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Should You (Plan to) Retire Early and If So, What Do You Need to Plan?

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Why Do You Want to Retire Early or Dare I Ask at All?

The answer could be that you’ve had a series of jerk bosses and want to be done with working for them.

Or your boss has you working 60 hours a week, but only pays you for 40 and even that at miserly pay.

It could be your stress level at work is through the roof and it’s affecting your health and your family.

I’m sure there’s any number of other possible answers.

What Does Retirement Mean for You?

Most people I talk with say that it’s not having to work anymore and having lots of free time to do whatever you want.

But does that automatically equal never working again on anything?

Could you imagine a life where you don’t have anything fulfilling and satisfying that gets you out of bed in the morning? Where if you disappeared off the face of the planet, nobody would notice, except perhaps your kids, grandkids, and maybe the few friends you still get together with?

Would you still call that a life or would you call it existence? Waiting to die?

As I’ve written elsewhere, I much prefer the thought of being able to retire, rather than actually never working again.

Once you achieve that financial independence, you have enough money to live a satisfying and fulfilling life where, rather than doing nothing of note, you get to concentrate on doing things that light you up and make you happy.

You may indeed work fewer hours than you do now, but to be truly happy I believe most of us need to feel productive. That our existence still matters. True happiness stems from two things: relationships with people who matter to you and having a sense of purpose.

This is why it matters every bit as much that you plan your “retirement” as a time of renewed purpose and connection as planning the financial aspect of how you can get there. Money is the tool that opens up more possibilities, but without the blueprint of how you’ll use that tool, you’ll never create that masterpiece life you’d so enjoy.

How Do You Know If You’re Ready to “Retire?”

That’s a big question so let’s break it down into manageable pieces. First, the standard financial aspect.

  1. Have you created a budget for your next chapter?
  2. If yes, have you included sufficient insurance coverage for catastrophes? Things like homeowners insurance, auto insurance, umbrella insurance, etc.?
  3. Have you considered contingencies and made sure your financial plan can survive them? These could be having a market downturn right after you stop collecting a paycheck or a major house repair or a medical emergency. For each such contingency, you need to make sure you have a plan on mitigating the financial fallout without derailing your plan. Options could include identifying budget items you’d be willing to temporarily reduce or cut out, downsizing your home, moving to a less expensive part of the country (or world), etc.
  4. Have you budgeted for health insurance and medical costs such as premiums, copays, coinsurance, and deductibles up to the out-of-pocket maximums? Even if you’re eligible for Medicare, that typically covers about half of retirees’ health-related expenses. If you’re planning to retire earlier, you’ll need to buy private insurance, which may be very expensive. Make sure you research those costs and budget for them. Also, consider what you’d do if those costs double. Our private health insurance premiums more than doubled in 3 years.
  5. Have you considered that property taxes tend to increase every year and even if your state limits it to no more than 10%/year, they could still increase more than 10-fold over 25 years?
  6. Once you have a budget ready that includes risk mitigations and contingency planning, do you have enough sufficient passive and semi-passive income to cover that budget along with the taxes you’ll have to pay? You could consider if moving to a different state or even country will make that easier to achieve. However, keep in mind that moving away from family may require a higher travel budget if you want to be able to see them. Keep in mind that if you retire early, you won’t be able to count on Social Security benefits for years or decades (depending on your age). The sources of this income could include:
    • Harvesting part of the returns (capital gains, dividends, interest, etc.) from investments in stock and bond mutual funds and/or exchange-traded funds (ETFs). The remainder of those returns (on average over time) will need to make up for the effects of inflation.
    • Profits from rental properties. Consider if you shouldn’t hire a property manager to avoid having to deal with all the hassles of finding and vetting renters, carrying out repairs, and hopefully not, but possibly evicting tenants who breach their lease.
    • Royalties or other income from writing (e.g., Medium’s partner program).
    • Affiliate marketing.
    • Social Security (once you reach at least age 62, and preferably as late as age 70).
    • Other income streams you may have built up.
  7. Have you created a plan on how you’ll draw money from your investments slowly enough that you never run out even if you live far longer than the actuarial tables show? Keep in mind that life expectancy at a given age means that half of the people that age live longer! Do you really want to bet on dying on a schedule? If you die with a lot of money left behind for your kids, I doubt you’d mind that too much. If you end up living past the point where your money runs out, that would be extremely unpleasant (how’s that for an understatement?). Since your chances of spending your last dollar on the day you die (short of committing suicide on that fateful day) are between slim and none, I recommend erring on the side of accumulating too much rather than too little. Make sure your plan includes how you’ll allocate your money so you can continue funding your budget without draining your portfolio if the market treats you harshly for a couple of years.

Next, let’s address the non-financial part.

  1. Are you sure that you’re retiring to something you look forward to, and not away from something you don’t like? A colleague of mine retired early last year. Before he left, I asked him what he’s planning to do for the rest of his life. He answered that he and his wife are planning to travel the world. I responded that this sounds wonderful, but what about after they come back from their trip? He didn’t have an answer. My most important recommendation to him, and to you, is to figure this out before you get to that point. Can you imagine how disheartening it would be to realize after decades of hard work, mindful spending, and diligent investing for retirement, a few weeks or months after you’ve called it a career, that you’re bored to tears and have nothing for which to get out of bed every morning?
  2. Related to the above, since much of our identity and sense of self-worth is tied to our career, will the things you’re retiring to be able to replace that part of your identity that will be lost when you retire?
  3. What do you expect to do every day, week, month, year in retirement? Thinking about that plan, do you feel eager to get to it, and does it offer enough variety that you won’t tire of it?
  4. Where do you plan to live? Will you age in place in your current home? Will you move to a smaller home that’s less work and less cost to maintain? Will you move to a less expensive region (see above for how that could increase your travel costs)?
  5. Related to the above, if you move, how do you plan to create new friendships in your new location? Will you join meet-up groups? Will you audit college classes in a field you’ve always wanted to learn and join study groups? Will you join a hobby-based group? How about your life partner? Will he or she be able to create new friendships too?
  6. Finally, if you want to enjoy retirement, you’ll need to stay healthy. Do you have a plan that will keep you agile both physically and mentally? If you’re planning to start a new activity or lifestyle, have you done a test run to make sure you’ll stick with it?

Don’t forget that your life partner needs to answer all the above questions too and that his or her answers need to be compatible with yours. After all, if one of you answers that you’ll age in place in your current home, while the other is planning to move to a less expensive state, that could raise some issues.

The Bottom Line

Retirement at any age, but especially early retirement, requires significant planning effort. Most of us already realize we need to craft a financial plan to be able to retire. What many don’t realize is that there are many non-financial aspects you need to prepare for before you call it a career.

The above will at least get you thinking about how ready you may be or possibly how unprepared you still are. If the latter, it will give you at least the starting point for how to think about preparing.

Opher Ganel profile pic

Opher Ganel

About the author:

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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