Thinking about early retirement? Consider these key financial implicationsSubmitted by Agrawal Associates on June 20th, 2018
June 20, 2018
The decision of whether or not to retire early is one to be considered carefully. For some, early retirement is not an option: poor health or an unexpected downsizing at work are just two examples of situations that can force people out of the workforce earlier than planned.
For most high net worth clients, outliving their money may not be an issue, but when faced with an unforeseen - and sometimes costly - challenge, it’s best to be prepared. A great way to do this is by creating a healthy nest egg that can deliver an annual return sizable enough to fund your retirement lifestyle - with room to spare.
Benefits of Early Retirement
Early retirement comes with many benefits. Those facing health challenges, often aggravated by a stressful work environment, find the slower pace of retirement improves their health. There is also more time to pursue interests and hobbies that you may not have otherwise fit in. For some, it’s creating new work opportunities. For others, it’s spending more time with the grandkids or pursuing items from your bucket list, such as travel, sports, or learning a new skill.
Retiring early with the confidence to pursue these activities comfortably requires some financial planning ahead of time and an understanding of the possible implications of your choice.
When considering an early retirement, here are three key items we encourage clients to really think about before making a final decision. How might they impact your future financial situation?
Retirement changes over time
Retirement typically has three stages, each with different spending needs. The first stage is more active and more expensive. The second stage is more settled. Later in retirement, the third stage, often sees more healthcare expenses come into play. Think about each stage as you plan your future.
Know where you want to live
Is moving part of your retirement plan? If so, consider all the expenses related to a move and to the costs of living in your new environment. Will it be more or less expensive to live there than in your current home?
Crunch the numbers
While it may benefit your health, and support the pursuit of your passions to retire early, consider this: for every year early that you retire, you lose both a year of potential savings, and a year of growth for your retirement savings, as well as gaining one more year of retirement expenses.
With careful planning and thoughtful consideration, an early retirement can be made possible. If this is on your radar, Agrawal Associates is here to help prepare you and your family so you can approach this exciting new stage of life with confidence. Learn more about retirement planning.
Disclaimer: This material has been prepared for informational purposes only and should not be relied on as tax or accounting advice. Specialized professional advice should be sought for specific cases.