Retiring early is a lucrative option unless you are in love with your profession. I believe, 55 is a good age to take retirement from work and enjoy time with family and friends. But make sure, you are financially strong enough to enjoy your retired life to the fullest. I have listed a couple of strategies that can bring you financial freedom after 55.
The key to any financial planning is finding the sources of income and expenses at a given point of time and then try to balance them. Let’s start with the expenses side.
How much may you need to enjoy a comfortable living at age 55? It varies from person to person and also depends on the region where you will be living after retirement. Consider different aspects of your expenditure.
- Your kids will be grown enough and you won’t have to support them as much as you do now.
- It is proven fact that as a person grows older, his expenses decline. At 55, you will spend much less on food, clothing, and recreation than what you spend at the mid-30s or 40s.
- Your spending on health-related matters is likely to increase with age. If you retire before reaching age 65, you won’t qualify for Medicare and your health insurance costs are going to increase.
- After retirement, you may travel a lot or pursue new hobbies that were not possible with a full-time job. These will cost you extra.
By now, you must have an overview of your future expenses and should be able to calculate the final amount. Wait a minute and add a lump-sum of $10,000 yearly amount to that.
Why? For any sudden and unexpected expenses.
Still not done.
Whatever you have calculated is at current valuation. Now adjust the amount to incorporate the expected inflation at the time when you will be reaching age 55. So, finally, you are able to determine or, at least, anticipate how much money will be sufficient to live a comfortable life from age 55 onwards.
Your sources of income
Now let’s find out ways to finance your expenses.
- If your employer is offering any pension scheme, nothing better than that. Try to maximize the amount. Though, it may not be possible getting the full pension amount from the very beginning.
- If possible, make a one-time lump-sum investment in your private pension plan. This will increase your future pension amount manifold. Additionally, you may get a percentage relief from your current tax liability.
- You can count on your IRA plan and 401k Retirement plan, if any. But keep in mind, if you use the funds early, you have to pay the 10% penalty.
- Your traditional savings accounts and investment earnings can offer some relief.
- When it comes to health care, try to get covered under either spouse’s Medicare plan or COBRA coverage. Another alternative is buying a state Obamacare plan.
- If you plan to have any side engagement after retirement, that can ease up your retirement budget.
Now you must be able to figure out an amount that will be at your expense at age 55. Again, consider the inflation issue and adjust the amount accordingly.
The right strategies
Are these two sides of your retirement budget matching each other? No? Even then you need not worry. Exercise the following strategies from now on and by the time you will reach age 55, you will be in a much better position to quit your full-time engagement.
Clear all debts
Try to calculate the amount of the debt that you will accumulate over these years. This may include your high-interest credit card debts, mortgage payments, loans for kids’ education etc. Determine the amount and repay from your current income. Taking retirement without clearing the debts means you will never have peace of mind.
Start investing cheap. If required switch your fund and look for one that offers similar returns at lower expense. You may consider long term investment to start realizing the benefits when you will be nearing 55. You can continue investing even after age 55 but try to comprise most part of your portfolio with low risk, moderate yield stocks or bonds.
If your current income is not extraordinarily high, it may be financially difficult for you to quit your job at once. Instead of taking full retirement at age 55, you can consider taking partial retirement and engaging yourself in a less demanding activity. This way you will be able to enjoy the enough free time and also have a steady flow of income.
Assist children to become independent
Showing your kids the path towards financial independence is good not only for their future but also for your early retirement plan. Many parents can’t even think of retiring due the burden of their children’s education and other needs. If needed, invest a small amount now so that they can learn some skills to start earning their living soon.
Practice moderate living
Last but not the least, if you are planning an early retirement, adjust your current lifestyle accordingly. You will be able to save a considerable amount for your retirement period if you don’t upgrade your home or your car every 2-3 years.
In my opinion, the best time for retirement is when you are mentally as well as financially prepared to retire. Age 55 is a good time since by then you will be able to reach all or most of your professional aspirations and will have enough physical strength for hobbies and other activities.