rely on additional savings, change your lifestyle, or pick up a part-time job. By being practical about your financial situation and planning on a future willingness to adjust, you minimize your reliance on factors you cannot control to retire early and confidently.

Thayer Financial is ready to advise you on your early retirement options from the perspective of comprehensive financial planning. As financial advisors in Hickory, North Carolina, Thayer is your dedicated resource for fee-only, fiduciary advice. Schedule an appointment or call us today.

Thayer Financial, L.L.C. (“Thayer Financial”) is a registered investment adviser offering advisory services in the State of North Carolina and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This website’s presence on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Thayer Financial in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or according to an applicable state exemption.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Thayer Financial, L.L.C., unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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