Should I Retire Early? 7 Questions To Help You Decide Whether You’re Ready

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Retiring early sounds like a dream for many Americans; without careful planning, it’s not always feasible. In addition to reducing the number of years you have to work, earn and save, retiring early also increases the time period that your money will have to last.

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However, this doesn’t mean it’s impossible. By taking the right steps and making the necessary sacrifices, many Americans can and do enjoy early retirements. If you’d like to count yourself among them, you should be able to plan out exactly how you’ll get there and what your early retirement will look like.

Here are seven questions you should be able to answer if you’re asking yourself, “Should I retire early?” 

Have You Stress-Tested Your Financial Plan?

It’s one thing to project that your investments will earn 6% per year for 40 years and think your retirement is all set. But the reality is that investments tend to fluctuate in the returns they provide from year to year.

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While the stock market’s long-term average return is about 10%, for example, in any given year it may gain much more — or maybe lose 30% or more. A few bad years in a row can put a significant dent in your long-term finances, so be sure to run simulations with a financial advisor to determine how your portfolio will hold up under a variety of circumstances.

Have You Factored In the Cost of Long-Term Care?

Long-term care is one cost that retirement planners often overlook. As most long-term care isn’t covered by Medicare — which you won’t even have access to until you reach age 65 anyway — you’ll want to be sure you’re covered in case you need long-term care. Otherwise, your entire retirement nest egg can be easily depleted.

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Have You Made Allowances for Living a Long Life?

One of the mathematical drawbacks of retiring early is that it extends the period that your money has to last. For example, if you retire at 65, IRS tables assign you a life expectancy of 22.9 years.

But, if you retire instead at age 50, your life expectancy is 36.2 years. By retiring earlier, this means your money will likely have to last at least an additional 13 years — and possibly much longer. This means you’ll need to save up a much larger amount by the time you retire. If you figure $1 million will last you 23 years if you retire at 65, retiring at 50 means you’ll need at least $1.58 million. 

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Have You Considered Inflation?

Although inflation has made headlines in 2022, it has been relatively tame for the past few decades. But, even if inflation runs only at a 3% rate during your retirement, it still can rapidly eat away at the value of your nest egg. If you retire early, inflation will have an even longer time to gnaw away at your savings, so it’s essential to factor it into your financial planning.

Have You Drafted Estate Planning Documents?

Long before you retire, you’ll want to have a will in place for the proper disposition of your assets after your death. But if you have significant assets — as you likely will if you plan to retire early — you’ll likely want to establish a trust. Speak with a qualified estate attorney to see whether you need even more advanced after-life planning documents.

Do You Have Adequate Insurance Coverage?

If you retire early, you may have to wait a decade or more before you qualify for Medicare. Even then, it likely won’t cover all of your health insurance needs. You’ll want to ensure that you have enough coverage in place for any major medical costs, on top of all the other insurance you’ll likely need, from homeowners insurance to auto insurance to perhaps even a general liability or umbrella policy.

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Talk with your insurance agent or financial advisor to be sure you won’t have to dip into your retirement savings to cover costs that insurance should cover.

Are Your Investments Aggressive Enough?

Many retirees become too conservative with their investments, which increases the chances they will outlive their money. But this is a particular danger with early retirees. If you retire at age 50, the IRS expects you’ll live another 36.2 years. If you want your money to last for at least three decades, you’ll want to have a significant growth component.

The exact allocation for your needs is best discussed with a financial advisor, who can match your investment objectives and risk tolerance with the proper portfolio. 

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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