How To Retire Early | Enjoy Life
Finally a Solution on How to Retire Early
PinRetiring at an early age is possible again, but the rules have changed somewhat. Have you figured out how to retire early, perhaps at age 55 or earlier? Quite a few Americans have.
More importantly, can you afford to leave the 9 to 5 routine when you want to? As you mull that question in your mind, you realize that some changes in your lifestyle, such as home downsizing may be required. However, the solution on how to retire early might not be difficult at all.
Trying just about any thing new is likely to cause apprehension. Retirement is no exception.
A few things to consider on How to Retire Early:
- No need to be afraid of losing your health insurance – In the past, anyone trying to figure out how to retire early, had that obstacle to overcome. Not many employers today offer medical coverage to their employees.
In the past, if you had to buy a policy in the private marketplace before you qualified for Medicare, it could be very difficult. Those who perhaps suffered with heart issues, diabetes, or some other condition, could end up being uninsurable. And if you happened to be in the older age groups of 50 to 60, you could count on paying considerably more for the same coverage that a young individual did.[bctt tweet=”Retiring early today, medical insurance coverage should not be a problem.” username=”HBSMoneyTips”]
Thank goodness health reform changed that. Today, you can buy comprehensive medical coverage through the online exchange in your state. The premiums still reflect the age difference, but now at least there is a cap on the amount.
- If you know how to retire early, that will mean accepting trade-offs for some time – The current economy has made it difficult to find retirement income that is fairly safe. We have very low interest rates and it appears that they may continue for quite a while. Earnings on cash and bonds are meager at best. The obvious solution for this is to save more and try to live on less. Once your home is mortgage free, you should be able to increase the amount of savings for retirement.
Research has found that if you are able to save 15% or more of your income for a period of 8 to 10 years, no matter what stage of your career, you should have enough to fund a retirement when you reach age 65. However, if you can’t save as much, then you will have to realize that you will be living on less. Some of those who found out how to retire early, contribute around 25% to savings.
Most financial planners recommend that you try to replace approximately 75% of the income earned before you retired. In that way, your lifestyle won’t require a drastic change since you won’t be paying social security taxes or commuting costs.
- Moving could make a substantial difference – Perhaps the slight recovery in the housing market has given you an idea on how to retire early. The increase in your home’s market value may have provided the confidence as well as the funding for your decision However, don’t expect housing booms to keep inflating your net worth. Instead, be realistic and don’t expect miracles from your home.
Make your plans carefully using what you now have. It’s quite possible that it may mean leaving your current home.
- Live with 2 bedrooms less – Your children are grown or away at college, and if you can hit a good market, sell your current home. You can buy a smaller home and by doing so, you can lock in and either payoff your mortgage or add a large sum to your savings.
Sometimes when you retire earlier, you need to be able to live on less. What better way than to reduce your housing costs that usually are a large portion of your budget. You can also save more by moving to an area of the country that has lower real estate taxes and a lower cost of living. Just be careful when you downsize where ever it may be, that you check the area carefully for any hidden or unexpected costs. Some individuals don’t do a careful review and find that housing costs go up instead of down.
- Don’t overspend in your first 10 years of retirement – As you enter retirement, there is a tendency for some to spend too much. They now have more time to do the things that they previously couldn’t like traveling and dining out, or perhaps an expensive hobby.
Your cash outlays begin to drop after you reach age 75, even after considering spending more for health care. Individuals that are in the 65 to 74 age group spend almost 40% more than a 75 year old would according to one survey. Just remember, the earlier you retire, the sooner you start those heavier spending years until age 75.
The earlier that you retire, the more difficult it can be to establish an acceptable income stream. You won’t be able to receive Social Security until age 62 and if you take that option, it will be lower than if you waited until full retirement age. The same applies to a pension, the earlier you begin drawing money out, the lower it will be.
If your primary source of income is your investments, be careful how much you draw. Financial planners had previously used the 4% withdrawal rate for drawing income from a retirement portfolio, but it has changed because of current bond yields.
This now has been reduced to 3%, adjusted for inflation, as a safer amount. That is, however, based on a 30 year life span for a retiree of age 65. Retiring earlier could extend the cycle to 35 or even 40 years and that would mean a withdrawal rate of 2.6%.
If you’re living strictly on retirement portfolio withdrawals, 2.6% will not be sufficient unless you have a very large portfolio. Plus, if you draw more, there is a possibility that you will run out of money in retirement. Not a pretty sight!
To avoid that possibility, you will need to live on less or take on a part time job like many retirees are now forced to do. Your spending habits as well as the investment market returns will vary, so you need to review your plan at least on an annual basis.
Unfortunately, there aren’t too many part time jobs available that pay very well or that are mentally stimulating.
Many companies have projects that need completed and don’t hire part time hourly workers to do it. If you can find a project that is within your area of expertise, this may be the way to go to supplement your income.
Instead of working at some mundane part time job, set up a business as a consultant. Your previous employer may be interested in this type of arrangement. Keep any professional credentials that you may have current and keep abreast of any changes in your industry.
As we mentioned above, it isn’t very difficult to find out how to retire early. You need to plan carefully and save as much as you can, and if necessary, live beneath your means
Gust Lenglet is the CEO of HBS Financial Group, Ltd., an accounting & tax preparation firm in Maryland. He has more than 25 years of experience in the banking and financial industry. Gust started his career as a loan officer at a major national bank, and then moved on to become controller of a major law firm. In recent years, he has written many financial articles that have been published on Ezine Articles and many websites.
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