Early Retirement Requires Financial and Lifestyle Planning

As I continue to achieve my short-term goals, my attention is turning increasingly to long-range plans. What is it I want to do with my life? I've always toyed with the idea of early retirement, and lately I've been reading more about the subject. Three books that have helped me so far are:

  • Timothy Ferriss' The 4-Hour Workweek, which explores the notion of “mini-retirements”. (I recently recorded a phone interview with Ferriss on this subject — look for a transcription soon.)
  • Work Less, Live More: The Way to Semi-Retirement by Bob Clyatt describes techniques for leaving the traditional job path years (or decades) before the traditional retirement age of 65. This is a great book.
  • Fred Brock's Retire on Less Than You Think, which argues that the traditional rule of thumb — you'll need 80% of your pre-retirement salary during later years — is misguided.

I'm still in the early stages of my research, which means I love finding new information about the subject. Recently Walter Updegrave, Money‘s “ask the expert” columnist, fielded a question from a reader who hopes to retire early:

I'm 50 years old, my wife is 44 and we would like to retire by the time I'm 55, if not sooner. We have a little over $600,000 in 401(k)s, IRAs and other retirement accounts and another $250,000 or so in stocks, mutual funds and cash that we can draw on once we retire. Our mortgage will be paid off shortly and we have no other debt. Do you think we can pull off early retirement?

“I can't give you a definitive answer to your question,” Updegrave writes. “But I can tell you how to assess your situation [on your own].” Whenever you discuss early retirement, he says, you need to consider two factors: money and lifestyle.

In fact, Updegrave (and other experts) believe it's important to focus on the retirement lifestyle you want first, and then run the numbers. A lot of retirement advice is based on “percentage of current income”, but a more accurate picture of your needs can be obtained by looking at your current expenses. It's important to look at both income and expenses.

If you, too, like to crunch the numbers to explore the feasibility of early retirement, be sure to remember the following:

  • If you retire at young, you will not be able to draw on Social Security for several years. You'll have to tap into more of your savings.
  • You also won't qualify for Medicare for many years, so you'll need to consider healthcare costs.
  • There are penalties for accessing certain retirement accounts early, so it's better to withdraw from taxable accounts first and save tax-deferred for later.

Whatever your plans, it's important to start saving as much as possible as soon as possible. A story from Monday's Morning Edition on NPR described how older workers are more frequently opting to remain in the workforce rather than retire. For some, it's because of the economy. But for many others, it's because they didn't save enough when they were younger.

Updegrave's subject has $850,000 saved at age 50. I'm 39, and am a long way from that. It may be that my dreams of early retirement are just that — dreams. But that's not going to stop me from working toward that goal.

More about...Planning, Retirement

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Miranda
Miranda

I like the idea of looking at your desired lifestyle first, in order to discover your needs for retirement. As always, it’s best to set goals, and then make a plan to achieve them. Part of the problem with retirement planning today (or any financial planning for that matter) is that people set vague goals (“I’ll need about 80 percent of my income”) rather than creating a plan to achieve the goals they set.

Andy
Andy

Retired early is one of my goals, and that sounds like great advice. I’m only 22, and it isn’t that I don’t want to work or do productive (even money making) things, but I want the freedom to do what I want when I feel like it, without other obligations.

B Smith @ Wealth and Wisdom
B Smith @ Wealth and Wisdom

I think Tim Ferriss has it right. Do you want to spend the best years of your life working your fingers to the bone? How many people die before they get there?

JD’s taken the first step by becoming a full time blogger. Hopefully someday soon I can say the same thing!

Chris
Chris

I heard that report on NPR, it was pretty depressing.

Oh well, just more fuel for my saving motivation.

Kenney
Kenney

Yeah, I think I’m going to want to retire early, or semi-retire early. I would totally be open for having a part time job at a book store or something like that, but I think I’m going to want to leave the 40 hour work week grind behind me a few years early.

Now, to get off my ass and make sure I can do that.

Dividends4Life
Dividends4Life

Good information. Retiring early takes a vision and a plan. Most people have one, few have both. Those that do are the ones that succeed.

Best Wishes,
D4L

getagrip
getagrip

I highly recommend that if you are married, that you get with your spouse and consider what you’re retirement lifestyle will be together. I did that with my wife about a year ago and she had some very different ideas about retirement than I did. As a small example, I always envisioned downsizing to a two bedroom condo. Her idea was a sprawling rancher in a more rural area with a big lot and plenty of room for future grandkids to play. We’ve plenty of issues to work out over the next twenty plus years 🙂 But better we start… Read more »

Jarick
Jarick

I’ve never really understood the appeal of early retirement, but then again, maybe it’s because I view retirement as golfing and camper trips?

My dream is to live comfortably, provide for a family if I go down that path, and at some point, to shift to a more enjoyable vocation. Maybe that IS retirement for some people, finally doing what they dreamed of doing for a living?

J.D.
J.D.

@Jarick I think retirement means different things to different people. I always used to crave early retirement because I didn’t want to work. Now I love my work. I love writing this blog. It almost feels like I am retired. (I work too much for that to be true.) So now I need to decide what early retirement means to me. Mainly, I want to save enough money that I have the option to do what I want in life, not what I have to. To me, that’s retirement, no matter what I’m doing. (I think I need to write… Read more »

Jay
Jay

The more I plan for and research early retirement, the happier I am that I’ve chosen the Army as my career. Even though my salary is less than I could make as an attorney on the outside, the austere lifestyle and comprehensive benefits make retiring at 46 an easily-attainable goal. My medical expenses will be covered for life, and at age 65, my Roth IRA (maxed out every year) will kick in as an additional income over my military pension check. My fellow officers either think I’ll stay in longer than 20 years, or that I’ll get out and have… Read more »

elisabeth
elisabeth

I’ve always thought there were at least two things wrong with the “80% of your current income” idea. First, it seems to assume that you’re saving no more than 20% now and thus are already living on 80% of your income. If you’re saving more now, and could live on even less in retirement (say after your mortgage is paid off) then you surely don’t need 80%. Second, I’ve heard that figure in large group meetings — and if the person next to you can live on 80% of his/her income — which could be half of what you’re making… Read more »

Karl Staib - Your Work Happiness Matters
Karl Staib - Your Work Happiness Matters

Understanding where you want to be in the future is vital to understanding how much you need to make and save to reach that goal. A lot of people just have this dream, but never actually plan it out.

We should also think about what we want to do when we retire. There are a lot of people who reach their goal and they are bored. They go back to work because they don’t know what to do with all their free time.

BPT - MoneyChangesThings
BPT - MoneyChangesThings

JD, take a look at Get a Life: You Don’t Need a Million to Retire Well by Ralph Warner. It’s a great read. His basic take is that you’re better off investing in what will make you happy in retirement, and happiness is less related to income. Instead: develop friends, close family relationships, interests, and take good physical care of yourself. If you’re not in debt, the money will take care of itself. He thinks most spreadsheets which say what you need are generated by FPlanners who sell people the goods. He interviews dozens of retired people who live comfortably… Read more »

Andrea >> Learn how to set your hourly rate
Andrea >> Learn how to set your hourly rate

When I retire, I won’t have a mortgage, kids to feed/clothe/school, term insurance or a need to make retirement contributions. I don’t know why they save 80%. That’s crazy, IMHO.

Frugal Dad
Frugal Dad

I just recently read through The 4-Hour Workweek and really enjoyed it. I’ve bumped Clyatt’s book up in my queue based on your recommendation – thanks. My ideas for early retirement are based around the idea of freedom. Freedom to set my own pace; to do what I want to do with my time and remaining life energy; to spend remaining time with those I really want to spend time with. It has little to do with rest and relaxation, and more to do with making a difference in the lives of loved ones, and in the lives of those… Read more »

A.M.B.A.
A.M.B.A.

I am an early retiree – now enjoying my second year at age 52. It is all about lifestyle. We lived on my “retirement salary” for about five years prior to the actual retirement date (2006). I am fortunate to have a pension (which is about a third of what my final position paid) and that’s our income, along with any “very small additional work” to supplement it. IRAs, 503b, savings, etc. will be utilized when I’m in my 60s and beyond. I now am teaching and living in China with my husband and two young children. My salary in… Read more »

JC
JC

I don’t know about early retirement at all – my grandfather is retired, and my grandmother still works – because she’s BORED. And my grandfather SHOULDN’T help the young man who is renting his farmland, but he still does because HE’s bored. They’ve been telling my parents (both who will be FORCED to retire soon – railroad and special services at a school only want to let you stay for a certain amount of years) to be careful about being excited about it and to consider looking for something to do because, while they thought retirement would be fun and… Read more »

TosaJen
TosaJen

We’re hoping to have enough funds to retire in a few years (I’m 40, DH is 46.) Retirement to us means having enough money to choose how we spend our time. If we choose to work, we can choose work we enjoy, and only work as many hours as we want to. We won’t have to worry about sustaining high-paying careers that require overtime and don’t offer more than a few weeks off per year. We can choose jobs we enjoy and move on if we want to, because we have enough money to live on without the jobs. DH… Read more »

elisabeth
elisabeth

JC at 17 and others — I think “introverts” might actually make an easier transition to not working, since they may not miss the constant social interactions of regular work life. I wonder if the “boredom” reaction doesn’t reflect the fact that too many people have to work so much overtime that they aren’t able to develop any real life, real activities and interests that are separate from their employment. Which is really sad! And yet, no one starts out like that do they? Or maybe they do — when I see the college students here who have no interests… Read more »

