Many people believe that the dream of early retirement is a far dream. Worries about how you will live, what you will do, and what others will think can distort the truth in front of you. However, early retirement might be more feasible than you believe. Retire the case of Brenton Hayden, who set a target of retiring by the age of 27 and achieved it. He accomplished the almost impossible by strategically creating a company that could run itself when he was able to walk away. He now enjoys a life of total freedom.
Identifying the 15 signs that you should retire early can be the first and most critical step in charting your own path. As you read through the list, you might be shocked at how many of these elements relate to you right now. Are you prepared to Retire?
If you consider retiring early, you can forego not just the annoyances of living, but also the extra earnings that might have made your retirement more pleasant. Before you go, make sure you’re fully prepared.
As a result, we’ve assembled a list of 15 indicators that you may be capable of doing the same.
15 Signs You Are Ready to Retire Young
1. You believe that Opportunities can be found everywhere.
Hayden’s conviction that he could see the good in any situation and use it to his advantage is what enabled him to become self-sufficient and achieve his goal of retiring at the age of 27. Opportunities can be found all around us; we just need to search for them.
2. You have the feeling that your daily life is no longer fulfilling.
Being productive or good in a role may often leave a spiritual and emotional void. When you hit this stage, the best cure is always to walk away and take the “path less traveled” and reawaken your desire to create something new – maybe even in a new place.
3. You Want to Share What You’ve Learned
When you’ve mastered an ability or trade, sometimes the greatest reward comes from sharing your experience with others. This is not only a wonderful way to “pay it forward,” but it also empowers those around you and allows them to carry on with what you’ve taught them, freeing you up to concentrate on the things that will help you reach your early retirement target.
4. You Aren’t Afraid of Risk
The old adage “no risk, no reward” is especially relevant when determining if you are ready to retire. Walking away from the perceived comfort of an established life (e.g., work, everyday routine, etc.) to embark on an unknown journey is a significant decision. However, if you believe that the only thing worse than moving is remaining static, then the time might be right.
5. You want to Have Control Over Your Destiny
Recognizing that having control over how and where you spend your time is genuinely life affirming can be a significant step in the retirement process. If you want to take charge of your own destiny and live life on your own terms, you may just be the right person for the job. The trick is to have the trust to take the first step.
6. You Don’t Accept the Traditional Definition of Retirement
Retirement no longer entails just sitting around the yard, playing golf or tennis, and watching the clock tick away. Believing that retirement today will mean working (or not working) when you want, traveling when you want, and not being held to anyone else’s agenda is a big sign that you’re ready to retire on your own terms.
7. You believe that Retirement is not the end, but rather the beginning of a new chapter.
Being rid of the yoke of work deadlines, a regular schedule, and time constraints marks the beginning of a whole new life. You can now work hard (or not) and play hard at the same time. It is up to you how you make this next chapter of your life your own.
Leaving work early to spend long days doing nothing would result in an unsatisfactory early retirement. A well-defined schedule, or even the outline of a daily routine, will assist you in preparing.
Perhaps you’ll substitute a weekly golf outing or a volunteer gig for sales meetings, in addition to regular walks or trips to the gym. Plan a long-overdue vacation or enroll in courses to learn something new.
If you can easily come up with practical, non-work-related ways to pass the time, early retirement might be for you. Taking a week or more off work to spend your days as you will in retirement is a good way to test your retirement budget. If you get bored with long walks, daytime TV, and hobbies in a week, you’ll be bored in retirement.
8. You recognize that money is not everything in Life.
Monetary status, like the weather, can change unexpectedly. By accepting that you can live cheaply for the time being – if necessary – in order to achieve your target of early retirement, you are already prepared to deal with the ebb and flow that retirement and saving once retired can bring.
9. You don’t compare your life to the lives of others
One of the most significant advantages of retirement on your own terms is that you no longer have to compare your life accomplishments to what others have (or have not) achieved. Both success and failure are just chapters. Some of which fall short of a target and may eventually result in you reaping more benefits than if the initial strategy had succeeded. That’s how it is.
