Timing Is Everything When It Comes To Retiring Comfortably
After years of hard work, you’re certainly entitled to a happy retirement. You may have already started daydreaming about it, at least a little. Will you travel the world, volunteer for your favorite charity, go fishing, or spend more time with the grandkids? The possibilities are endless.
Even so, many workers are a little afraid of retirement. They’ve heard too many horror stories about people who retire too soon and find their income and lifestyle severely restricted. According to the 20th Annual Transamerica Retirement Survey of Workers, published in 2020, outliving savings and investments is the most frequently cited retirement fear among American workers40% said this is their top concern. Add to that the economic fallout from the ongoing COVID-19 pandemic, which has added another layer of complexity for many aspiring retirees.
So how do you know when the timing is right? Here are six signs that indicate you’re ready to retire if you want to.
At What Age Is Early Retirement
Leaving the workforce before the traditional age of 65 is typically considered early retirement.
You can start collecting Social Security retirement benefits as early as age 62, but you wont receive your full benefits. For anyone born between 1943 and 1954, for example, full benefits dont kick in until age 66, and for those born after that, full-benefit age is a little older.
Preparing Emotionally For Retirement
Retiring is a huge life event, and can sometimes leave us feeling like weve lost our identity. 70-year-old Jay Cassie talks to us about how she prepared emotionally for retirement and the 3-point plan which helped her.
After working as Exhibition Coordinator for Earls Court and Olympia for 22 years, Jay left to work for a security company in the exhibition event business.
After that, she set up her own security company with two partners, which she still owns but doesnt work in. She decided to retire when she was 63.
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Integrate Your Plan To Retire Early With Your Values
Extreme frugality is not everyone’s cup of tea. It works fabulously for some people, and it’s a recipe for misery for others.
The key is to integrate your plan for financial freedom with your values. The two must be congruent because the goal isn’t just financial independence the goal is true wealth and personal freedom.
For example, the spending level that honors my values as a 50 year-old, middle class, head-household, family of four, is much higher than when I was a single male straight out of college. It’s probably higher than it will be 10 years from now when my kids are grown.
You must design a financial plan to reflect whatever reality is true for you. That’s always the starting point when I begin working with coaching clients.
We define their leverage points and competitive advantage into a plan specific to their needs.
Some clients save their way to wealth using the formulas discussed here. Others choose real estate and/or building a business to better leverage their passions and interests .
Most use some combination of these three paths to wealth .
One size does not fit all. Your wealth plan must fit you like a favorite pair of jeans in order for you to succeed with it. It must comfortably wrap every curve and unique attribute of your being, or it won’t feel right and you won’t stick with it long enough to succeed.
Getting your plan right is the first step to financial freedom on which all subsequent decisions and actions are built.
It Will Be Tight But Im Thankful For My Benefits
I, as many others have shared, felt pushed out of my job. My job description was changed, making it physically impossible for me to manage while recovering from my cancer treatment of surgery, chemo, radiation, Herceptin, and hormonal therapy. Luckily, I had been with my organization for 20 years and was within less than a year for eligible retirement, so they had to let me retire intact if I covered my own medical through COBRA for 11 months and three weeks.
I worked part-time closer to home for a couple of years and finally took early Social Security at 62. It will be tight, but Im thankful for my benefits to have covered me as well as they did, and even though I didnt plan on leaving my job I think it was for the best for my medical recovery. It takes a lot longer to recover than we are advised at the onset. ChaCha57
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How Much Do You Need To Retire On $5000 Per Month
In a previous post on my site, we discussed the desire to retire at age 55 with higher inflation. Ill link to that case study and others later on.
Since that post, some readers have asked and told me:
Inspired by more reader questions when it comes to early retirement this post is about how much do you need to retire on $5,000 per month.
Tip : Manage Stress Anxiety And Depression
After retirement, the commute, the deadlines, the demanding boss, and the nine-to-five monotony may be over, but that doesnt mean your life will automatically be stress- and anxiety-free. While workplace stress can take a serious toll on your health, especially if you lack job satisfaction, damaging stressors can also follow you into retirement.
You may worry about managing financially on a fixed income, coping with declining health, or adapting to a different relationship with your spouse now that youre at home all day. The loss of identity, routine, and goals can impact your sense of self-worth, leave you feeling rudderless, or even lead to depression.
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Reason #: Retire Early If You Want To Stay Healthier Longer
Theres no doubt that working and being active can help you stay healthy much longer than sitting with your feet up. But not all work is good for you sometimes its detrimental to your health.
