Not so long ago, most working people wanted to retire early. Then came the sharp declines in the stock market. All those assumptions about how much you could earn on your investments and how long your money would last no longer seemed assured. The prospect of retiring at a young age and depending on your investments for income for decades was suddenly a scarier thought. With many retirement portfolios significantly lower than at the market peak, should you even think about retiring early?
Much will depend on your definition of early retirement. If your definition means to quit working completely so you can travel extensively and pursue expensive hobbies, then you might want to postpone those plans for a while. However, if your definition means to change careers to work part time at a less stressful job, cut back on your living expenses, and only take minimal amounts from your retirement savings until Social Security and pension benefits kick in, then your early retirement plans might still be feasible. If you want to seriously consider early retirement, review these tips:
- Make sure you know what you're going to do with your time.
When you're working full time, it seems like you could fill all your waking hours with the things you don't have time to do. But if you're used to a fast-paced life, can you really expect to spend the next 20 to 40 years of your life just puttering around the house and golfing? Make sure you have concrete plans to fill your days, so you don't get bored early in retirement.
- Calculate your numbers carefully.
You want to be sure your retirement savings and other income sources will support you for what could be a very lengthy retirement. When calculating how much you need for retirement, be very conservative. Don't expect to draw more than 3% to 4% annually from your retirement investments. Now, can you really afford to retire early?
- Cut back on your standard of living.
Cutting back your expenses now will serve two purposes. It will provide more money to save for retirement, and it will reduce your living expenses now and during retirement.
- Work at least part time during retirement.
Even a small amount of income after retirement can go a long way in helping to fund your retirement expenses. Consider working at a less stressful job, starting your own business, or turning a hobby into a paying job.
- Move to a less expensive city.
The cost of living in different cities across the country and in different countries can be vastly different. If you live in a city with a high cost of living, moving to a different location can dramatically lower your living expenses. However, this is not just a financial decision. You need to consider whether you'll be happy living somewhere else, away from family, friends, and other ties.
While retiring early certainly seems more challenging than it did even a few years ago, that doesn't mean it can't be done. But you do need to make sure your plans are realistic before retiring.