For many Americans, early retirement may seem more like a dream than a reality. Sure, it would nice to be able to eliminate the stress of working - but is it possible? While retiring early is no small feat, it may be possible for some careful savers. However, it requires a thoughtfully implemented long-term strategic plan – you can’t wait until you are near retirement to begin planning for it. The 5 signs below may indicate you are ready to leave the work force sooner than you may think.
You are prepared for "life after work"
To many workers, the term retirement may have a negative connotation. Instead, it may be helpful to think of it as "Life after work". Do you have a plan for living a fulfilling life when you are no longer working? How will you use the additional time you have? Too often, people stop working and think to themselves "now what?" Remember, time may be your greatest resource and having a plan for the things you want to accomplish is critical. Being emotionally prepared for this transition may be made easier by designing and planning your ideal life. Consider establishing yearly goals for the things you want to pursue after working. In the same way you may have had measurable corporate goals, consider developing your own set of personal goals each and every year. As they say – what gets measured, gets done.
You have few liabilities
Nothing derails an early retirement plan more than being saddled with debt. From mortgages and home equity loans to credit cards and student loans, paying off liabilities is critical. Consider thinking of debt in this way – would creditors approve you for the debt that you currently have after you retire and no longer have income coming in to support making payments? For many retirees, the answer is no. Thinking that it is possible to handle debt payments without employment income could compromise your financial position in the future. Eliminating most, if not all of your liabilities may make early retirement more feasible.
You have a solid budget
Consider developing a post-retirement budget and simulating retirement before you make the transition. Be sure to properly account for inflation as this is often overlooked by those preparing to retire. This may also help to identify expenses that need to be reduced including the need to downsize or relocate to a more affordable state. Developing a realistic, workable budget for retirement while simulating the impacts of a decline in your employment income may help provide clarity on how retirement may look before you get there.
You are only financially responsible for yourself
It may be hard to be financially independent when others still depend on you financially. Did your children “boomerang” back after leaving the nest? Are you financially supporting elderly parents? Are your adult children going through financial changes such as the loss of a job or divorce and you have had to step in to support them? Retirement, let alone early retirement is challenging enough and additional financial obligations may necessitate the postponement of retirement. Having financially independent family members may enable you to focus your financial resources on meeting your needs, ultimately making early retirement more realistic.
An obvious component of a successful early-retirement plan is to maintain a continuation of income after you are no longer working. The fact is, without a multi-faceted income stream the odds may be difficult to overcome. Do you or your spouse have a pension you can rely on in retirement? Have you accumulated a diverse portfolio of investments that can provide the income level necessary to pursue your goals in good economic times and bad? Do you have rental properties, part-time consulting work or other entrepreneurial activities that may generate income in the future? Simply relying on social security alone may not be feasible and developing income streams from diverse sources can help. Additionally, consider utilizing income sources that are designed to outpace inflationary pressures.
While pulling off an early retirement plan is no easy task, a solid financial foundation coupled with careful planning may help you pursue your long-term goals. Since everyone’s situation is unique, consider speaking to your financial advisor to determine if early retirement might be feasible for you.
Kurt J. Rossi, MBA, CFP®, AIF® is a CERTIFIED FINANCIAL PLANNER & Wealth Advisor. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com, www.bringyourfinancestolife.com & www.Independentwm.com. LPL Financial Member FINRA/SIPC.