Retiring at 62 from a backbreaking job or one with a disproportionately high level of stress can help you retain, or regain, your good health and keep it longer.
Just be sure to have a plan for being mentally, socially and physically active. Jobs are good for keeping you engaged, but not the only way.
Careful Who You Listen To About Early Retirement
The dark side of early retirement is real.
Early retirees will croon about how great their lifestyles are. In some ways they are spot on. But notice how they seldom write about the hardships they face.
They cant, because its important they continue highlighting how awesome everything is, to justify their decision to no longer work.
The louder you have to brag about how great your early retirement lifestyle is, the less great it probably is. Just like how confident people dont brag about their achievements, people who are busy living great lives arent telling the world about how great their lives really are.
Can you imagine spending 16 years going to school only to work for 10 years? Some would surely say thats a waste, would they not?
Perhaps the worst that could happen is some aspiring scientist, musician, lawyer, or teacher decides to give up their careers because they believe traveling around the world on a shoe-string budget is so glamorous.
Years later, they realize their fingers dont remember the notes anymore and the chemical formulas are one big haze. Maybe they would have made it as a concert pianist, or helped discover the cure for seasonal allergies, ACHOO!
What a shame they never reached their full potential. Perhaps this is the real dark side of early retirement.
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Housing Expenses Don’t Retire When You Do
Retiring without a mortgage is a common goal for would-be retirees, but it’s a goal that many fail to meet. According to an American Financing survey, 44 percent of retired homeowners between ages 60 and 70 still carry a mortgage.
Even if you have paid off your mortgage, other expenses don’t go away. Home maintenance and increasing property taxes can take up a large chunk of your budget, says Dorsey, the California financial planner. New Jersey, Illinois and New Hampshire have the highest property tax rates, according to Rocket Mortgage Hawaii, Alabama and Colorado have the lowest. As a rule of thumb, homeowners should set aside 1 percent of a home’s purchase price annually to cover repairs and replacement. That’s $3,500 per year on a $350,000 house. Dont forget that many states offer lower property tax rates for those 65 and older.
How The Math Of Early Retirement Works
Let’s play with some simple equations to illustrate the point.
We’ll assume $48,000 per year earned income to keep the taxes low and the math easy. Alternatively, you could just assume $48K after taxes and eliminate the tax complication from the equation. That works out to $4K per month spendable.
Using one of my handy retirement calculators, we’ll determine how long it takes to save your way to financial independence applying industry standard numbers like 8% for investment return, and 3% spendable retirement income to support living expenses. Another invaluable tool is the retirement planner available with a free Personal Capital account when you link your existing investment accounts and enter assumptions about how much you’ll spend and save, Personal Capital can show you exactly how soon you’ll be able to retire based upon projections of your specific investments. Learn more about Personal Capital in our review.
If you saved 70% of your income, or $2,800 per month, at 8% return, you would have $515,000 at the end of 10 years.
Yes, I know that leaves you with only $14,400 per year to live on , but the fact is, you’ll be financially independent in 10 years because 3% of $515K is $15,450 in spendable income. This would be $1,000 per year greater than what you had been living on.
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How To Retire Early In The Uk: A Step
If early retirement is a goal that appeals to you, its worth taking a closer look to see what it means in practice. This step-by-step guide to retiring early sets out the main things youll need to think about and some recommended ways to address them. We’ll flag up the pitfalls to avoid and the opportunities to watch for, and also show you how you can estimate your final private pension income – no matter what age you are now.
Reason #: Retire Early If Youve Really Thought It Through
Early retirement isnt something to enter into lightly. You might have your finances in order, but you also need a solid understanding of how your life will change. For example, it can be more stressful than you imagine, spending every hour of every day with your spouse, especially if youve only spent a few hours together daily in the past.
For someone who is accustomed to going to work Monday through Friday, the sudden change of having no schedule and everything that accompanies it can be difficult to deal with. If this is you, perhaps you might want to try a sabbatical instead of an early retirement.
However, if youve already done your homework and are just waiting for 62 to arrive, then theres nothing holding you back.
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Why So Few People Will Actually Retire Early
You probably already guessed why so few people are able to follow this plan
It takes the self-discipline of a celibate monk living in a brothel to survive on 20-30% of what most people earn in our current culture. I did it easily because my income was substantial while living the simple life as a single male.
It would have been much harder if I was married with kids on an average income.
Does that mean you can discount this article and throw the idea away? No!
This is one of three paths to financial independence. . The rules are inviolable. They are scripture in stone.