10. You Believe That Age Is Just A Number
There is no requirement to meet a certain age in order to be “ready” for retirement. True, certain financial situations, such as pensions, 401ks, or Social Security, have a legal age requirement, but the concept of retirement and starting a new life is not constrained by those same figures. That is why people like Hayden will retire at the age of 27, while others work into their 70s and 80s. Knowing that age is just a number frees you from social constraints that determine what the “right” age for retirement should be. The decision is entirely yours.
11. You have paid off your debts
If your mortgage is paid off and you don’t have any loans, credit lines, high credit card balances, or other debt, you won’t have to worry about making large payments after retirement. This frees up your savings and retirement income to enjoy life and to use in the case of an emergency.
12. You have a lot of money saved up
You planned ahead of time and established a goal for retirement savings. Your investments now equal or exceed the amount you hoped to save. This is yet another indication that you will be able to retire early.
If you did not prepare for early retirement, you would need to recalculate how long your savings will last. Furthermore, depending on your age, you may not be eligible for Social Security or Medicare. Your savings must cover your expenses until you reach the eligible age.
“Think ‘Rule 25.’ Prepare to have 25 times the value of your annual expenditures,” says Max Osbon, partner at Osbon Capital Management in Boston. “What’s the significance of 25? It is the inverse of 4%. At that point, you just need a 4% annual return to cover your annual expenses “”Ingenuity.”
13. You Have Access to Your Savings
Nobody wants to face unnecessary fines. If your 59th birthday was at least six months ago, you can withdraw penalty-free from any of your 401(k) plans. There are several exceptions to these policies, which usually apply to other eligible retirement programs. The 457 plans, for example, does not have an early withdrawal penalty.
However, keep in mind that your withdrawals will also be subject to income tax.
There’s also good news for 401(k) owners who want to retire early. If you continue to work with your employer until the year, you turn 55 (or later), the IRS allows you to withdraw without penalty from just that employer’s 401(k) when you retire or leave, as long as you leave it at that business and do not roll it into an IRA.
“There is a caveat, however: If an employee retires before the age of 55 [except as noted above], the early retirement clause is lost, and the 10% penalty for withdrawals before the age of 59112 is incurred,” says James B. Twining, CFP, founder and CEO of Financial Plan Inc. in Bellingham, Washington.
The third choice for penalty-free retirement plan withdrawals is to schedule a sequence of significantly equivalent withdrawals over at least five years, or until you reach the age of 5912, whichever comes first. You’ll also have to pay income taxes on your withdrawals, much as you would from a 457 account.
If your retirement plans include any of the above penalty-free withdrawal options, it’s yet another reason to retire early.
14. Your Medical Care Is Covered
Healthcare can be extremely expensive, and early retirees should have a plan in place to cover the costs before becoming eligible for Medicare at the age of 65. If you have coverage through your spouse’s plan or may continue to get coverage through your former employer, this is another indication that early retirement might be an option for you.
Keep in mind that COBRA can extend your healthcare coverage for a period of time after you leave your job, but the costs may be higher than with other options.
Another option for early retirees is to purchase private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for out-of-pocket eligible medical expenses regardless of your age.
15. You Can Live on Your Budget
Retirees living on fixed wages, such as pensions or retirement account withdrawals, typically have smaller monthly incomes than they did when they were employed.
Try to stick to your reduced retirement budget for at least a few months before you retire. You’ll get a sense of how simple or difficult it would be to make that lower budget permanent.
“Humans dislike change, and it is difficult to break old habits once we have grown accustomed to them. By ‘road-testing’ your retirement budget, you are basically educating yourself to build everyday patterns about what you can afford in retirement “says Mark Hebner, founder and president of Index Fund Advisors Inc. in Irvine, California, and author of Index Funds: The 12-Step Recovery Program for Active Investors.
How to Retire Young? Best Early Retirement Strategies
Is it possible? No doubt, it’s not. However, unless you are individually wealthy—which few people are—it will require hard work and discipline. Here are the five most important steps to take.
1. Calculate Your Retirement Expenses
If you plan to retire early, the first step is to retire how much money you will spend each month after retirement. Begin by tallying up your non-negotiable expenditures, such as lodging, food, clothes, utilities, transportation, insurance, and healthcare.
Ideally, you will reach retirement debt-free. That means no mortgage, credit card debt, unpaid medical bills, or student loans or other debt. If you are already paying off loans, make sure those expenses are accounted for in your budget.
Next, include any extraneous expenditures, such as those for entertainment, travel, and hobbies. Add it up to figure out how much money you’ll need each month to live the retirement lifestyle you want.
Of course, bear in mind that your budget will adjust as you go through the stages of retirement—for example, you will decide to cancel your life insurance policy. This preliminary budget will serve as a good starting point, so make it as precise and practical as possible.
2. Determine How Much You Will Need to Retire
Now that you have a rough estimate of your monthly budget, you can figure out how much money you need to save. There are many methods for estimating this. One strategy is to have 25 to 30 times the projected annual expenses plus enough cash to cover one year’s expenses.
Begin by multiplying your monthly expenses by 12 to get an annual estimate. Find your “goal” range next. Here’s an illustration. Assume your monthly expenditures are $5,000 a month, or $60,000 a year. To retire using this method, you will need between $1.5 million and $1.8 million in addition to $60,000 in cash.
Another method is to divide your projected annual expenditures by 4 percent to determine the size of your nest egg. If you plan on spending $60,000 a year, you’ll need $1.5 million ($60,000 0.04).
Divide by 3 percent if you like more wiggle room in retirement (or somewhere between 3 percent and 4 percent). You would need $2 million ($60,000 0.03) for the same $60,000 per year budget. It’s still a good idea to have a cushion.
Subtract your present nest egg from your target number to see how close you are to reaching your retirement goal. For example, if you need $1.5 million and only have $500,000, you’ll need an additional $1 million before you can retire.
3. Modify The Current Budget
This is where discipline comes into play. You’ll have to put in a lot of effort to make up that $1 million shortfall, particularly if you want to do it quickly. Many people who want to retire early survive on half (or less) of their current salary. The balance is used to pay off loans and invest in the emergency fund.
There are three choices here:
- Spending less
- Earning more
- Carry out both
It is important that you build a budget so that you can see where your money is going and where you can cut back. There are several budgeting apps available to help with this time-consuming task.
4. Make the Most of Your Retirement Accounts
Regardless of when you plan to retire, it is prudent to begin saving early and regularly. Specific retirement plans (IRAs) and 401(k)s are excellent vehicles for accomplishing this.
Do whatever you can to max out your retirement accounts when you’re still working. A standard IRA helps you to contribute to your retirement, the earnings grow tax-free, and you get a tax deduction in the year you contribute. When money is withdrawn in retirement, it is taxed at the marginal tax rate in the year of withdrawal. A Roth IRA, on the other hand, allows such dividends or withdrawals to be made tax-free, and your earnings grow tax-free. Roth IRAs, on the other hand, do not have a tax deduction in the year they are sponsored.
Individuals will contribute up to $6,000 per year to a conventional or Roth IRA in 2020 and 2021. If you are 50 or older, you can make an additional $1,000 catch-up donation per year. If your company offers a 401(k), you will contribute up to $19,500 per year in 2020 and 2021, or $26,000 if you’re 50 or older. Be sure to spend enough to take advantage of every employer match—free it’s money.
5. Collaborate with a Financial Advisor
You face two major challenges if you plan to retire early: You have less time to prepare for retirement. In retirement, you will have more time on your hands.
Working with a financial planner on a daily basis is a smart idea unless you’re a rock star investor. An advisor will assist you in developing an investment plan to help you achieve your retirement goals. They will also show you how much money you need to spend per month in order to achieve your target in a certain number of years.
If you retire, your accountant will assist you in managing your income sources to ensure that your money lasts. Dividends, mandatory minimum distributions, Social Security, defined-benefit programs, and real estate investments are all examples of income sources.
Take the time to select an advisor with whom you are comfortable—after all, you may end up working with them for decades. If you’re worried about the expense of a financial advisor, keep in mind that you’re paying for more than just their time; you’re also paying for their knowledge. If you find the right advisor, the cost would be more than offset by their experience.
Any journey begins with the question, “What do I want to learn?” No matter the age or financial situation, it is never too early to start thinking about retirement. When you look inside, these ten signs will stand out as beacons indicating that the only thing standing in the way of realizing your dream is yourself. Today, dare to take the first step.
There are many indicators to look for when determining whether or not to retire early. The signposts also point to a variety of preparations you can make right now to increase the likelihood that you will be able to fulfill this dream if you want (or need) to.