If you’re a baby boomer under the age of 65, there is still hope that you can retire before you hit that peak retirement age. All boomers will be 65 by the year 2030, but that doesn’t mean you have to wait seven more years to stop working. Experts say that there are a few key indicators that mean you’re ready for retirement.
Read on to see if you meet the mark for early retirement. In this case, early retirement is deemed any time before you hit 65.
Your Retirement Budget Is Realistic
Your retirement budget should be pretty closely aligned with your current life. If you’re expecting some sort of windfall after you stop working, you’re probably not ready for the reality of retirement.
Terry Turner, a writer for RetireGuide.com, says the smart thing to do is create a lifestyle-aligned budget before you retire that incorporates your goals for retirement, without being wildly off from what you’re earning now. “Identify the things that are important to you and make sure your spending matches those goals,” Turner said. “If you don’t have a budget that matches your lifestyle, you could be putting yourself in a tough financial spot and running out of money too soon.”
Turner recommends adjusting your budget even after you’ve retired so your lifestyle reality and financial reality always match. “It’s important to keep checking in with your budget and making changes as your needs and lifestyle change.”
You Have a Healthy Savings Account
Before you consider retiring, take a look at the number you have in savings. Jeff Rose, founder of GoodFinancialCents.com, says there are some key numbers you need to hit to feel comfortable during your retirement years.
“If a baby boomer has saved up about 25 times their annual expenses, they’re in a strong position,” Rose advised. “This benchmark is rooted in the 4% rule, a guideline suggesting retirees can withdraw 4% of their portfolio annually and expect it to last 30 years.” If your savings account reflects these numbers, you’re in good shape.
You Don’t Have a Lot of Debt
If you have outstanding debts, Turner says you’ll want to take care of those before deciding to retire, especially if the debts are mortgages or carry a high interest rate. “Clearing debts before retirement reduces financial stress, increases flexibility and ensures ongoing repayment burdens don’t compromise your retirement income,” Turner said.
To pay off debt quickly, Turner recommends the avalanche approach — paying off your highest-interest debt first — or the snowball approach — target the lowest balances first and “snowball” through larger debts as you go. Turner adds that the avalanche method will save you more money in the long run.
“At the same time, cut your discretionary spending, redirect windfalls to paying off debt, and consider a side hustle to expedite debt repayment and hasten your path to financial freedom,” Turner added.
You’ve Thought About How You’re Getting Medical Coverage
While working, you’re probably relying on the insurance through your employer to support you and your family. You need to assess how your coverage might change once you retire, and make sure you have a medical plan lined up for when you’re no longer working that is affordable to you.
This is especially important if you want to retire early, since you’re not eligible for Medicare until the age of 65. “You can bridge the Medicare gap by exploring private health insurance or Affordable Care Act plans,” Turner said.
Whatever plan you decide on, you’ll want to make sure it fits into your retirement budget until you’re eligible for Medicare.
You’ve Looked Into Streams of Passive Income
Those over 62 have access to Social Security when they retire, but even combined with your 401(k), that might not be enough.
Turner recommends investing in things like stocks or real estate that pay you money regularly without requiring much effort on your part. “By creating a diverse portfolio of these kinds of investments, you can enjoy a steady stream of income that supports your early retirement goals,” Turner said.
You’ve Passed a Lifestyle Test Run
Sure, you can follow these guidelines, but Rose says you really won’t know if you’re ready until you try. Instead of doing a trial run after you’ve already retired, Rose says you should do it beforehand to see if you’re truly prepared to stop working. Once you’ve done this, you’ll know exactly how far off — or right on target — you are for retiring.
“If baby boomers have successfully lived on their projected retirement budget for a year or more without needing to dip into savings, it’s a green flag,” Rose said. “This ‘trial period’ is like a dress rehearsal, ensuring they’re truly ready for the main event of early retirement.”
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