You can’t argue with them. It’s just math.
You can reduce the savings rate and lengthen the time, but you can’t change the math.
- Staying with the example above, a 25% savings rate compounds to roughly $1,149,000 in 27 years where it will finally replace the 75% of your earned income you’re spending. This example isn’t as rock-solid because the time period is much longer, meaning you have to start including inflation and other complicating factors to make it realistic however, the principle demonstrated is consistent.
- A 10% savings rate in our simplified example requires a traditional career duration of 40-45 years to make sense of the numbers. It’s the classic retirement savings formula most people are taught to follow save 10-15% throughout a normal career duration to replace 80-90% of earned income but few actually ever do it.
Adjusting To Retirement Tip : Embrace Change
Although its an inevitable part of life, coping with change is rarely easy. As we grow older, life can seem to change at an ever-quickening rate. Kids leave home, you lose friends and loved ones, physical and health challenges mount, and retirement looms. Its normal to respond to these changes with an array of mixed, often conflicting emotions.
But just as you transitioned from childhood into adulthood, you can make the transition from work to retirement.
Adjust your attitude. Think of retirement as a journey rather than a destination. Allow yourself time to figure everything outyou can always change direction if necessary. You can also adjust your attitude by focusing on what youre gaining, rather than the things youre losing.
Build resilience. The more resilient you are, the better youre able to cope with challenges like retirement. You can improve the qualities of resiliency at any age to help you keep a healthy perspective when life is at its toughest.
Accept the things that you cant change. Railing against events that you have no control over can be as exhausting as it is futile. Whatever the circumstances of your retirement, by accepting them you can refocus your energy to the things that you do have control over, such as the way you choose to react to obstacles. Look back at examples where youve coped with changes in the past to remind yourself that youll be able to manage this change as well.
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Listen To The Most Recent Episode
As there have been massive job losses in certain industries like aviation, check out my post Industry Disruption in the Post COVID-19 World Aviation, there is a huge need for essential workers. Unfortunately, this includes retail where almost 25% of retail positions are filled by those of us over 55 years of age. If you are concerned about your health these are not the types of jobs for you.
For many of you, the choice may be to take a lifeboat job that may imperil your health or retire. I suspect that next year, there will many more economic refugees retiring overseas.
The question I want to pose to you is there another alternative?
Did I Just Retire At Age 52
At 52, I quit my job. I had been in academic medicine for 25 years. It wasnt my plan to retire in my early 50sin fact, it was a distinct departure from my plan. I still had five years left on my mortgage, a car that was 12 years old, and two kids who havent started college yet. It was awkward when I told my family, friends, and neighbors that I left my job. They began frequently asking, Have you found a new job yet? or Are you retired? I found this increasingly uncomfortable, and on top of that, I wasnt sure what the answer was.
Did everyone expect me to continue to take care of patients forever? When I meet someone and they ask me what I do, do I still tell them Im an EM doc? My kids heard me say that a few months after I left my job and corrected me, saying, No youre not. You dont do that anymore. Do my kids think less of me now? It took some reflection to give myself permission to acknowledge that, after 25 years, I had saved a lot of lives , made a difference for tens of thousands of patients and their families, and made a lasting impact on my community. I tell my kids that they can pick whatever career they want, but try to make a differencedo meaningful work. I felt I had done that, and I slowly began to be OK with it.
I had paid my duesmore than that, even. I had given back to society tenfold.
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Retirement Accounts And Required Minimum Distributions
This requires retirement plan account owners to withdraw money starting at age 72.
Even if you continue working past 72, you must take a RMD from your IRA.
If you dont, youll face a potential 50 percent tax penalty.
You might be able to delay taking RMDs from your current employer-sponsored retirement account, such as a 401 or 403.
To delay taking 401 RMDs, you must:
- Still be working.
- Have an employer-sponsored retirement account with the business you work for.
- Own less than 5 percent of the company you work for.
If you go back to work, consider adding money to your retirement accounts.
A law known as the SECURE Act of 2019 makes this possible. It allows all retirees to contribute to traditional IRAs and 401s if they earn wages.
People over age 50 can contribute up to $7,000 a year to an IRA. And if your company offers a 401 match, take it. Its essentially free money.
This can help increase your savings if you maybe didnt have much money in savings before returning to work, Ross told RetireGuide.
Contributing to a retirement account can also help offset taxes owed on your Social Security benefits because adding money to an IRA or 401 plan shrinks your adjusted gross income, Ross added.