Yes, You Still Can Retire Early - Here's Your Guide
It wouldn’t be unreasonable to think that, following the financial crisis and stock market crash of 2008, most people who had any thought of retiring early would be making other plans right now. But, if you ask many people, especially those younger than age 50, they still have their sights set on an early retirement. Is this just a pipe-dream, or do they know something the rest of us don’t?
The fact of the matter is that an early retirement is not out of reach for many people. For people who have been scrimping and saving throughout their working years, it’s not a slam dunk. However, with discipline and some creativity it is definitely doable. The thing that holds most people back from envisioning an early retirement is the outdated notion that you need to have a million or two million dollars in retirement savings to be able to pull off a comfortable life style. Obviously, the more savings the better, but by applying some simple techniques in your planning efforts, you could be exiting the rat race sooner than you imagined.
Know What You Really, Really Need to Spend
The first thing to do is to ignore those silly formulas that say you need to replace 70 to 80 percent of your earnings in retirement. If an early retirement is your top priority, wouldn’t you be willing to moderate your life style vision? For your best chances of success, certain things need to fall into place for you. For example, your children really need to be self-sufficient and you do need to be debt free. Considering that you won’t have those large retirement contributions or mortgage payments, your biggest expenses will be behind you. You won’t need to buy anymore big toys, and you’ll also realize that those expensive trips overseas are overrated. If you limit your restaurant visits to once or twice a month, you could easily shoot for 50 percent as a retirement income target.
Dial Back Your Life Style Now
You have probably already considered all of those things that you might have to cut out during an early retirement, such as lavish dining, travel, massages, daily Starbucks coffee, and premium cable. Why not cut them out right now? If an early retirement is truly important to you, start practicing your retirement lifestyle now. You will not only be able to increase your current savings, but you will also be able to ease into a moderated life style by smoothing out your consumption now.
Along the same lines as a dialed-back life style, it would also make sense to shrink your house and car. Maybe you already have plans of downsizing in retirement, but why wait. You can reduce your housing expenses right now and save towards some extra retirement perks.
Convert Home into Income
If you are going to trade in your big house for a condo, you can shore up your retirement income by investing the equity right now into an annuity that will generate a guaranteed, inflation-protected income that you can’t outlive. For example, if you sell your home for $450,000 and buy a condo for $250,000, the $200,000 of equity proceeds can be invested into an annuity that will generate an income you can’t outlive. On top of your other savings, which might be invested more aggressively, this will provide you with a much needed income safety net.
Get Your Business Ready
Most people who consider early retirement envision themselves pursuing another income earning opportunity from another vocation or a business of their own. For most of us, retirement won’t really be retirement, just the start of another life cycle in which we will learn, earn and strive for self-fulfillment. But, you shouldn’t wait to plan your business. By starting it now, it could be generating a sustainable income by the time you retire – early.