Considering Early Retirement? Here Are Things You Should Know
An early retirement is sometimes a viable option for people looking at hanging up their boots at an early age, say forty. Whereas in other cases, it may force it on people because either the company is shutting down or is drastically laying off its employees.
It is sometimes tempting to take the offer and enjoy the retired life but are you prepared for not working for the extra few years? Well, if you want an early exit, here are the top considerations that you may look at.
Is Your Retirement a Temporary Phase or a Permanent Decision?
To this day, there have been people who never quite recover from their career after taking a payout when they opted for voluntary retirement. Now is the time to evaluate, how employable you are, if you are planning to retire. This is an excellent time to objectively assess how employable you are if you plan to work after a point in time.
From a financial perspective, you need to find out if you are thinking of taking up work if you have the opportunity. A CFP professional can help you find out more about your financial position. Find about the 4 % rule, which may not be foolproof, but if you are cutting the expenses, you need to take a good look at your costs and manage it well.
Know Your Expenses
If you do not have strong control over your monthly expenses, then it is time you did. This is especially so, if it is not a luxury for you. It can turn out to be a critical mistake for someone for people who are in consumer debt. When you switch from a worker to a retiree, knowing your expenses is a given.
When you are toying about the idea of retiring early, the first thing you must consider is, have enough money to retire that will cover all your expenses? Start having the expense conversation with your financial advisor. It is a monumental task for most people as most of them fail to recognize or own hidden expenses. Nowadays, you have the technology to help you out with your monthly expenses, online resources Personal Capital and YNAB (You Need a Budget) often works.
Guaranteed Sources of Income
Early retirees need to have a foolproof strategy to develop an income strategy. It is important to access certain income sources, as people under 59½ can’t cater to individual qualified retirement accounts’ savings. For instance, the 401(k), without paying the 10% early withdrawal penalty and income tax on their withdrawals.
Apart from that, people who are 62 can’t also claim the Social Security benefits. In some cases, they will also go on to receive a smaller monthly benefit. If you happen to draw your saving early and for a longer duration, you may run the risk of running out of your retirement savings. Some of the potential retirement sources include investing in an annuity as they offer guaranteed lifetime income payments. Or you can consider developing a business out of one of your hobbies.
Removing debt from your financial radar before you retire is the smartest thing to do. It can free up cash flow, which you can use later to cover other expenses. People who are considering early retirement can evaluate whether they can afford the same amount of monthly debt payments with a smaller monthly income after retirement. If you need to reduce your debt load consider paying off debts from your credit cards. Also, you can pay off a mortgage before you retire. You would be able to eliminate two major causes of worry from your list.
Medical Cost Coverage
Healthcare planning also needs special attention if you are thinking of retiring way ahead of the stipulated date. Many early retirees are most often not covered by employer-sponsored health insurance plans. But they may be too young to qualify for Medicare.
However, there are certain options to plug some of the health insurance coverage gaps. In certain employer-sponsored insurance schemes, the employee can keep their insurance policies 18 months after leaving their jobs. Other schemes can help you contribute to your health insurance scheme till 65, that too tax -free.
If you want to retire early, there are a lot of options to consider. Only if you tick all the boxes, you can regard early retirement as a viable option.
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