Early retirement is the ultimate dream for many American workers. Making the dream a reality requires focus and disciplined saving. Unfortunately, many workers may not be able to achieve their dream of early retirement. According to an analysis of the Federal Reserve’s 2013 Survey of Consumer Finances, the average American couple has only $5,000 saved for retirement.1
Some workers, however, may be in a strong enough financial position to leave their career early and start living life on their terms. Think you fall into that group? Below are four signs that you might be ready to retire. If these signs sound familiar to you, early retirement may be a viable option.
You have taken your retirement budget for a test drive.
A budget can be your most powerful financial tool in retirement. It helps you see where you spend your money, how much you can afford to spend and what changes you may need to make to stay within your income.
Developing a budget is only the first step, though. You also may want to take your retirement budget for a test drive. That’s especially true if you hope to live on a tighter spending level after you retire. Try living on that spending level for three or even six months to see if it’s feasible. If so, retirement may be a possibility.
You have little debt.
Debt is a difficult challenge for many Americans, but it can be especially problematic when you’re retired. You may be on a fixed income from a pension and Social Security, or you may have few retirement assets from which to generate income.
If you have to use some of that income to pay down debt, you’ll have less money available to fund your lifestyle. Your assets also may not last as long as you need them to if you have to withdraw funds to service debt.
If you have substantial debt, develop a plan to reduce those liabilities before you retire. Debt payments can be a drag on your savings and your income, and may prevent you from fully enjoying retirement.
You have a plan to pay for medical expenses.
According to Fidelity, the average 65-year-old retired couple can expect to spend $245,000 in retirement on things like deductibles, premiums, copays and more.2 That figure doesn’t include any potential long-term care costs.
Do you have a plan to pay for medical expenses? If you retire early, you may have to pay out of pocket or buy a private policy before you’re eligible for Medicare. Consider maxing your contributions to your health savings account (HSA) and possibly looking into a long-term care insurance policy.
You know how you will spend your time.
Retirement planning isn’t only about your finances. You should also know how you will spend your time in retirement. What is important to you? What activities do you enjoy? What do you want to accomplish?
Many retirees have a challenging time transitioning to a wide-open schedule. They fill that time with costly activities like travel, shopping and expensive hobbies. The result is that they spend too much money in the early years of retirement, leaving themselves in a challenging position in the later years.
If you don’t know how you will spend your retirement, you may not be ready to stop working. Develop a plan not only for your money in retirement, but also for your time.
Wondering if you’re ready to retire early? Intelliplan Financial can help you analyze your needs and objectives and determine whether early retirement is right for you. Let’s connect soon and start the conversation.
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