For many people, early retirement seems unattainable. Sure, it would be a relief to shelve your day job sooner than later – but is it possible? While retiring early is no mean feat, it’s possible if you’re a great planner. You can’t wait until you’re almost retiring to begin planning – you need a well-implemented long-term strategic plan. Getting ready for retirement? Here are 6 signs you’re ready to retire early.
- You’re Debt Free
Nothing impedes an early retirement than being burdened with debt. Student loans, credit cards, car loans, mortgages, home equity loans all hamper your ability to save and invest for retirement. If you retire with debt, it affects how you spend and your quality of life. The more your outstanding debt, the more you expect to pay in terms of interest charges. When you have no debt, you have more control over your retirement finances.
- You’ve Diverse Income Sources
One of the major components of successful early retirement is having multiple income streams when you’re longer working. Do you have rental property or other entrepreneurial activities? Do you have a fund that you can rely on after retirement? Do you have a diversified investment portfolio that can provide you with income necessary to pursue your goals? Varying your incomes, investments as well as utilizing income sources that outpace inflationary pressures is critical as you’re getting ready for retirement.
- Your Savings Exceed Your Retirement Goals
Many sources quote the 25 times rule of early retirement that attempts to define how much money you need to save before you retire, which is 25 times your annual expenses.
Accounts such as the 401(k) or IRA are a great way to save for retirement since they are tax-advantaged, and your earnings grow tax-deferred.
Diversifying savings is critical for early retirement. Stashing your money in an interest-bearing checking account, high-yield savings accounts, money market account, taxable brokerage account, or a CD ladder ensures you have access to your money while avoiding an inflated tax bill.
- You’ve Got Health Insurance
Health insurance is the main retirement expense for most retirees. While Medicare covers some costs, it doesn’t cater for everything, and you’re not eligible for it until your 65th birthday.
Do you have adequate health insurance coverage until you’re qualified for Medicare? Apart from health insurance, you may also need to look into long-term care insurance, disability, and life.
- You’ve Sorted Out Your Investments
Many people confuse savings with investments, which are two different things. Investments are assets that are expected to generate returns in the long-term. They can range from stocks to bonds to real estate or even gold. Different investments have different amounts of risk attached to them. It’s prudent to protect yourself from loss of capital by diversifying your stocks and assets and assume less risk as you approach retirement.
- You’re Only Financially Responsible for Yourself
Getting ready for early retirement is an uphill task when you have people depending on you financially. Do you have children or elderly parents you’re supporting? Early retirement is challenging, and having additional financial obligations may necessitate a postponement. However, having financially independent family members can fast-track your early retirement.
Pulling off an early retirement is no mean task. However, getting ready for retirement requires a good financial foundation coupled with great planning to help you pursue your retirement goals.