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.