Three Key Elements to Early Retirement SuccessSubmitted by Finwell Benefits on February 19th, 2018
With the long financial nightmare of the recession and financial crisis shrinking in the memories of those who endured it, Americans are, once again, setting their sights on a shorter retirement time horizon. What didn’t seem possible following the steep market decline and ensuing economic turmoil, is becoming more than just a pipe dream for those intent on fleeing the rat race early. Although it’s a much steeper hill to climb these days, with the right planning it’s not out of the realm of possibility. However, for most people, it will require extreme focus, discipline and some creativity.
For the best chance of success, an early retirement strategy will need to include these three additional elements:
Dial back your lifestyle needs today
If your vision of an early retirement is to be able to maintain your current lifestyle for the rest of your life, you may want to consider dialing back your lifestyle needs today. If an early retirement truly is your priority, then it needs to take precedence over lifestyle needs today. Most people find themselves having to downsize drastically in retirement in order to ensure lifetime income sufficiency. Learning to live with less today can not only increase your savings towards retirement, it will also enable you to transition more smoothly into a life of relative austerity. It’s important to note that lifestyle does not have to equate to quality of life which is shaped by your own, non-materialistic sense of fulfillment.
Clearly define your spending needs
With a new attitude and outlook on your current lifestyle needs, you can put in a more realistic perspective your actual spending needs in retirement. While there are some guidelines you could follow (I,e, saving enough to replace 70 percent of your earnings in retirement), setting your sights on an early retirement requires realistic spending assumptions. If you know what your spending budget is today, you can create a spending budget for the future based on current lifestyle needs minus certain expenses. For instance, you should plan on being debt-free and children-free.; and you should have purchased all the toys you’ll want well before retirement.
As a caveat, it is vitally important that you build and maintain a substantial emergency fund or cash reserve of at least two years of living expenses that can be tapped for unexpected expenses.
Cultivate your unique ability
Learn what you do exceptionally well (outside of your trained skills) and drives your passion. Then cultivate it, work on it, and improve it. Ideally, it is something that you can exercise in a second career or a business that can generate an income in retirement. Even if you can’t monetize it later in life, being able to exercise your unique ability each day is what will lead to a high quality of life and true self fulfillment.
Of course, there are several other factors crucial to early retirement success, such as executing a well-conceived investment strategy, staying healthy to keep health costs down, and avoiding big financial mistakes that can lead to setbacks. A serious early retirement goal requires the same number crunching planning as any long-term goal; however, for most people, it requires a mindset that emphasizes quality of life over lifestyle for any chance of lifetime income sufficiency and happiness.
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