How to Know If You Can Retire Early
Are you thinking about retiring early? Back when boomers were young they considered it almost a generational perk. Life’s second half should be merry years of play and rest. Once you slide into your 50s, however, the question of early retirement grows complex. You might still need your paycheck. If so, case closed. And you might love your work and hope to pursue it for many more years. If you’re ready to quit, however, there’s a lot to consider before you retire early.
Do you really have enough money to finance a long retirement?
Don’t underestimate your longevity. At, say, 55, men have an average of 28 more years to live, and women 31 years. Roughly half of you will live longer than that. During your early years of play, you’ll be living primarily on your savings and investments, plus any special sources of income such as rents, royalties or perhaps a small pension. You’ll have to wait until 62 to qualify for Social Security retirement benefits.
Have you made a retirement budget you can live with?
To make it easy, sketch the budget for only your first retirement year. Start by listing the income that you can realistically expect after your paycheck stops. For budget purposes, assume that you’ll take only 4 percent out of your savings and investments. The total, from savings and other sources, represents your spending limit.
Now add up your expenses. If they’re higher than your spending limit, you’ll have to cut back — maybe sharply. That might not be hard if your largest budget item is your house and you’re happy to downsize. If not, you’re not ready financially to make the leap.
Do you have health insurance?
Some corporations provide early retirees with health insurance until they reach 65 and qualify for Medicare. If you’re not that lucky, survey the private marketplace carefully to see what’s available at a price you can afford. Going bare can wreck your finances overnight.
Do you have a sustainable investment plan?
At today’s interest rates, you’d need a two-ton truck full of money to live off the interest paid by high-quality bonds or certificates of deposit. Low-quality bonds yield more but carry market risk. If you switch your savings into dividend-paying stocks, you’re facing market risk plus a lack of diversification. That’s because you’ll have too much money in financials, consumer staples and utility company stocks and not enough in the growth stocks that typically don’t pay dividends.
Who succeeds at early retirement?
People who have enough money (with “enough” depending on how high on the hog you want to live), plenty of personal interests and an adventurous disposition. Have a happy second half of your life!
For more information, read the full article here.