It’s a long game. You’ve got to have a strategy.
Achieving early retirement is a pretty awesome feat. My husband and I are on the verge of it later this year, at the ages of 41 and 38, respectively. And we’re beyond excited. But that doesn’t mean early retirement is for everyone.
It’s easy to see early retirement as the natural solution to job dissatisfaction, especially given how much pressure so many of us are under at work these days. But the truth is that not everyone needs to or should want to retire early. It’s a very different path from the one most people follow for a reason, and it’s not one that any of us should go down without being fully aware of the risks and pitfalls.
This path isn’t well-trod — it’s windy and uneven, and unmarked in places. It’s more like a windy hedge maze at times than a large thoroughfare with well-marked exits. Early retirement won’t magically fix everything we wish was different about us or our lives, and it comes with its own set of stresses. To some of us, those new stresses are worth it, but we can only know that if we do some real introspection and planning. And not just financial planning, but also planning around personal fulfillment, health and self-worth.
To help guide some of this introspection, we’ve put together a list of the questions you should be able to answer before you retire early.
No matter what stage you’re at in thinking about or planning for early retirement (or, heck, for regular retirement!), take some time to think through these questions and their answers. If you struggle to answer any of them, then early retirement may not be right for you, or may not be right for you right now, and that’s okay! Not everyone has to share this vision for their future. Particularly if you don’t have a clear vision of what you want to retire to, there’s nothing wrong with working a little longer, or even a lot longer.
Not liking your job — being clear on what you’re retiring from — is not enough of a reason to retire early. The answer may be much, much simpler: find a different job, or a different career path. If you’re committed to retiring early, but don’t have good answers for all of these questions, then let them kickstart some additional thinking and planning that will pay off once you pull that ripcord and wave arrivederci to your career.
1. How will you support yourself or your family without a job? (And will that change over time?)
The answer could be any number of things — earning dividends from stocks you own, selling shares of index funds, collecting rent on an investment property or 10, doing part-time work, or some combination of the above. The answer can also change over time, focusing primarily on one strategy until you reach age 59 1/2, for example, and then shifting to live off your 401(k) or IRA after you reach the eligible age.
Other pieces to consider: Will you follow the 4% rule? Have you put together a realistic budget that will account for all potential expenses and things you want to do in retirement? Have you done multiple projections to ensure that you’re saving enough before retiring to provide enough income for the full period that you’ll need it, even if the markets don’t provide good returns every year? If you have kids, will you plan to pay for their college?
2. What is your backup plan for dealing with financial emergencies or hardship?
How will you make sure that your whole plan doesn’t get sunk, especially after you’ve given up a well-paying job, by a natural or financial disaster? Will you budget for homeowners or renters insurance? Will you maintain an emergency fund, separate from your other investments? Will you carry life insurance? Umbrella insurance? Will you build in any other contingencies like the ability to downsize a home or move somewhere cheaper? How will you ride out bad periods for the stock markets, including possibly extended recessions? How much of a cash cushion will you maintain? Could you trim back your early retirement budget if you had less to spend some years? We have built a number of contingencies into our early retirement plans, ensuring we’ll still be able to sleep at night when we no longer get a paycheck.
3. How will you get health care?
It’s no secret that health-care costs bankrupt people all the time. How will you ensure that this never happens to you? Will you buy health insurance through federal or state exchanges until you reach age 65 and qualify for Medicare? Have you done the calculations for the income you plan to have, and ensured that your retirement budget can cover the full cost of premiums and copays (as well as the possibility of needing to go up to the out-of-pocket maximum)? Will you plan to live abroad and avoid buying insurance in the U.S.? (Or are you a lucky Canadian or European, who doesn’t have to worry about such things?)
4. How will you keep your body and mind healthy?
What is your plan for eating healthily, exercising and stimulating your mind in early retirement? Does that plan look a lot like what you already do now, or does it involve some drastic changes? Early retired you is still you, so ask yourself if drastic changes are realistic, or if you need to start making incremental changes now to make sure staying healthy is doable once you’re retired. On the mental front, will you embrace new technology and other societal changes as you age? Will you befriend younger people? Will you engage in activities or hobbies that expand your thinking, and force you to form new neural pathways?
5. What are you retiring to?
This question is perhaps the most important of all. Nothing is worse than saving for years to retire early, burning bridges in your career, and then discovering that you’re bored. Consider well before that happens what you will do with your new-found time in early retirement. What will excite you about getting out of bed every day? How often will you check things off of your bucket list? What do you want your contribution to the world to be?
6. What will your living situation be?
Do you plan to stay put where you are for retirement? Do you plan to move into a smaller home that’s easier to maintain and which frees up some capital? Do you plan to relocate? Do you plan to go nomadic and live the RV lifestyle? For aspiring full-time RVers, do you have a plan for if or when you decide you ultimately want to put down roots, and then need to pay rent or buy a home? For those planning to live in a home, will you pay off the mortgage before you retire, or keep paying it off in your retirement years? Have you budgeted adequately for miscellaneous housing expenses like property tax, rent increases and utilities, all of which will go up over time?
7. What do you want a day in retirement to look like?
What will an average day in your new retired life look like? What activities will you do every day? How will you spend most of your time? Will you spend a lot of your time surfing the web and watching TV? When you look at your vision for each day, does it sound both realistic and fulfilling to you?
8. What will your social circles and interactions be like?
Who will be your primary friends once you retire? Will you be able to see them more often, or will their work schedules prevent them from spending time with you during your new free time? How will you make new friends? If you have a partner, do the two of you plan to spend most of your time together, or apart? Will you have your own hobbies, or share most of your hobbies with your partner?
9. How will you and your partner, if you have one, stay on the same page about money and life goals?
Are you both equally committed to retiring early, and do you share the same vision of what’s worth sacrificing to reach your goals? Have you mapped out your big goals for your lives together? Do you both feel comfortable with your retirement budget and projections, or does one of you feel they are too aggressive or risky? Are you both committed to the discipline and frugality needed to ensure you don’t outlive your retirement savings? Do you regularly check in with each other to make sure you’re still on the same page about money and life goals? If you’re currently single, does your vision allow for flexibility if you one day get in a serious relationship?
10. How will you define yourself and derive self-worth post-career?
Once the title is gone, how will you see yourself? What will you do to ensure that you see yourself as a worthy person making contributions in the world? How will you find fulfillment without a job? How will you give back? What will you want to have accomplished, looking back on your life at age 80 or 90?