How You Can Know if You Can Retire Early
With all of the uncertainty that has been going on over the last few years, many people have been wondering if they can just retire early. This sounds like a great idea and it can be a wonderful goal but keep in mind there are challenges to retiring early. Some of the challenges that come with retiring early are dependent on the age you plan to retire. For instance, you will need to live off your assets much longer if you are younger. That being said here are a few topics that will help you determine if you can retire early.
Step 1
The first step is to define your success. Success to you might be a certain lifestyle or it might be leaving a legacy. This is also your “why.” The more clearly that can be defined the more efficient the accumulation of assets will be. With your vision of success determined you can start crunching the numbers that are needed to sustain that lifestyle annually.
There are certain obstacles to everyone’s success that you need to be aware of such as; longevity, extended care, market volatility, and inflation. Some important expenses to keep in mind when determining your success are health care premiums, auto expenses/purchases mortgage, etc. Do not forget these because the more exact you are, the better you can calculate how much money you need annually.
Step 2
With your budget established, you can use a common method (4% Rule) to calculate the magical number you need to have in your accounts. This rule states that withdrawing 4% annually from your funds will give you the greatest chance of not running out of money. For example, if your level of success requires $42,000 a year to live comfortably, you simply divide that number by 4% and you get the total amount needed, which in this case is $1,050,000. Now that you know roughly what you need to aim for, you can figure out how much you need.
To make the math easy I use this example, but strategically using tools that establish a base of guaranteed income, complimenting it with protected principal and liquid funds, could potentially increase your retirement income by 30-50%. If you would like to see how that can be applied to your situation feel free to message me.
Step 3
Don’t forget the simple lessons of personal finance such as budgeting or keeping an emergency fund. Just because you are retired doesn't mean throwing caution to the wind. These need to be evaluated regularly as your life changes. Keep debt obligations in check because they can make or break a plan. Since income in retirement is less secure, debt obligations become riskier the longer you are not working.
Finally
If your plan is to retire early the suggestion is don’t have all your eggs in one basket. For example, the earliest you can withdraw your investments in a tax-advantaged account is age 59 1/2 so if all your investments are in that account you will incur penalties when withdrawing before that age. For help on where to allocate money feel free to reach out to me. Everyone’s idea of success will be different.
Disclosure
Provided content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice.