Sights Set On An Early Retirement? Here’s What You Need To Do Now
Posted August 16, 2021
If you have your sights set on early retirement, you’re not alone. According to Investment News, “of the roughly 70 million U.S. households with primary breadwinners younger than 55, 11.5 million are planning to retire early.”
If you’re one of these 11.5 million people, you may already be daydreaming of going on those vacations you never had time for, spending more quality time with your kids or grandkids, and giving up the 9 to 5 workday for good.
In between these dreams of what you hope for in your golden years, it’s important to ask the hard questions, too. Questions like, will you have the cash flow to cover your expenses and still allow you to live the lifestyle you’re dreaming of? Is your money in the right location (i.e., non-qualified accounts)? Do you know how you’re going to pay for health insurance? How will you produce an income from your current assets? And how will you realistically fill your days?
Thayer Financial is a fee-only Registered Investment Advisor and is prepared to help you walk through the retirement process and set up a comprehensive financial plan so that you can enjoy your retirement years worry-free.
The first step in creating your retirement plan is to decide how you will fill your time. You won’t be satisfied sitting on the couch all day, and eventually, the luxurious travels will become tiresome. Finding fulfillment and purpose in retirement is just as important as making sure your finances are in order.
Once you’ve determined what your lifestyle will look like in retirement, now you can set a budget that meets your needs and answer the remaining questions surrounding your retirement plan.
As you’ll see when setting your budget, the cost of living during retirement does not go down but can frequently increase. If you choose to retire early, it’s essential to keep in mind the implications that go along with that. Implications such as your retirement plan having less time to compound and your savings accounts and IRAs needing to stretch further.
Additionally, your Social Security benefits will not reach as far if you collect sooner, either. According to AARP, the average 2021 Social Security retirement benefit a person receives is $1543 each month. For a person who files for Social Security at full retirement age, the most the individual can receive is $3,148.
With this in mind, 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.”
Remember, healthcare expenses also increase with age. Making sure to plan for this increase, sometimes a four-figure monthly payment by age 55, is crucial in setting an accurate retirement plan.
Finally, once you have decided how you’d like to spend your time, set a budget, and accounted for healthcare costs, insurance, and other unexpected life events, it’s time to find your “retire-ability.” This 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.
One in six Americans are looking to retire early, but not everyone is preparing for retirement like they should. Asking these questions, estimating your budget, speaking with a financial advisor who has your best interest in mind, and understanding what you’ll need to do before you can retire early is critical.
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.
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