The allure of early retirement, escaping the daily grind for a life filled with freedom and leisure, is a powerful dream. However before taking the plunge, there are many things one should consider to increase the likelihood of a smooth transition and a secure future. This month, we’re delving into a few fundamental aspects to think about before embarking on your early retirement journey.
The Financial Fortress: Numbers Don’t Lie
Financial preparation is the cornerstone of a successful early retirement. Being realistic today about economic factors, income and expenses, investment returns, desired lifestyle, and the potential for unforeseen circumstances can avoid a lot of financial stress later. Retiring early means that your current savings must last longer than if you waited to retire, while at the same time losing years of compounding interest and growth on your investments. While traditional retirement modeling assumes that expenses go down in retirement, that’s not always the case, especially when you’re retiring at an age where one is younger and healthier. Keep in mind that retirement savings typically cannot be accessed without penalty if under a certain age and that Social Security benefits may be reduced if you have fewer high-earning years to calculate benefits from. Finally, having some flexibility on the exact date of retirement can be helpful. Drawing funds from investment accounts when the market is experiencing growth rather
than losses can substantially impact the longevity of those assets.
Healthcare Maze: Navigating the System
Healthcare costs can be a significant expense in one’s retirement budget as leaving the workforce early often means relying on private insurance until one is eligible for Medicare (usually at age 65). If healthcare coverage has been provided by an employer, there can often be an increase in premiums and/or decreased coverage when going at it alone. Explore options such as joining your spouse’s plan or purchasing an individual plan through the Affordable Care Act Health Insurance Marketplace. Continuing
a current employer’s coverage via the Consolidated Omnibus Budget Reconciliation Act (COBRA) is often an option however employers aren’t required to subsidize it for former employees, and it typically is only available for 18 months following separation from the employer. Research and compare costs, deductibles, and coverage networks to find a plan that suits your needs and budget.
Purposeful Pastimes: Filling the Time Gap
Retiring early means saying goodbye to the structured routine of work and its many obligations. While this freedom can be liberating, the loss of purpose, meaning, and identity that a career often provides has been linked to feelings of depression and aimlessness. It is crucial to have fulfilling activities to fill your days. Consider your passions, hobbies, and interests. Explore volunteering, learning new skills, pursuing creative endeavors, engaging in outdoor activities, or traveling. Planning enriching activities helps maintain social connections, mental well-being, and a sense of structure and purpose in your post-work life.
Social Scaffolding: Maintaining Connections
Work often provides a built-in social network whether we realize it or not. Early retirement can lead to isolation, which may further compound feelings of depression and loneliness. Proactively maintain existing relationships with friends, family, and former colleagues but keep in mind that those with whom you normally socialize may not be available during the workday. Look to explore new social circles by joining clubs or community centers. Location-based social media platforms such as Meetup, EventBrite, and even NextDoor can be used to find people with shared interests and hobbies. Staying connected provides emotional support, combats loneliness, and enriches your retirement experience.
Flexibility Factor: Anticipate the Unexpected
Life rarely adheres to rigid plans. Be prepared for the unexpected. Maintain an emergency fund covering several months’ expenses to cushion unforeseen events like medical emergencies, home repairs, or market downturns. Consider downsizing your home or simplifying your lifestyle to reduce ongoing expenses and create financial flexibility. Remember, adaptability is key to navigating potential challenges and ensuring a smooth retirement journey.
Early retirement is an exciting life transition. An opportunity for personal growth and self-discovery, many look forward to having the freedom to chart their own course and embrace possibilities that are not typically available when one is dedicating 40+ hours a week to working. It can be an extremely rewarding chapter, but thorough planning is imperative to maximize comfort and freedom for the many years that lie ahead. Working closely with your Vision Capital Client Relationship Manager is key to navigating this transition with confidence and paving the way for a secure and personally fulfilling golden age.
