Retiring early? Avoid these 5 missteps
Daydreaming about the day you can leave the office routine behind? You may find some obstacles to the carefree life you imagine.
Many people dream of early retirement, especially if they don’t like their current jobs. According to a recent Gallup poll, 70% of workers are disengaged from their jobs.
Basically, the majority of us don't like our current position. While early retirement is a great alternative to working in a job you hate, there are many pitfalls. Here are five early retirement mistakes to avoid:
1. Spending too much too early. Our life expectancy is steadily increasing, and many of us will spend 20 or more years in retirement. Spending too much money early on can greatly increase the chances of your retirement savings running out when you need it most.
The 4% safe withdrawal rate might be good for traditional retirees, but early retirees have to be more conservative. By keeping your withdrawal rate under 3% in the early years, your portfolio will have a better chance of lasting much longer.
2. Not considering working part time. One way to reduce your withdrawal rate is to work a little bit after you first retire. Many early retirees are still young and want to contribute to society. Even if money isn't an issue, it's still good to work a little bit when you first transition into retirement. Working part time will keep you more active and engaged. Easing your way into retirement is much better than quitting work cold turkey.
3. Investing too conservatively. As we approach retirement, our risk tolerance decreases. Many people reduce the stock exposure in their retirement portfolio, perhaps down to 30% to 40% equities. However, early retirees will spend even more time in retirement, so they might be able to handle higher stock exposure.
4. Not considering future medical costs. Early retirees are often healthier than the typical retiree simply because they are younger. But being a healthy early retiree can be misleading. When you're younger, you generally don't need to spend as much on health care, and you might think you'll be healthy forever.
Fidelity Investments estimates that a 65-year-old couple retiring this year will need $240,000 to cover future medical costs. This doesn't even include long-term care. It will cost even more for an early retiree because Medicare doesn’t kick in until you're 65. Planning for early retirement must include the cost of future health care.
5. Being too passive in retirement. Sipping an umbrella drink on the beach sounds good when you're slaving away at your office, but it's an unrealistic plan for early retirees. Retirees will need to figure out how to meaningfully spend their time. A lot of time is available once you stop working so much, and not filling your hours adequately can lead to dissatisfaction and depression.
It's better to plan for a retirement full of activities you like. This is why I have worked part time since retiring early. You still have time to relax, but not too much time.
Early retirement might sound good in theory, but there are many pitfalls you should be cognizant of before actually pulling the plug on work. You have to plan more carefully than a traditional retiree and be more flexible because you will spend a long time in retirement. Adequate preparation is necessary to enjoy this segment of your life without the added stress of dwindling retirement funds.
More from U.S. News & World Report:
Best places to retire for under $40,000
12 surprising facts about boomer retirement
10 target-date funds producing high-grade nest eggs
Ok I retired early. Yes it can be a problem figuring out what to do with your time. But dealing with bad issues at work was no fun either. But it is incredible how much time you can spend reading good books. I know I have learned to read and sometimes read a book in a day.
Yes healthcare is a big issue for sure. So I left the country til 65 but I pay my taxes to the feds and use no servies. But that is ok, I believe in our country just not the politics taking us the wrong way spending money elsewhere but not on our country.
It is not easy to plan for retirement but working til you drop is not the answer either. So you just have to jump and retire.
There are very few "good" jobs out there. You will basically be lucky to get $12-$15 an hour even after working 30 plus years in a real job. People live too high and don't think about things until it's time to retire. Mistake #1. Mistake #2 is banging your head against the wall and blaming yourself because you can't find something good out there. Take what you can. Cut your expenses and don't beat yourself up. Life goes on.....
just enjoy the what is free and don't spend more than you got coming in.
best things in life are free. Now you can retire at 66
The best plan is to live within you means and save as much money as you can. Then retire when you are ready. Continue to live within your means and enjoy your life. Stop worrying about all the things you don't have and be happy with what you do have.
I have seen too many people keep working until the day the doctor tells them they have cancer and then they die. That is not the way I want to go. I will be happy to spend my days working in my garden and enjoying the simple life with my beautiful wife and grand-children.
It's impossible to predict what your healthcare will cost. Medicare was $35/month when we retired....now it's over a hundred. The supplement was under $50 a month now it's $230/per person up from $185 just two years ago. Our premiums as a couple for meds, supplement etc is just shy of $10,000 a year. We had PAID healthcare until we were 65.
Our "kids" are talking about retiring "early".......it was nice until our health gave out. Do alot of soul searching before you do it.
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