The allure of early retirement (or RESET as I like to call it) escaping the daily grind and pursuing your passions – is undeniable. However, making this decision requires careful planning. Unlike traditional retirement at age 65, early retirement means fewer working years to accumulate savings.
So, before you bid farewell to the world of work, take some time to answer these five key questions:
Question #1 - Are Your Finances Ready?
This is the cornerstone of any successful early retirement or reset plan. Do you have a clear picture of your current financial situation? Calculate your essential expenses, healthcare costs, and the desired lifestyle you envision. Identify your potential sources of income (Social Security, 401K accounts) and anticipated expenses (household, medical, travel, etc.). Consider consulting a financial advisor specializing in early retirement planning – their expertise can be invaluable.
During the pandemic (Feb. 2020), I checked my 401K and investments daily as the market took some drastic dips. Not recommended! Yet, it was also the time I started to get conscious about asking: What are we spending each month? Really getting clear about where our money was going was a priority.
I’ve never been a budget person and started to track our expenses via Mint (now CreditKarma) to get a better picture. I also started listening to several financial podcasts to help me figure out where some of the extra money we were getting through stimulus, or lack of spending on travel should go. Knowledge was power here which equipped my husband and I to ask: Are we ready?
Question #2 - What Does Your Ideal Retirement Look Like?
Early retirement isn't just about endless vacations and simply kicking your feet up. Imagine your ideal days and weeks. What activities bring you joy? Do you crave world travel, local exploration of hidden gems, or spending time with loved ones? Be realistic about the costs associated with these activities and factor them into your financial planning.
I’m looking forward to taking back my time and being fully in control over my personal + work life. As an entrepreneur, I’ve had a lot of autonomy over this up to this point. Yet, just before the pandemic, I took a full-time gig inside a great non-profit. While I get to WFH, there is still even more autonomy + flexibility I crave. (Check out my previous article on Reset vs. Retire to get a sense of what I mean by still working during this next chapter.)
Question #3 - How's Your Health?
Early retirement means more years without a regular paycheck coming in. Ensuring you have adequate health insurance coverage is crucial. Research options for bridging the gap between your current coverage and Medicare eligibility. Consider your overall health and potential future healthcare needs. Before Medicare kicks in for us, I'm budgeting about $1,000 a month for this expense.
Question #4 - Do You Have a Plan for Your Home?
Housing is a significant expense. Will you remain in your current home, potentially with a mortgage payment? Is downsizing a possibility? Early retirement planning needs to factor in your housing situation and its long-term financial implications.
We lived in South Minneapolis, MN for 25 years (my husband even had the house a few years before we met) and in 2022 we moved to the suburbs. Why? It was about “downsizing” into a townhome - no more snow removal was a HUGE bonus that the first year we moved. And if it ever comes time, we can live and manage on one floor in our new house.
Question #5 - What is Your Purpose in Retirement?
Retirement is more than just freedom from work. Ask yourself what truly fulfills you. Is continued learning important to you? Spending time with family and friends? Would volunteering your time be a source of purpose? Consider exploring potential "encore careers" that leverage your experience and skills in a new way.
This is where my work as a certified coach will continue. It will be that encore career folded in between travel and pickelball. I'm sure there's more to my list, but these are the top 2 for me at this point.
Action Steps: Next Steps for Early Retirement Planning
With these questions answered, it's time to take action. Many valuable resources are available to help you navigate early retirement planning:
Financial Advisors: Seek out a qualified financial advisor specializing in early retirement. Stay away from the "free dinners" where someone wants to sell you something. Because you ate the steak you just might feel like you should buy from them. Be aware of the insurance salespeople who make commissions on unnecessary products like whole-life policies, annuities, and loaded funds.
Dig into some podcasts: The time you spend in your car can be the perfect time to listen to a few. I'll be pulling forward a few of my go-to's and will post on this soon! Jill on Money is a daily podcast with great information. I've been listening daily since the pandemic. You might even catch her segments on CBS Morning with "dollar dollar Jill"
Track your expenses: Whether it's in an app (I'm still looking for a fave FREE one - if you use one please leave it in the comments. Mint was sold and it's not giving me what I need via Credit Karma) or even printing off your year-end credit card statements to get a glimpse as the categories and your spending gives you the insights you can use.
Remember, successful early retirement starts with a well-defined plan. By asking the right questions and understanding your financial situation, you can pave the way for a fulfilling and stress-free next chapter.
If you want support around creating that reset for early retirement, take a look at a few of my one-on-one coaching programs. You can always reach out and connect to learn more. I'm happy to take some time with folks looking to do what I've been doing over the last few years.