More people than ever before are investing their earnings into individual retirement accounts and other savings strategies. One sought-after goal is to reduce the number of years spent working and increase the amount of time enjoyed in retirement. Early retirement is now an option for many workforce employees who wish to consider giving up their jobs while in their fifties, or even younger, as opposed to working into their sixties.
If you are thinking about taking early retirement, perhaps in your mid-fifties, consider the many ways your lifestyle will be economically impacted before making a final decision:
1. Compare your current monthly income, while employed, with what it will be following retirement. Most pensions, for example, seldom pay a monthly amount that equals your paycheck earnings preceding retirement. Write out a budget to see what the difference will be and where you will need to cut costs to make ends meet. Don’t forget bonuses, tax adjustments, and overtime.
2. Factor in long-term payment plans. For example, if you plan to buy another car within the next few years, add in the projected monthly payment to see if your pension amount or supplemental savings can cover it. Also look at things like a mortgage payment, travel plans, and college for kids or grandchildren. If you expect to move in the future, decide now how you will finance it, unless there will be a significant downsizing with resulting decreased household spending.
3. Review your health insurance coverage. Find out how it will change after retirement, and what your new premiums and deductibles will be. Keep in mind that as we age, medical costs can skyrocket via increased doctor visits and hospitalizations. Be sure your health care coverage will be sufficient for your maintenance and special care needs like vision or hearing. Don’t forget to look into your prescription coverage as well.
4. What will your new daily schedule look like? While you may be attracted to a day without work, how will your spend your time? Will you work part-time? Start a new career? Volunteer time and services to a worthwhile organization? Enjoy a life of leisure? How does your spouse feel about the prospect of your retirement? Can you plan shared activities or will he or she continue working after you retire?
5. Plan to stay active. Medical research shows that those who keep physically active may age more slowly than those who do not. In addition, physical movement helps to stimulate immune function, keep bodies healthy and working properly, and enhance a personal sense of well being. Exercise also promotes positive moods to help you overcome or avoid depression. Whatever your post-retirement lifestyle, plan to include exercise.
If you're hoping to lie on the sofa and watch television all day, you may not enjoy retirement as much as you think, especially with less money to spend. Even if you have significant savings or investments, they won’t last forever, especially since more people are living longer. Plan now to make the most of your golden years when you finally do leave the workforce. Develop a new budget that will help you live within your reduced means.
