A few generations ago, retirement meant leaving a job after a multi-decade career. It meant playing golf or tennis until health issues limited your activities to reading, knitting and watching TV. The retirement years lasted around 10-15 years, and our grandparents were happy to have them.
But today's retirees want so much more from their golden years. They're retiring earlier and living longer than ever before, which means they have more time and are in much better health to do things they couldn't do while they were working. And that means that they need a new plan to map out their retirement years.
"Keep in mind that given today’s life expectancies, anybody who retires prior to age 65 or 66 could easily spend two-to-three decades or more in retirement," Byron Ellis, a certified financial planner with United Capital Financial Advisers in The Woodlands, Texas, tells MNN. That's good news if you're hoping to retire early so that you can pursue a life you couldn't have while tied to a full-time job. But it also means that you'll need a much bigger nest egg.
If you want to retire early, you need to make a plan and start acting on it as early in your career as possible. Here's what you need to do to make your early retirement dreams a reality.
Live below your means
There's nothing quite like that payday feeling when you can splurge on things you might not normally buy. You deserve it after all of that hard work, right?
But if you want to retire early, you need to lose that mindset. You don't need to live like a pauper, but you need to create a budget and stick to it, no matter how much extra dough you brought in this month. If you can't live below your means now, you'll have no chance of getting by once your steady source of income dries up. "Even though I believe you should spend every penny you have to live the life of your dreams, have a limit to the outflow," Chanterria McGilbra, who retired from her career with a biotech startup at the age of 43, tells MNN. "If you are unable to control yourself, have someone who will do it for you. If not, you will not be retired for long."
Even if it's just a few dollars a week, if you get in the habit of saving early in your career, you'll be much more likely to make your early retirement dreams come true. Debbie Smith, who retired from her career as a computer specialist at 49, offers this advice: "Draw a horizontal line. At the left end of the line, write 'save all.' At the right end of the line, write 'spend all.' Make a conscious decision about where on that line you want to be."
A detailed budget is great. But even if you just write down your monthly expenses and income and make a plan to set aside a certain amount each week, you'll be well on your way to creating a solid nest egg. Take advantage of any retirement funds offered through your employer, especially if they match your contributions. That's free money that will pay off in the long run.
Research a future source of income
Chances are, you'll need some source of income in your early retirement, as you won't be able to even think about Social Security until you're 62 (or 67 if you want to lock in a higher rate). Research your options now and sketch out a plan that works with what you hope your retirement will look like.
Maybe you'll take a part-time job that supplements your income without the pressure of a full-time career. Or maybe you can look into freelance or contract work that helps to pay the bills without the commitment. Ming Gong and her husband both retired early from their careers in finance so they would have more time with family. They parlayed their expertise in finance into encore careers as investment consultants. "My advice is to start creating multiple passive income streams," Gong tells MNN. "Once your monthly passive income more than covers your monthly expenses, you have the option to retire early."
Make a plan beyond the bottom line
For those who plan out their retirement, most of their planning is focused on finances with almost no thought given to what they actually plan to do when they retire. "The most sound piece of advice I would offer to early retirees is have a plan or at the very least have a clear vision of what you want to do when you retire," says McGilbra.
Your financial situation may dictate whether you take a part-time job at the local grocery store or spend your days lounging on a beach. But beyond your source of income, you need to decide what you want to do with your free time. Some early retirees do freelance or contract work both for the supplemental income and to keep their heads in the game. "One of the things about continuing to work is that it keeps me intellectually stimulated and growing," Stan Kimer, a former IBM career development specialist who retired at the age of 54 and now does freelance consulting, tells MNN.
Others combine traveling with working by taking seasonal positions with parks, marinas or on cruise ships. Do you want to volunteer? If so, where? Early retirement is also a great time to pursue a new interest. Now 59, Kimer divides his time between his consulting business, volunteering, community service and pursuing a new hobby — adult figure skating. That's something he never would have had time to do while he was working full-time.
Unlike your grandparents, who were limited by when and how they could retire, your options in retirement are as open and diverse as you make them. The key is to start planning now, so that you'll have the resources to make your retirement dreams a reality.