Ask five different people what early retirement means to them, and you’ll get five different answers. Regardless of what it means to you, here are the three steps to take to plan for an early retirement.
1. Define What Early Retirement Means To You In Terms Of Age
To some, early retirement means age 45; to others, age 60. Even a five year difference can have a serious impact on the amount of income you may need, so the first step in planning for early retirement is picking a target age or date.
Once you have an early retirement date in mind, you’ll need to consider the following:
- Life expectancy, as it affects how many years you will need retirement income.
- When you can and should begin taking social security.
- How you will cover the cost of health insurance until you reach age 65, which is when you become eligible for Medicare.
- What you will do with your time, and whether it will entail hobbies that will cost you money, or hobbies that will make you money.
All of these items and more are covered in the following two articles:
- If your target age or date is within five years, you'll also want to read 5 Steps To Take Within 5 Years Of Retirement.
2. Define What Early Retirement Means To You In Terms Of Income Needs
Some define early retirement as the day they no longer have to work in their current profession or career, but they would like to earn income pursuing a new career, hobby or passion. For others, retirement means they have reached a point where they will never work for money again.
If your definition of early retirement means you don’t want to pursue any money making ventures you will need to save significantly more than those who plan on earning money in some way or another.
- To account for these variations, you need to estimate the total amount of annual retirement income you will need. To come up with a quick estimate follow the simple calculation in Enough to Retire, A Simple Calculation Delivers A Yes/No Answer.
- For a more detailed estimate of how much you will need to retire, walk through the 4 Steps To Determine How Much to Retire.
3. Make An Investment Plan That Can Deliver The Income You Need For Early Retirement
Once you have calculated the amount of income you will need, you’ll want to spend time researching the various ways you can structure savings and investments so they produce consistent and reliable retirement income.
This is not the time to make quick, off-the-cuff decisions. Think about how much you know about your own profession, the years of training and experience it took to gain that knowledge, and the amount of income it has paid you over your lifetime.
The investments you will now choose need to provide income for your remaining lifetime, and you can’t afford to make mistakes, so take the time to do careful research, and don’t hesitate to seek qualified professional help.
Start with the three articles below: