Geoffrey J. Thompson: Retiring by Age 55


Geoffrey J. Thompson understands that one of the top things employees fantasize about is retiring. Let’s face it – working for 40+ years can be a daunting future for America’s young employees. Dreaming about the days when one doesn’t have to get up, commute to work, and spend countless hours behind a desk is a time-honored pastime for most workers.

What if there was a way to retire early? Traditionally, the retirement age is 65. Believe it or not, with a few smart financial moves, people could shave ten years off that figure and exit the workforce at age 55. It may even be possible to retire even earlier than 55! Read on for four professional financial tips that may help you make your retirement fantasies a reality.

Tip One: Live Frugally

Some of the most successful millionaires and billionaires didn’t get to that point by spending wildly. In fact, some of the richest people in the world have learned to live frugally, spending far less than they could, based on their income.

It is an unwritten guideline that in order to retire comfortably, the average worker needs to save 25 times his or her annual budget by the time retirement comes around. Saving up a nest egg like that seems like an impossible task, but think about this: the more you save in spending NOW, the more you can set aside for future uses. Frugal spenders buy a home and stay in it, even after it is paid off. Upgrading to bigger and bigger houses as your income grows is a sure way to waste money. The same goes with vehicles; if you need a new car every three or four years to “keep up with the Joneses”, living frugally may not mesh with your spending habits. By driving the same car for years, substantial money can be saved elsewhere, such as in a qualified retirement plan.

Tip Two: Don’t Be Afraid of Aggressive Investing

One of the first things a financial professional will do when meeting with a new client is to assess what, if any, risk that client is prepared to take on. People nearing retirement, of course, tend to be much more risk-averse as far as finances go. Financial planners stress that conservative investment strategies are the best solution for those in their 40s and 50s. Retaining growth by scaling back to about 50%-60% of a portfolio in stocks in the years leading up to retirement is a sound financial move.

The opposite holds true for younger workers. If you are in your 20s, being more aggressive in your investing makes a lot more sense. Time is on your side; any stock market corrections or even crashes may impact your bottom line in the short-term, but if you have 30 or 40 years before you’re ready to retire, those short-term losses balance out over longer-term performance.

One of the best ways to adopt a more aggressive investment strategy is to invest in stocks with the guidance of a certified financial planner. Hot stocks, such as tech IPOs and other flash-in-the-pan companies, may never be a great choice as far as stable investments go, but gambling a little bit on their performance is probably worth doing if you are still in your early work years. More stable stocks like utilities, Fortune 500 firms, and other established corporate giants can bring in substantial returns with modest aggressiveness.

Financial professionals say that in order to retire at 55, people must do more than contributing to their IRAs or 401(k) retirement plans. Only the very wealthy can get by without investing some portion of their retirement savings in stocks; for everyone else, stocks are a sure way to boost value and savings over the long haul.

Tip Three: Don’t Forget Healthcare

A common mistake many people make when planning for retirement is forgetting to budget for healthcare expenses. As we age, medical expenses and treatments tend to increase – it is simply a fact of life and cannot be avoided. People without retirement health care benefits in place will need to investigate how they may be able to obtain medical insurance until they become eligible for U.S. government Medicare coverage at 65 years of age. On average, couples who retire at age 62 can expect annual healthcare spending to exceed $17,000 a year until Medicare becomes available. That figure doesn’t include amounts associated with insurance premiums and other out-of-pocket costs.

One of the options is to visiting your state’s Obamacare marketplace. With changes in the U.S. government administration and attempts to repeal all or part of the Affordable Care Act coverage, the time is now to investigate this option before it is no longer available. Another smart option is to purchase COBRA insurance, which is merely an extension of the healthcare insurance coverage your employer made available while you were working. Seeking coverage under a working spouse’s insurance plan is another sure way to keep that all-important medical care insurance coming until Medicare kicks in.

Tip Four: Find Meaning Before You Retire

Rushing into retirement sounds great until you begin to think about how you will spend your time. Do you like to travel, or do you have a hobby you can enjoy in your free time? If you don’t, it is time to start developing a plan. Many retirees discover that sitting around doing nothing isn’t all it was cracked up to be; fantasies about a mellow retirement face the harsh reality of boredom. So, the savviest financial professional suggest that their clients develop a hobby or a long-term plan for activities when retirement time comes.

Ready to Retire Early? Some Final Thoughts

If you’re a real go-getter and are just now entering the workforce after college, there’s great news: you could retire early AND retire a millionaire if you play your cards right. 20-somethings have about 40 years of work life ahead of them, and all those years can greatly benefit your chances of retiring comfortably.

Here’s how a young person can accomplish early retirement and substantial retirement savings in one fell swoop: leveraging the power of compounding interest. First, establish a retirement plan such as a Roth or Traditional IRA. Contribute the maximum amount allowable by law in the first year and in the subsequent five years after you start the account. Next, take full advantage of any employer-matched 401(k) plan. Many employers will match contributions dollar-for-dollar to these plans, so it is critical to make the maximum contribution every year that you work with the company. After contributing fully for those first years of employment, sit back and watch your interest grow. Even under stagnant market conditions, investments are generally expected to grow by 6-10%. More active market years could see that percentage go up to 12-15% return on investment. Before you know it, you’ll have a sizeable retirement nest egg set aside and you can start planning your early retirement!

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