Considerations for Early Retirement

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Early retirement is a dream for some people.  But, not everyone has the desire or need to retire early.  The path to early retirement is not an easy one, and those considering this option should have a plan and some introspection pertaining to their finances, fulfillment, health, and self-worth.

No matter where a person is in their work life, there are ten questions anyone considering early retirement should answer.  Taking time to consider each question and discovering if early retirement is really the right step is vital.

Question 1

How will you provide for your family without a job and will that change over time?

There are many ways to generate income without a job if early planning is involved:  earning dividends from stock, selling shares of index funds, collecting rent on investment properties, or working part-time.  Once age 59 ½ is reached, this plan can shift to a 401(k) or IRA.

An example scenario for a married couple might be:

  • Both adults under 50 – taxable accounts
  • Both adults under 60 – a mix of taxable accounts and rental income
  • One adult turns 60 – a mix of tax-deferred accounts and rental income
  • Both adults are between 60 to 65 – a mix of tax-deferred accounts and rental income
  • Both adults over 65 – a mix of tax-deferred accounts and rental income

This is not an all-inclusive plan and will vary from couple to couple.  However, it is meant to show that there is not one hard and fast rule to early retirement and that changes will occur often and should be planned for before any changes are made.

Question 2

If financial emergencies or hardships occur, what is your backup plan?

The unexpected happens in life.  Whether it is a natural or financial disaster, there are some questions that anyone considering early retirement should ask:

  • What provisions are made in case a natural or financial disaster happens?
  • What are the budget allowances for homeowners or renter’s insurance?
  • How much will be kept in an emergency fund that is separate from other investments?
  • Will life insurance be carried on family members?
  • What is the plan for a dip in the stock market or a long recession?
  • Is there room in the budget to trim back in the event that there was less money to spend some years?

Question 3

What is the plan for obtaining and keeping healthcare?

Even a simple trip to the emergency can cost thousands of dollars without some type of insurance.  Until age 65 is reached, Medicare will not be an option.  With the collapse of the federal exchange across the country, is there money in the budget for health insurance premiums?

Question 4

With healthcare in mind, what is the plan to keep the mind and body healthy?

Exercise, a healthy diet, and stimulation of the mind are important factors to consider.  Some questions to ask when considering early retirement include:

  • Does the plan to keep the body and mind healthy look like your current plan or will drastic changes be made?
  • How will new technology be embraced as you age?
  • Will activities or hobbies that expand thinking be engaged to keep the mind alert?

Question 5

What are you going to do in retirement?

This may seem like a simple question, but it is perhaps the most important question of them all.  Considerations pertaining to time management need to be addressed.  Will there be events planned that make you excited to get out of bed every day?  What will you do if you find that you have become bored?  What is your overall contribution to the world?  Focusing on what is done with all of the new-found time should be carefully thought of and considered.

Question 6

How will the living situation change?

If a person owns a home, most often they have a 15 or 30-year mortgage.  If a person plans to retire early, how will the mortgage be addressed?  Will the home be kept or sold?  Is downsizing an option?  Maybe selling the house and purchasing an RV and traveling sounds appealing.  But what about when the nomadic lifestyle loses its luster, will a new home be purchased?  Will renting be an option?  Are miscellaneous housing expenses such as property tax, rent increases, and utility bill taken into consideration?

Question 7

What does a day in retirement look like?

Ask many people who desire to retire early what they plan to do and they will more than likely respond:  travel, relax, spend time with friends and family.  But what will happen after you have traveled to your dream destination, slept for hours or days on end, and friends and family are busy with their work or daily life?  When looking at the day to day realities, are the expectations set realistic and fulfilling?

Question 8

What will your social circle look like?

Once a person is retired, if their friends are still working, they will not be able to fill their time with them.  Will new friends be made?  What hobbies will you partake in and will your partner share those hobbies or have hobbies of their own?

Question 9

Are you and your partner on the same page when it comes to money and life goals?

Do you and your partner share the same vision and sacrifices in order to retire early?  Are both people committed to the discipline and frugality needed to enter early retirement?  If single, is your vision flexible enough to include a partner one day in the future?

Question 10

How will you derive self-worth and define yourself after retirement?

Looking back at age 80 or 90, what accomplishments do you want to have achieved?  How will you find fulfillment without a job?  How will you give back to society?

Once you have considered all of the above questions and feel comfortable with your answers, you can begin your path to early retirement or continue working.  The good news is that as an informed person, you now can enter retirement, no matter what age, with confidence and anticipation.

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