While You Or Your Spouse Is Pregnant
One of the best benefits of work is parental leave. Obviously, some companies are more generous than others. The time to retire early is not while you or your spouse is pregnant. The time to retire early is after youve taken full advantage of your companys parental leave policy.
At many of the top firms, employees get three months of paid leave a year or more. Therefore, take three months of paid leave, come back for several months, and then retire.
I dont recommend giving your notice the week after fully exhausting your parental leave. If you do, youll create bitter colleagues and burn bridges.
Its much better to come back to work for at least three months and see how things are. You might love taking a vacation from childcare by going back to work. And you might also find work to be much more meaningful once you have children.
If you plan to have multiple babies, then consider retiring after you have your last child. One of my former colleagues had three babies within five years. She was able to take off nine months plus all her vacation days. She still got promoted to Managing Director and is making big bucks.
What we did:
My wife and I got zero parental leave benefits because we had our children 2-7 years after retiring. If we did have a baby while working, I think at least one of us would have tried to negotiate a severance within 12 months of birth.
Understand Your Retirement Income Options
You can start collecting Social Security benefits at age 62. But should you? You can start taking 401 distributions penalty-free at age 59 ½. Is that too early? Many people are better served putting off both for as long as possible. But by age 72, most savers have to start making required minimum distributions .
There are some general guideposts for retirement spending, like the 4% rule, but its best to make a long-term plan with a financial advisor who understands the nuances of these choices, including the tax and estate planning consequences. Its best to get started on spending plans well in advance of retirement.
A professional might suggest you spend your last working year converting some of your retirement savings into Roth accounts, for example. You may face extra taxes upon conversion, but youll be able to make tax-free withdrawals in the future, which could make sense for your plans.
Even with all this talk of drawing accounts down, you still need to maintain an investing strategy: Retirement can last for decades, so you need to keep investing for the future, even as you begin to spend your savings.
I like to use a bucketing strategy with my clients, which involves planning your withdrawals with different time segments, or buckets, says Henry .
Avoid Outliving Your Money
Whatever your age when you decide to retire, you dont want to worry about outliving your money. Luckily, there are ways to help avoid it.
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Prepare For The Impact Of Inflation
As 2021 showed, inflation can pick up at unexpected times and really hurt those who arent prepared. Inflation can absolutely devastate a financial plan that relies highly on fixed income investments such as bonds. If you need to spend all your retirement income and cant reinvest any of it, inflation will grind down your purchasing power over time, making your dollars worth much less.
So you need a financial plan that factors in inflation. Social Security does raise its payouts in response to rising prices, but that wont likely be enough to protect your standard of living.
Youll need to build in a financial plan that has some growth assets in it, so that your income can rise over time and you wont be left making the same income you did 10 years ago.
We can run retirement cash flow reports that will analyze the current income needs of the client and their available assets, and it projects forward 20-30 years with some reasonable growth assumptions for the investments, says Ben Barzideh, ChFC, wealth advisor at Piershale Financial Group in Barrington, Illinois. We can add a cost of living increase each year to their income and see how that would affect the long-term projections.
Youll want to be sure that your financial plan is not too conservative and allows you to grow your money over that longer retirement period. Otherwise, inflation may eat up your income.
Before Youve Worked As Many Years As Youve Gone To School
Most of us will go to school for 13 years, from kindergarten through the twelfth grade. Some of us will add on four years for college. If you work for less than 13-17 years, you may regret never maximizing your education, especially if it is a private school one. You may also regret not maximizing your full work potential.
Thirteen years after high school puts you between 30 31 years old. Seventeen years after college puts you between 39 41 years old. It certainly seems too young for high school graduates to retire at 30 31 years old.
Retiring at 39 40 years old as a college graduate is more reasonable as it is close to the ideal retirement age range of 41 45.
The people most at risk of retiring too early and feeling lost are those with graduate and doctorate degrees. For these people, retiring early means coming to terms they made an educational mistake as an adult.
The double whammy of making an educational mistake and not fulfilling their work potential could lead to depression.
