Holiday break got you thinking about early retirement? Read on for five signs that you might be ready!
When you are stuck at the office on a gorgeous day, early retirement might look like a dream. Perhaps you have taken a look at your 401(k) investments, done some math and think that you have the money it takes to retire early. A healthy investment portfolio that can withstand some market uncertainty is a great start, but there are a few more things to consider before you punch that clock one last time.
Here are five signs that you might be able to retire early, after all.
You have no outstanding debts.
That includes debt of all shapes and sizes, from your mortgage to credit cards, lines of credit and car lease. Debt payments (and related interest) are best left out of retirement, as they can cut into your ability to pay for discretionary (read: fun) spending or even survival-level expenses such as food and utilities. This is especially true of large debt balances.
You have successfully lived on your retirement budget for 6-12 months.
Most pre-retirees limit their due diligence to developing a post-retirement budget and eyeballing it for reasonableness. This “Looks like I could live with this” approach is not enough if you are considering early retirement. I recommend that you actually try your retirement budget in action by following it for anywhere between six and 12 months. Not only will it give you the opportunity to catch incorrect assumptions and iron out the wrinkles, it will ensure you are making a well-informed decision by retiring early.
You can fund your medical insurance within your retirement budget.
Let’s face it: healthcare and medical insurance are expensive. Most people must obtain their own health insurance to cover the gap between when they stop full-time employment and when Medicare becomes available. At the very least, you will need a basic policy that covers doctor’s visits, prescriptions, hospitalizations in case of an accident or serious illness, as well as vision and dental care.
If your employer is covering your premiums now, be sure to research what it would cost you to get your own stand-alone policy (hint: the number is likely to be higher than what your employer is currently paying). Then, build that number into your retirement budget.
Your children are financially independent.
If you have college-aged kids who rely on you (occasionally or regularly) to be their financial safety net, early retirement may be out of your reach. Unless you have a healthy savings account that will serve as a bridge to get them to financial independence. If your children have special needs that necessitate ongoing expenditures to take care of them, those expenses must be a part of your retirement budget.
You have a plan for life after retirement.
Finally, consider that one may be financially set to retire – and at the same time not emotionally ready to take the big step. This is particularly true for those who have worked their entire adult lives, who enjoy their work, or who rely on their working environment to provide companionship, entertainment and a sense of belonging. It is a good idea to reflect on what would fill your days in retirement, or even test-drive your “retirement lifestyle” for a few weeks to make sure that you actually enjoy it.
If you have a spouse, it is important to discuss your early retirement plans together. Your decision to retire early will require your spouse to adjust his or her daily flow, and that change can cause friction – especially if it turns out that you two are not on the same page. Perhaps your spouse expects that you will pick up the bulk of house chores now that you are home all day, or you expect that your spouse will come home early from work every day so you are not lonely. Have a frank conversation about life in retirement to ensure everyone’s alignment and peace of mind.
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