Many people dream of retiring early. And if it's something you're keen on, your best bet is to plan for it extensively. But before you commit to an early retirement, it pays to run through these questions.
Maybe you'd love to retire at age 58. If you're already 54 and only have $150,000 saved in your retirement account, that may not be doable. But if you're 49 and have $800,000 saved, that's a different story.
Take a look at your savings to date and try to figure out what balance you may be looking at come retirement. In running that number, include anticipated contributions between now and your target retirement date and any potential gains.
For example, you may be shifting toward safer investments if you're within a few years of retirement. In that case, you may only get a 6% return out of your portfolio for the next few years.
Let's say you're targeting 58 as your retirement age and you're 53 with $500,000 to your name. If you anticipate saving another $1,200 a month over the next five years and scoring a 6% return on your total portfolio, you'd be looking at an ending balance of about $750,000. From there, it's up to you to decide whether that will be enough to make early retirement happen.
The bills you need to cover today may not be the same expenses you'll have to cover in retirement. So a big question you need to ask yourself is whether you expect to downsize your lifestyle in a notable way.
Maybe you're currently spending $3,400 a month on housing because you have an expensive mortgage that comes with a high property tax bill. If you intend to downsize to a small condo that costs you $1,700 a month all in, that's a huge difference because you're cutting your housing costs in half.
Of course, housing is only one of many bills you probably pay. But there are other expenses you may be able to shed, too, to make early retirement feasible.
Many people are wired to think that they either need to work full-time or not at all. But if you can make a phased retirement work, it may offer you the best of both worlds.
With a phased retirement, you'd spend a few years working part-time until you're ready to retire completely. It's a good way to lower your stress and reduce your hours without totally giving up a paycheck.
Let's say retiring completely at age 58 might mean having to make lots of lifestyle sacrifices. Retiring partially at age 58 and working, say, 20 hours a week between then and age 62 might give you the freedom in your schedule you've been craving without having to tap your savings to an uncomfortable degree.
Many people are able to pull off early retirement. If you're thinking about it, run though these questions now — and consider an alternative approach that may give you the benefit of a less stressful schedule without the complete loss of your paycheck.
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