What we did:
My wife and I worked for 13 years each before retiring. Therefore, we were four years short of the number of years we went to school. Because I went to business school while working, I still only count being in school for 17 years.
In retrospect, it would have been best if I had worked for one or two more years. If so, I could have planned my departure even better.
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Take Some Time To Think About Whether You Want To Retire Early And Whether You Can Afford To
Many of us look forward to our retirements, when we might finally do some things we’ve been dreaming of — such as taking long vacations in Europe, driving cross-country to visit friends and check out small-town diners, or simply playing a lot of golf or doing a lot of gardening. It can be hard to figure out just when to retire, though.
An early retirement is certainly appealing, but is it right, or possible, for you? Here are some reasons to retire early, as well as some reasons to retire on time or even late. Let’s start with the latter.
More From The New Road To Retirement:
Here’s a look at more retirement news.
Research from the Center for Retirement Research at Boston College shows that Americans mostly tend to claim retirement benefits either around 62 or their full retirement age as defined by Social Security.
Delaying retirement past age 62 not only has advantages with regard to delaying Social Security benefits. It can also enable someone to wait until Medicare eligibility age generally 65 and continue to earn income.
Yet not everyone has a choice as to when they retire, which can happen unexpectedly due to unforeseen health or career circumstances, such as a late career layoff, Goodsell said.
The key is to prepare for what all circumstances can bring.
“There’s a lot that can be done to educate individuals on what their investment options are, how to go about planning for retirement and how to put the pieces together,” he said.
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Invest Your Money Wisely
Go back to that example above. In it, I assumed a 6% rate of return. Fair warning: youre not going to get that rate of return on savings accounts, GICs, or even bonds. You have to invest your money in the stock market and you have to do it wisely.
Historically, investing in the stock market has been a winning strategy for patient investors. The keyword there is patient. Go ahead and throw out the idea that youre going to get rich quick. If you want a surefire way to retire a millionaire, adopt the mindset of getting rich slowly. It may not be glamorous, but it sure does work.
For investors who dont want to spend gobs of time picking stocks, balancing portfolios, and stressing over market downturns, you might be better off investing in index funds or ETFs. In fact, this is famed billionaire Warren Buffetts approach to investing: contribute a consistent amount each month to an index fund, and, over time, youll get rich.
If you want a more hands-on approach, you can try your hand at building a well-diversified portfolio of stocks. Again, dont be super aggressive with your stocks. Choose stocks that you think have long-term growth potential, then dig in for the long run. This is a much wiser approach than trying to time the market or day trading for quick profits.
Retirement Can Be Tough On Couples
“Retirement is a major life transition, and you have to be patient with yourself and your spouse, says Patti Black, a certified financial planner in Birmingham, Alabama. Most retired couples do not look like those pictured in ads and commercials. You’ll have to decide how work around the house will change. Will you really share cooking, cleaning and yard work? And do you honestly want to be together 24-7, particularly if you downsize to a smaller home?
These decisions can have serious consequences for a marriage. Gray divorce, or divorce after age 50, has doubled since 1990 while declining across all other age groups, Black warns. And it is most often the wife who asks for divorce after age 50.”
John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter forKiplinger’s Personal FinanceandUSA Todayand has written books on investing and the 2008 financial crisis. Waggoner’sUSA Todayinvesting column ran in dozens of newspapers for 25 years.
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The Best Time To Retire Is Now
Right now, this very day, is the best time to retire since Pete took those same steps! If you have the resources to retire when things are down you have an excellent chance of staying retired.
True, the economy is still declining from the pandemic while the market has regained much of its losses. And the market is likely to get cranky when the reality of the economic damage done sets in. Still, it is during these trying financial times when you learn if you really are ready for retirement, early or otherwise.
Pete found the sweet spot in picking his early retirement date he just happened to be 30 at the time. Many considered it a challenge to retire younger than Pete without remembering Pete still maintained financially gainful activities.
Retiring younger than 30 will take some luck. Skill is unlikely to get you there much faster.
Many claim they have retired in their 20s, hoping to strip Pete of his early retirement mantel. Deep down I think they hope they will be bailed out by publishing a profitable blog before anyone notices the emperor is not wearing his skivvies.
