Preparing for retirement takes deliberate, consistent planning and attention to detail. One important detail is timing, or the age at which you plan to retire. Having an anticipated retirement date allows you to align your savings and investing goals with the year you’ll need to begin withdrawing money. However, many workers discover they must retire earlier than expected. In fact, according to a retirement confidence survey from the Employee Benefit Research Institute, the median American’s retirement age is 62 years old, while workers’ median expected retirement age is 65.
Whether you’re forced to retire early due to health concerns, a job loss, caregiving responsibilities, or just the desire to leave the workforce, leaving your career sooner than expected can significantly impact your retirement plan. Below are seven tips to help you navigate an early retirement.
1. Understand your financial situation.
The first step in retiring earlier than expected is to check in on your financial situation. Evaluate your current savings, investments, and assets. Assess your monthly expenses and budget to gain a clear understanding of your current financial obligations. Determine how much you can reasonably spend each month while still preserving your retirement savings. Your wealth manager can help you assess and understand your current financial situation and any potential challenges you should be aware of.
2. Set clear retirement goals.
The next step is to define your retirement goals. What do you hope your retirement will look like? How will you spend your time? Whom do you wish to support? What will bring you fulfillment? Having a clear vision of your desired retirement lifestyle can help guide your decision-making process and allow you to prioritize your spending. Return to these goals often as you navigate the various aspects of your finances.
3. Develop a savings strategy.
Because you’re retiring early, your savings will need to stretch over a longer period of time. If you’re still in the workforce, maximize your savings potential by cutting unnecessary expenses and increasing your contributions to your employer-sponsored retirement account. Depending on your modified adjusted gross income for the year, you may also consider contributing to IRAs or Roth IRAs. Make a goal to save as aggressively as possible during your final years in the workforce. Your wealth manager can help you identify the best account vehicles for your additional savings.
4. Plan for healthcare expenses.
Healthcare costs are often one of the biggest expenses faced by retirees. If you need to retire earlier than expected, it’s important to have a plan in place for paying for healthcare. Explore your options for health insurance coverage, including COBRA, Affordable Care Act (ACA) plans, or private insurance.
5. Evaluate alternative income sources.
Retiring early doesn’t necessarily mean you need to give up all sources of income. Explore opportunities to generate income in retirement, such as freelancing, consulting, part-time work, or starting a side business. Also consider more passive income sources, such as investing in real estate, if the circumstances are right.
6. Adjust your retirement lifestyle.
Retiring earlier than expected may require you to make some adjustments to your lifestyle and spending habits. Carefully review your expenses to identify areas where you can cut back without compromising your mental and physical well-being. Consider downsizing your home or reducing your travel and entertainment expenses.
Before making any major changes, revisit your retirement priorities (see #2 above) to ensure your decisions align with your goals. By making conscious choices, you may be able to better stretch your savings without significantly impacting your long-term goals.
7. Continuously monitor and adjust accordingly.
Once you retire, it’s important to remain financially vigilant. Regularly review your overall financial situation, including your investments, budget, and progress toward your goals. Make adjustments as necessary based on market conditions and your ever-evolving financial life. Stay informed and engaged with your finances to help ensure your continued financial security.