4 Ways To Plan For Early Retirement and Still Live Comfortably
Written by
Cynthia Measom
Edited by
Rebekah Evans
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Facing an early exit from the workforce due to medical issues, a disability or caregiving responsibilities can seem overwhelming — especially when it comes to your finances. After all, retiring early means you’ll need more money to live on for a longer period of time.
Although it may seem next to impossible, with thoughtful planning, a solid long-term strategy and a commitment to carefully managing your money, it’s possible to retire early without having to sacrifice too much.
Here are some expert insights into how people can plan an early retirement that will allow them to remain in a comfortable lifestyle.
Also here are a few questions to yourself if you are wanting to retire early.
Understand How Much Money You Will Need In Retirement
David Blain, chartered financial analyst (CFA) and CEO at BlueSky Wealth Advisors, has guided numerous clients toward achieving early retirement while maintaining a comfortable lifestyle. He said it’s important to first build a solid understanding of how much capital you will need in retirement.
“You need to make well-informed assumptions about your future expenses, including medical costs, housing and leisure activities,” he said.
“Don’t forget to account for inflation and potential price increases over time,” Blain said. “For instance, while planning for early retirement, I encourage clients to factor in higher healthcare costs due to the longer duration before qualifying for Medicare.”
Have a Well-Thought-Out Investment Strategy
“Investment strategy is another crucial component,” Blain said. “Diversify your portfolio across global allocations and various asset classes to limit volatility and ensure predictable returns over longer periods.”
“For retirement accounts, I recommend placing less tax-efficient assets, such as bonds and dividend-paying stocks, into qualified accounts (like 401(k)s and IRAs), while more tax-efficient assets, such as stocks or ETFs, into taxable accounts,” he said. “This can enhance your after-tax returns and stretch your retirement dollars further.”
Consider Alternative Income Strategies and Backup Plans
Blain explained that if fully stepping away from work seems risky, you should consider downshifting to a part-time or lower-stress position that will allow you to still contribute to retirement savings and maintain healthcare coverage.
“I also use tools like Monte Carlo simulations to test various scenarios for clients, ensuring their plans hold up under different market conditions and unexpected life events,” he said. “By combining careful planning, strategic investments and contingency plans, it’s entirely possible to retire early without compromising your lifestyle.
Take Advantage of Disability Benefits If Applicable
Jamie Upson, owner and senior financial advisor for Stonehearth Capital Management, said he’s had a handful of clients who retired early due to disability. “Traditional savings for retirement will help with cash flow needs, but nothing will compare to a disability policy in place to cover such a risk.”
“Disability policies typically replace a percentage of lost wages. If they are employer group policies, long term disability typically replaces 50% to 70% of the employees’ salary,” he said. “And these benefits often pay until age 65. If [and, or] when available, it is preferred that the employee pays 100% of the premiums for their disability policy because benefits paid would be tax-free. If the employer pays the premiums, then the benefits are taxable.”
Upson said that most disability policies require that when benefits are paid, the disabled person files for Social Security disability benefits. If a claim is approved, then the group disability policy benefits are usually reduced by the amount received by Social Security disability benefits.
“Some employers also provide disability pensions, which would allow for someone to retire early from their employer,” he said. “Not only would this give early access to the employees pension but this can be particularly important if health insurance benefits are provided to employees who retire, versus quit.”
Upson said that this is a complicated area that requires a lot of research into employee benefits to make sure that every available benefit is obtained.
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