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Should You Even Consider Early Retirement?

Jessica Lanning

Not so long ago, most working people wanted to retire early.  Nowadays, the prospect of retiring at a young age and depending on your investments for income for decades is suddenly a scarier thought.  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 and work part-time at a less-stressful job, cut back on living expenses, and only take minimal amounts from your retirement savings until Social Security and pension benefits kick in, then early retirement plans might be feasible. If you want to consider early retirement, review these tips:

  • 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. If possible, ask your employer to give you a short sabbatical.  That way, you can see how well you’ll adjust to retired life.
  • Calculate your numbers carefully. You want to be sure your retirement savings and other income sources, such as Social Security and pension benefits, will support you for what could be a lengthy retirement. When calculating how much you need for retirement, be conservative.  Bump up your expected expenses by 5% to 10%, add a few years to your life expectancy, reduce your expected return by a couple of percent, and increase your inflation expectations.  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 reduce your living expenses now and during retirement.  Don’t just look at obvious ways to cut back, such as reducing how often you dine out or taking your lunch to work.  Look at more drastic measures, such as moving from your current home to a smaller one or comparison shopping for items like auto and home insurance.
  • 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 hobbies into a paying job. This can give you time to pursue travel, hobbies, and other interests, while helping to fund a long retirement.
  • Move to a less-expensive city. The cost of living in various cities across the country and in other countries can vary greatly. 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’ll need to consider whether you’ll be happy living somewhere else away from family, friends, and other ties.