With the trend of early retirement increasingly gaining prominence among Millennials and Gen Z, barely anyone is planning to work after their 40s and 50s, isn’t it? But before you jump into the long line of people wanting to get rid of their mundane work life as soon as possible through early retirement, it’s important to know if you are financially ready for it or not.
So here are five indicators that show whether you are ready to retire early or not:
5 Signs That You Are Financially Ready To Retire Early
1. You Are Totally Debt-Free
When your retirement income from savings and investments is limited, making regular EMI payments can be especially difficult. Therefore, it’s a good idea to pay off all of your debts before deciding to retire, including credit card debt, mortgages, and loans.
It’s also critical to remember that early retirement is not limited to people who reach retirement age. Being independent and financially free is another goal of the FIRE movement. This is only possible if you have no debts and no outstanding balances with anyone.
2. You Have Saved Enough
Since your time horizon is much shorter when you retire early, you should save and invest more aggressively. The average person who retires at 60 usually gets at least 20 to 25 years to save. So, first, you will need to factor in an additional number of years if you want to retire early in your 40s or 50s. As life expectancy continues to rise, you may need to budget for a lengthy retirement period that could last up to 40 years or longer if you retire early and go on to live longer.
3. Your Health Expenses Are Sorted
The most significant, yet often ignored component of a retirement corpus is healthcare costs. This may be particularly valid for early retirees. Your health is still on your side when you retire early, which is one benefit. However, this can also work against you by giving you a false sense of relief and encouraging you to put off making plans for your future medical costs. This can deeply drain your pocket post-retirement as you age.
4. You Can Provide For Your Dependents
You must set aside money for your family members’ needs if they are financially dependent on you. For example, you will require an education corpus to pay for your children’s educational costs if they are enrolled in school or preparing to enter college. In addition to the tuition, these will cover travel, necessary and optional expenses, and course-related supplies like laptops and cameras. You will also need to budget and save for your children’s wedding costs.
Many people in India still live with their parents in joint families. Elderly parents might need ongoing medical support. The cost of medications, insurance, long-term care, etc., can add up. If your parents cohabitate with you, you must also account for that.
5. You Are Ready To Live On A Budget
Your retirement income is finite because it comes from a planned systematic withdrawal from your investments. You must therefore use it carefully. You can plan your withdrawals from investment and savings accounts by using a budget. But this budget won’t be the same as your pre-retirement budget because your post-retirement expenses will undoubtedly change. You’ll also need to get ready to forgo some luxuries and live on a tight budget.
As a result, make an effort to estimate your retirement expenses realistically using the value of your investments or savings. Establishing a methodical monthly or annual withdrawal plan is a good place to start.
