Tips for how to retire early
Many people dream of early retirement, picturing more time for family, travel or hobbies. But the decision to retire early is not one to take lightly. There are many financial and lifestyle issues to consider. Here are just a few.
- Can you afford to retire early? No matter what age you plan to retire, use the retirement calculator to calculate your personal retirement number. It’s an estimate of how much money you’ll need to save to generate the income you want in retirement.
- Will you outlive your money? A 65-year-old man today has a 17-year life expectancy. A 65-year-old woman has a life expectancy of more than 19 years. Your savings should be large enough to support you for a potentially lengthy retirement.
- Will you lose important company benefits? Most people who retire early (before age 65) will not qualify for Medicare, the government’s retirement health plan, so you need other health insurance if you leave your employer (check to see if your employer offers retiree health benefits.) You’ll also forgo the match on retirement savings that many employers offer. The longer you work, the more income you will accumulate, and the higher pension payouts you are likely to receive (if your employer offers a pension).
- Finding purpose: For people who derive much of their self-esteem from their occupations, the transition to retirement can be daunting. The American Psychological Association suggests that people approaching retirement take the time to investigate new hobbies. Build a diverse “portfolio” of activities, such as volunteer work, continuing education, exercise and travel.
- Changing family relationships: Early retirement means more time to spend with your spouse, children or other family and friends. This can be a big benefit for you, but are they prepared for the extra attention? Create a plan for your day-to-day activity after you retire, especially if your spouse and friends are still working.
Retirement Planning Tip #1
Consider gradually phasing out your work obligations by working part-time or consulting. This can give you time to adjust to the different pace of retirement.
Getting your finances in order
If you’re not quite ready financially, here are tips for planning an early retirement:
- DON’T play roulette with your savings. If you’re behind on your retirement savings, it might be tempting to shift your savings towards investments with a higher potential return. But these also carry higher risk. For money that you’ll need in the next five years or earlier, focus on less volatile investments such as Treasury and other short-term bonds, Certificates of Deposit and money market funds or accounts.
- DO accelerate your savings and cut expenses. Look into increasing the automatic monthly contribution to your retirement plan. Trim your monthly budget or delay big purchases like a new car or home. A small change in your contribution rate might make a big difference in your retirement income. If you are over the age of 50, you are able to make catch-up contributions to 401(k) plans and IRAs.
- DON’T put all your eggs in one basket. Diversifying your investments becomes even more important as retirement nears, when a major investment loss could affect your income for years to come. Don’t have too large an investment in any one stock, even if it’s your employer’s. Diversify your investments across a wide range of asset classes and industries.
- DO seek advice. A financial advisor can help you determine how much you need to save to retire early, investigate financial products that provide income in retirement, and create a financial strategy to make your money last. Supplement professional advice with your own research. Get started at the Retirement Center.
Whether your early retirement dream is to walk along the beach in an exotic locale or spend more time at home with family, following these tips can bring the day closer.
What's next? How much do you need for retirement?
Brokerage IRAs (non-FDIC insured) are available through Merrill Edge. Bank IRAs (FDIC insured) are available through Bank of America, N.A.
Merrill Edge is the marketing name for two businesses: Merrill Edge Advisory Center, which offers team-based advice and guidance brokerage services; and a self-directed online investing platform. Both are made available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S).
MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation.
Banking products are provided by Bank of America, N.A., Member FDIC.
Investment products offered through MLPF&S:
Investing involves risks, including the loss of principal invested.
Diversification and asset allocation do not assure a profit or protect against loss in declining markets.
Neither MLPF&S nor Bank of America, N.A. are tax or legal advisors. It is suggested that you consult your personal tax or legal advisor before making tax or legal-related investment decisions.