Early retirement can be a heady concept, with many individuals counting the days until they feel they can safely retire and move on to enjoy the next phase in their life. You may be anticipating launching a new business, pursuing a hobby, traveling, or just taking life easy. No matter what the ultimate goal, there are some key factors that you need to consider before retiring early.
Don’t retire if you have significant credit card debt, still owe on a mortgage, or are making payments on cars, RVs, boats, or “toys.” Those debts will quickly eat up any savings you’ve accrued.
You may be in good health now, but life expectancies are increasing. There’s no guarantee that a life-altering event might not occur and Medicare isn’t available until age 65. Before retiring, take advantage of all the healthcare services available from your current insurance plan, from dental work and cataract surgery to a colonoscopy.
You’ll have to pay for health insurance until you’re eligible for Medicare and you’ll still be responsible for a monthly Medicare premium and 20 percent of medical costs. Don’t forget to account for any “gap” policies and care you may need later in life.
The money you have in savings, pensions, Social Security, stocks, bonds, a 401k and similar resources will determine the type of lifestyle you’re able to enjoy as a retiree. Calculate the dollar amount you believe you’ll need each year.
It’s a good idea to examine your portfolio periodically to ensure you’re sufficiently diversified and earning the maximum return on any investments. Local economies, inflation rates and world events can seriously disrupt your investment strategies. Spending large amounts too quickly after officially retiring is a mistake many people make.
The transition from daily work to relative inactivity can be a difficult situation with which to cope. Give yourself some time to adjust, but stay active by volunteering, take free or low-cost classes/courses, or pursue a hobby. You may even want to consider working a few hours a week to stay physically and mentally fit.
The Bottom Line
It doesn’t matter whether you’re voluntarily retiring early or retirement has been forced upon you by factors you can’t control, there are things you can do to minimize risk and ensure a comfortable retirement. A happy retirement is dependent upon sufficient preparation.
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