Should You Retire Early?

If you are thinking about trying to retire early, here are some things to consider before finalizing your plans for the future.

Pick up a money or business magazine today, and chances are you will find an article or two on retirement, specifically early retirement. As the baby boomers pass through middle age and experience a relatively comfortable lifestyle compared to that of their forebears, many are looking at ways of retiring from full-time employment to enjoy a more leisurely pace of life.

But retirement at any age takes a substantial amount of financial planning, and retiring early may mean doing a little extra figuring to make sure your revised budget will prove adequate. Here are a few things to consider:

1. When you retire, you will no longer be able to depend on a regular monthly income based on the fruits of your labor. In retirement you can expect to receive a monthly check drawn from savings or investments of one kind or another. As we age, our physical health usually declines, so if the savings plan proves inadequate, many of us lack the health and stamina to go back to work. When you retire early, you may be able to return to your line of work. Some folks even try something altogether different. While it is nice to have renewed employment as a fall-back option, it may not be fun to think of returning to work in our sixties or seventies if the pension runs out from overuse due to starting it too soon.

2. Retirement brings a lifestyle adjustment for many people. Since pensions, savings, investments, and social security typically may not provide monthly income that is comparable in level to the paycheck you may be receiving prior to retirement, you may need to adopt a more frugal way of life. Eating out less often is manageable, but what about home maintenance since aging bodies tend to hire younger workers for home repairs? Be prepared to adopt a simpler pace of life unless you've followed a tight savings budget or made some brilliant investments.

3. Health care costs and other benefits need to be calculated. If your employer pays some portion of your health care and other benefits, find out what will be paid by a retirement pension, and how much. If all such benefits stop with your paycheck, you'll need to factor in these expenses as part of your new retirement budget, which may eat away at your new, and possibly reduced, level of monthly income.

4. You will need to stretch retirement benefits further. Retiring at age fifty rather than sixty-eight means that your pension or other income will need to pay for nearly two more decades of living expenses. Since many folks are still fairly healthy at fifty, will your retirement income be enough to provide middle age comforts, like an attractive home, annual vacations, or treats for the grandkids? If not, you may find yourself looking for a part-time job that will pay just a fraction of your pre-retirement salary.

5. Can you deal with a jobless schedule? While many of us would jump at the chance to try out a day without going to work, the reality is that without a weekday routine, it's easy to become bored and experience a loss of focus or purpose to life. Boredom can lead to bad habits, such as overeating, overspending, or perhaps even depression. Plan now for the types of activities that will keep your life full and rich when you retire from the employment sector.

Early retirement can be a dream come true or it may turn into your worst nightmare. Explore this option from all sides before turning in your final job notice.

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