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Comfortable Retirement

Is early retirement on your wish list? Do you envision a relaxing lifestyle in a warmer climate or the leisurely pursuit of a personal hobby? Unfortunately, retiring later than anticipated, rather than sooner, is becoming more and more commonplace. But some people are still managing to retire early. You may be asking yourself, “How do they do it?”

The key is to be proactive in your retirement planning. Of course, the sooner you begin planning and saving, the better your chances are for early retirement. Keep in mind that a general rule of thumb is that you may need as much as 60% to 80% of your preretirement income to meet your expenses and maintain your desired lifestyle in retirement.

Redefining Retirement

Multiple factors are redefining how Americans approach retirement. Due to financial necessity, or perhaps too much leisure time, some retirees are reentering the workforce. Many retired executives start their own part-time consulting businesses; others trade in their 70-hour work week for semiretirement, during which they work less and spend more time with their families. Part-time work during retirement can be an important income supplement, especially if you plan to retire early from your full-time job.

Longer life expectancies are also changing the retirement landscape. Although your chances of a longer retirement are certainly greater if you retire early, relying solely on Social Security, for example, may be more difficult over time. This program was originally designed as a safety net, and not intended to provide perpetual income. Further, traditional pension plans have been generally discontinued by most companies and replaced by employer-sponsored retirement savings vehicles, such as company 401(k) plans.

The shifting of the responsibility for retirement planning from employers to employees has put more of an emphasis on the importance of maximizing contributions to your workplace retirement savings plan and taking full advantage of the company match, if available. As a result of these factors, your retirement assets, as well as your personal savings, may have to work harder to meet your objectives, no matter when you retire.

An often overlooked aspect of retirement planning is managing your personal finances while you are retired. To help ensure enough assets for decades of retirement income, your money may have to continue working for you throughout your retirement years. Inflation, along with the amount of income withdrawn from your retirement plan, will have a direct effect on how long you will be able to meet your expenses. Therefore, personal savings will continue to be an overall part of your financial plan.

Budgetary constraints can also determine your lifestyle choices in retirement. In order to determine whether you will be able to maintain your current or desired lifestyle if you retire early, it can be helpful to estimate your retirement income and expenses. Unfortunately, these estimates are difficult to project, as you will need to consider everything from fitness center fees to out-of-pocket health care costs. In addition, you must factor in inflation and how your financial needs may change over time.

Remember, for those who wish to retire early, it is important to realize that certain tax penalties may apply for early withdrawals from retirement plans. Be sure that you review all of your options with a qualified financial professional.

Even in challenging economic climates, early retirement remains a possibility. By planning ahead and maximizing your retirement plan contributions and personal savings, you may increase your chances of reaching your early retirement goals.