Do you dream of retiring before you turn 60? How about before you turn 50? If so, you might want to think twice as retirement without a goal can lead to regret.
If your heart is set on leaving work early, be sure you leave with the right mindset and the right estimation of your financial potential. Consider these items as a way to ensure that early retirement is the best option for you.
Retire with a realistic picture of your income needs.
In late 2006, the Center for Retirement Research at Boston College surveyed 400 private sector employers. Those employers estimated that 25% of their employees between 50 and 60 years old lacked the financial resources to retire even at the traditional retirement age. If you’re like most Americans, your retirement expenses will be roughly 75–80% of your pre-retirement expenses. So, you need to determine if the income derived from your 401(k), 403(b), pension, or other sources can generate that. Remember, you can’t receive any Social Security benefits before age 62.
Retire with the idea that you’ll live to be 100.
With recent advances in health care, you might become a centenarian. That means your income streams may need to last 20, 30, 40, or even 50 years. Any income streams that you have today may need to be supplemented or adjusted due to unforeseen needs and inflation. Many new retirees make the mistake of withdrawing income at too high a rate in the first few years after leaving work. They live “high on the hog” for a while, only to discover, to their chagrin, that their retirement nest egg is shrinking because they are spending more than their portfolios can earn back. Additionally, you may also have to pay for health insurance if you retire before age 65. All of this may point you in the direction of part-time employment rather than total retirement.
Retire with purpose.
Leaving work behind can be exhilarating. But after the first few months of fun, you may also face the question, “Now what?” Early retirement is better with a plan for purposeful and meaningful living regardless of your finances.
If you do a Google or Yahoo! search with the right keywords, you’ll come across a number of articles about people who chose to retire late. They kept working out of passion or necessity. If that’s not for you, and you don’t want to work much longer, contact one of our advisors at California Retirement Advisors for consultation, as they will take a look and see if you are financially prepared to retire.
How do you picture your future?
If you are like many people who are contemplating retirement, your view is likely more pragmatic compared to your parents. This doesn’t mean you must have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have lots of potential to design the life you want.
What do you absolutely need to accomplish?
If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a short list of life goals. While they may have nothing to do with money, the financial decisions you make may be integral to achieving them.
What would revitalize you?
Some people retire with no particular goals at all. Others are simply burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will pursue, and yet, when the time to do so arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.
In retirement, time is your most valuable asset. With more free time and opportunities for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before or motivated to work again in a new context.
How much will you spend?
We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. You can also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching landlines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales or making donations can have financial benefits while also helping you reduce clutter, either generating cash or a federal tax deduction.
How are you preparing for retirement?
This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with one of our licensed advisors will give you the confidence and knowledge to make informed decisions regarding your retirement that you can be proud of.
By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.