Kristi Wachter
Kristi Wachter

Clay Shirky has some thoughts about the gradual shift toward using leisure for fun and useful tasks (like Wikipedia). Personally, I can’t imagine being bored in retirement. I’m hoping to take up gardening (loved the article on suburban farming, JD, and your series on your own garden is just great), and I imagine that will take up as much of my time as I want to put into it. I also play guitar and piano, and I’d love to spend time getting better at those, and I own literally thousands of books, including a lot of the kind of book… Read more »

Soultravelers3
Soultravelers3

We retired early at 50 with a young child and we are traveling the world having a ball living large on little ( since 2006)! It was the best decision of our lives and think this kind of freedom is the way life is meant to be lived. It has been an amazing experience for us as individuals, for our child and for our family. There is nothing better than the gift of time and shared adventures with those you love most. Mobile living is so easy to do today & webcam free skype calls keep us connected to friends… Read more »

Dickyvman
Dickyvman

I talk a lot on my website about the very idea of getting to retirement early by being frugal. My objective is to get there by the time I turn 52! I agree with a lot of the other posts that life is way to short. I don’t want to work for the rest of my life.

http://frugalretirment.blogspot.com

Marc Goodin
Marc Goodin

Ever since I was 30 i was going to retire in 5 years. Well I’m 49 now and several 5 year periods Have gone by. I always new it was going to take money but in the end there was never going to be enough for the perfect retirement. In addtion to the money its about what to do every day and how to enjoy every day. so i made sevearal decsions. The first decision- retire 6 days before I’m 50 – 11 months from now. – from my engineering job The second – Enjoy the summer at home on… Read more »

A.M.B.A.
A.M.B.A.

Way to go Soultravelers3! We too, retired early (at age 50 and 41) in 2006, are living overseas with our 2 young children and loving it. However, we will be alternating between overseas and the U.S. We do have a home in the U.S. which is our “base”. To those who are worried about being bored during retirement – don’t! We’re enjoying life too much. I know boredom – chained to a job on someone else’s schedule. We work for money when WE want to. As Dave Ramsey says “live like no one else now, so later, you can live… Read more »

plonkee
plonkee

You know, I sometimes wonder if I’m the only one not into this early retirement lark.

I think if I won the lottery (which I don’t play), I’d still keep my job although I *might* cut down to 3 days a week – more time for blogging. I guess that means that my life is pretty good really.

adfecto
adfecto

I’m with plonkee. You’d have to give me at least $10 million before I’d consider quitting my job, I don’t understand why people are in such a rush to quit working. I think it is more to do with the “grass is always greener” than it does anything else. Take vacations NOW. Do the hobbies you enjoy NOW. Don’t put all of your energy to what comes next and instead maximize what you’ve already got.

J.D.
J.D.

I think a lot of people are anxious to quit NOW because they don’t like their jobs. I used to be one of those folks. Now that I’m doing something I love, the drive for early retirement isn’t so pressing. But I’d like to prepare financially to make it an option…

plonkee
plonkee

Don’t get me wrong, I’d love not to have to work for money. The security that would give would be amazing. The problem is that because it’s not a major driver for me, I can’t get excited about focussing my money there.

Doing something you love rocks.

TosaJen
TosaJen

I find it interesting that people think that retiring early is a binary thing — “you must hate your job, you must not be having any fun”.

We’re having plenty of fun at my house. We just want to have the financial freedom to choose what we want to do, when, where, and how we want to do it.

I agree that doing what you love rocks. Doing what you love on your own terms rocks even harder.

Rick Francis
Rick Francis

After thinking about early retirement- I started wondering about how much the years not contributing to retirement plans would affect my nest egg. I’m 38 and have been saving since my mid 20’s and have accumulated ~$150K for retirement. Due to the wonders of compounding- I found that if I stopped contributing at 55 but let the money grow for another ten years it would only cost me ~10% of my nest egg! If I stopped contributing at 50 I would still have around 80%. It’s not a bad tradeoff for years of freedom. Of course I would still need… Read more »

Bill
Bill

I retired in my late 20s – not by choice, but because there was no one else to take care of mom.

I didn’t hate my job, but after 18 months of trying to do both I concluded I couldn’t both do my corporate job and take care of mom.

It took a decade for her illness to claim her.

I’d love to be working back in the Fortune 500, but realistically, I wonder if I’ll ever be able to get a corporate job again.

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