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by Kate Ashford
September 25, 2016
by Kate Ashford
September 25, 2016
Eight years ago, Judy Freedman’s husband died just before her 50th birthday. Within the next year, her two children moved out of the house for university and work.
With so many big changes, Freedman decided it was time to take a good look at her life as a corporate communications director — and think about retiring a little earlier than planned.
It was scary at first, but now, after three years, I’m so glad I did
Although she didn’t have a date in mind, she started deferring some of her paychecks and bonuses — meaning she didn’t receive them as income, and they were deposited in a company account to be paid out after she retired. So when she was offered early retirement from her job at age 55, she was ready to take it.
“It was scary at first, but now, after three years, I’m so glad I did,” said Freedman, now 58, who lives in New Jersey. “I enjoy having flexibility and time to pursue my passions. I just returned from a trip to Italy.”
In addition to the deferred income, Freedman has a pension that will start payments when she’s in her 60s, and for now she’s living frugally to stretch her resources. She downsized from a house to a townhouse, and she keeps a close eye on her expenses. She makes a bit of money writing about travel and leisure on her blog and occasionally gets to go places for free on press trips.
People don’t save enough, or they don’t take into account how long they have to live without making money
Most recently, she completed training to be a yoga instructor. “It’s not a moneymaking profession, but I just love yoga and I want to share its benefits with others,” she said. “I feel that I worked hard during my pre-50 years, so I’ve earned the right to enjoy my post-50 years.”
Retiring in your early 50s isn’t for the faint of heart. It means trying to make 30 years of savings stretch for at least that many years in retirement. In the US, only 4% of non-retirees expect to quit before 55, according to a recent Gallup poll. In the UK, on the other hand, 58% of workers planning to retire this year are doing so early, according to research from Prudential.
If you’re hoping to set up your own permanent beach chair in your early 50s, here’s what you need to do to feel the sand between your toes.
What it’s going to take: Advanced planning is crucial, along with the ability to live frugally the majority of the time, to ensure your savings last. “People don’t save enough, or they don’t take into account how long they have to live without making money,” said Shannon Lee Simmons, a financial planner with Simmons Financial Planning in Toronto. A good financial planner can help you determine what steps you should take for your best chance of success.
How long to prepare: Start now. The longer you have before your early retirement date, the better your chances of hitting it. “When clients approach me in their mid-to-late 40s, it makes the task all the more difficult,” said Brett Evans, managing director of Atlas Wealth Management in Southport, Australia. “If they are aiming for a specific dollar amount to fund their retirement, and their savings are way off, they have to make large sacrifices to play catch-up.”
Experts suggest saving as much as 20% to 30% of your income to make early retirement happen
Do it now: Aggressively pay off debt. “Retirement is a cash flow crunch, more so if you’re not starting with a pension or social security because of an early retirement date,” said Jude Boudreaux, a financial planner with Upperline Financial Planning in Louisiana. “Having a home paid off, even at low interest rates, gives a great stable base for pursuing early retirement.”
Sock money away like crazy. Experts suggest saving as much as 20% to 30% of your income to make early retirement happen. “We are living longer these days, and not working from age 50 to 90 is 40 years,” Simmons said. “Plus, during those non-working years, you’re no longer contributing to pensions and savings. The portfolio must be quite large to see you through.”
Understand the healthcare picture. For many in the US, retiring early means losing employer-sponsored health insurance and having to pay for your own coverage. If you’ll be on your own for healthcare in retirement, research your options to get an idea for what it’s going to cost before giving notice.
Ask about taxes. Early retirement can make it complicated to access all of your savings and plan an income stream that’s tax efficient. A quick chat with a financial professional can help you avoid pitfalls such as early withdrawal penalties, or moving to a place where your taxes will be higher.
You have to fund your early retirement totally by yourself
Save in a variety of places. One of the challenges of retiring early is that you’re too young to tap traditional retirement accounts without penalty, and pensions haven’t started yet. “Remember, [at 50] any state provision won’t start for 15 or more years, so you have to fund your early retirement totally by yourself,” said Peter Brooke, a partner with the Spectrum IFA Group in France.
In addition to traditional employer-sponsored retirement accounts, save money to vehicles such as a Roth IRA in the US, or an Individual Savings Account (ISA) in the UK, and taxable accounts so you can access funds in your early 50s. There may also be ways to get income from your pre-tax accounts, so get help if you need it.
Resist the urge to upsize. Stay put in your house instead of going bigger when you earn more. Bigger houses come with higher maintenance costs, upkeep, property taxes and furnishings.
Teach your children financial responsibility. Help your children learn how to earn and manage money, and it will go a long way toward a happy retirement for you, as they'll need less financial help from you. “This includes saying ‘no’ to them on a regular basis,” said Kristin Sullivan, a financial planner with Sullivan Financial Planning in Colorado. “No one is going to retire at 50 or 55 if they are paying unlimited iPhone bills, sports fees, or $200,000 per child for college. Independent adult children are very important to any retiree’s financial stability.”
Do it later: Acquire other streams of income. “My clients who have been able to retire early most successfully had rental properties,” Boudreaux said. “It’s not something we recommend for everybody because there are a lot of uncertainties that go along with it, but if you have a property that is paid off that is paying monthly income, it’s a tremendous benefit.
Do it smarter: Consider whether retirement is what you want. Debra Keirce retired from her job as a corporate design engineer in 2010 — and then became a full-time fine artist. “As careers go, I’d make more money working at a minimum wage job,” said Keirce, now 54, who lives in Virginia. “So this is something I do because it feeds my soul. We don’t have the luxury of feeding our souls until we retire, right? That’s what retirement has always meant to me.”
Ensure that you have a plan for what you’re going to do in that time. It’s a lot of golf!
For some, a career change might be just as satisfying, and downsizing to a lower-paying — but more enjoyable — profession might feel like the breath of fresh air you need. A part-time gig might allow you to let your nest egg grow a bit more, and maybe even pursue a dream you’ve always had, such as writing a novel or teaching.
“Thirty-five to 40 years of retirement is a long time,” Brooke said. “Ensure that you have a plan for what you’re going to do in that time. It’s a lot of golf!”
This article was written by Kate Ashford from BBC Worldwide-America: Capital and was legally licensed through the NewsCred publisher network.