How would I know all this? Because people pay me a lot of money to talk to them about their personal situation. And the theme is recurring. I dont think Pete has a full grasp of the effect he has on some people. They are not really listening to what he said. They pick what they want and forget the rest. It turns out as expected.
Super Early Retirement: Between Age 30 49
Theres a new movement called financial independence, retire early , where many people are choosing to adopt a very focused and ambitious goal of retiring very early in their life, usually by saving a lot of money and investing in the stock market or Exchange-Traded Funds .
It requires a lot of discipline in your early years of life, with many starting to save in their 20s or even as teens aggressively.
While there are many benefits of retiring early, there can be a lot of risks in planning for extremely early retirement. Youll have to consider the huge sacrifices that will need to be made, and the unpredictability of life.
Theres a lot that can happen in life that would throw your calculations off, and you may need to either start working again or abandon it altogether. Youll also need to find other projects or things to find meaning and satisfaction from doing.
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How Much Do I Need To Retire
To figure out exactly what it will take to retire in comfort, its important to consider what kind of lifestyle you expect to lead in retirement. Do you hope to travel? To Paris, or someplace a little cheaper? How often do you want to eat out? Go to the movies? The beach? Do you want to move closer to the beach? The grandchildren? These questions may seem trivial now, but they can help give you an idea about the income youll need in the future. If youre set on seeing the Eiffel tower, the Pyramids at Giza and the Taj Mahal, youre going to need a sizeable nest egg to draw upon. On the other hand, if you expect to live a rather low-key lifestyle, with far fewer expenses than you currently have, you wont need to save quite as much.
The important thing is to be realistic. Dont shortchange your future self by assuming you can live off of canned tuna and scrambled eggs. While some costs will likely go down in retirement, others may go up. Specifically healthcare costs are likely to rise in retirement. So its best to have a cushion for unpredictable costs like that. Plus, retirement is your reward for decades of hard work: treat yourself accordingly.
You Can Enjoy A More Active Retirement
Retiring early offers the opportunity for a more active and enjoyable retirement — because you’ll be younger as you embark on it. Younger retirees can travel more extensively and engage in more vigorous recreational activities, such as hiking, biking, tennis, and more. Many people don’t retire until declining health forces them to, and at that point, lots of things they may have wanted to do are no longer possible.
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Will You Work On A Part
Many people today are choosing to earn money as a freelancer or contractor after they retire. If you work part time and elect to start receiving Social Security benefits before you reach the full retirement age which is between 66 and 67 years old, depending on when you were born your Social Security benefits may be reduced based on your earnings.
If you will:
- Be under full retirement age for all of 2021, you are considered retired in any month that your earnings are $1,580 or less and you did not perform substantial services in self-employment.
- Reach full retirement age in 2021, you are considered retired in any month that your earnings are $4,210 or less and you did not perform substantial services in self-employment.
If youre retiring before reaching FRA but expect to earn more than $1,580 a month in income, and you will reach FRA sometime during the year you plan to retire, you should probably wait until after your birthday to retire and claim Social Security benefits.
Ask An Expert: Strategies
Steve Rohrig
Steve Rohrigs professional credentials include Certified Life Underwriter, Chartered Financial Consultant, Retirement Income Certified Professional and Chartered Advisor for Senior Living.
Rohrig says staying the course as best you can is key to minimizing the impact of the COVID-19 financial crisis on your retirement planning.
I would encourage those people to look at their spending right now. Do they have any discretionary expenses they could put to the side? And really focus on those day-to-day, core expenses of food, shelter, transportation and health care. Then maybe let their asset base recover before returning to lifestyle-based spending.
Taking money out now could be a problem. A sudden shock to their portfolio could impact them for a long time. You’re taking out income on that depressed portfolio and when the economy comes back, you’ve got less of an asset base to build on.
I don’t have a crystal ball, but at the same time I’m optimistic in terms of the economy getting back to where we once were. I don’t know how long that’ll be, but if you have the time ahead of you to just stay the course, I’d recommend that. But a lot of that depends your own goals, your own outlook and your own perspective.
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