Retiring early is understandably a life-changing event. After all, when you retire by the age of 37, you may reasonably have five, six or more decades of your life still in front of you. You need to ensure that you are comfortable giving up your day to day job for the rest of your life. You also need to make sure that you can financially support yourself for this very long period. After all, the last thing you want is to run out of money when you are 80 or 90. There are some questions for retiring early that can be helpful to review. These questions for retiring early can help you better determine if now is the right time to take the leap or if you should continue to work for a few more years.
5 Questions to Ask Yourself
Many of the most significant aspects of your life will change when you retire. It is true that retiring gives you the opportunity to lead a more relaxed way of life away from the rat race. Still, it can be emotionally and financially hard on a person to adjust to retirement at any age. You can ask yourself these questions for retiring early to ensure that you have thought through all important aspects of the process. I know I did when I was in your shoes.
How Will This Affect My Social Security Benefits?
Many people who are preparing to retire early do not fully understand how Social Security benefits work. Some people think that the benefits will kick in as soon as they retire regardless of their age. Others think that they will obtain their full benefits at age 65 or 67 regardless of how long they work.
One of the first questions for retiring early is how your Social Security benefits will be affected by this decision. Remember that your benefits are calculated from an analysis of your highest 35 years of work history. When you retire early, you may only have 15 to 20 years of work history. As a result of this, your Social Security benefits may be very low.
Furthermore, the age when you start drawing from Social Security can affect your benefits. Ideally, you will not need Social Security income to meet your basic needs at all. However, if you do, it is best to delay pulling them out until you are 67 or older. In this way, you can maximize the benefits.
Do I Need a Budget?
A budget is a veritable necessity. If you are asking questions for retiring early without having a workable retirement budget, you likely are not ready to retire yet.
You must carefully analyze how each line item in your current budget will change when you are retired. Ideally, most or all of your debts will be paid off before you retire. This includes your car and house loans. You should not carry any high-interest credit card debt when you retire. Debts can cost you money in the form of interest charges. Also, they inflate your budget so that you need more income to live comfortably.
Here’s what I advise you to do.
First, create a workable retirement budget that includes living expenses, insurance premiums, travel, hobbies expenses and more.
Second, attempt to live on your new budget for a few months. Trying out your budget in a real-life scenario will help you to determine if you are financially ready to retire. Moreover, it will ensure that you did not overlook any important expenses that could throw your budget planning off track.
Will Retiring Early Affect My Pension?
Many people who are planning to retire early have most of their assets in a pension plan or retirement plan. This is, after all, where experts tell you to place your retirement funds. However, when you retire early, you typically cannot access pension funds until you reach a specific age.
My advice is to review the rules of your pension to verify the age. However, in many cases, this age is between 59 and a half and 65 years old. If you pull funds out of the account early, you will typically pay a very large penalty.
It is best to plan to keep your pension funds in the account. In this way, they can grow over time.
Your plan should be to pull these funds out at age 65 or later. Of course, you will then need other sources of income to live on between the ages of 37 and 65.
What Will Be My Sources of Income?
One of the most significant aspects of early retirement planning relates to sources of income in the middle segment of your life. Asking questions for retiring early must include where your monthly income stream will come from.
Passive income is income that you do not have to regularly work for, such as royalties, dividends, rental income from real estate investments and more. Your retirement plan up to this point hopefully has included investing in your retirement account or pension. You should also invest in non-retirement investments that can produce a passive income stream.
The best retirement plan will include reliable monthly income from a variety of sources. Diversifying your income stream from several sources provides you with an excellent way to mitigate risk. After all, dividends can fluctuate from time to time. Moreover, rental properties can become vacant periodically. Remember that you will need much less income to live off of in retirement if your debts are paid off. This includes your home mortgage.
Can I Still Get Social Insurance?
When asking questions for retiring early, it is important to think about health insurance coverage.
Health insurance coverage is currently required by law. You may be fined on your federal tax return if you do not maintain coverage throughout the year. Medicare is available for retirees, but it does not begin until you reach the age of 65. However, you can obtain it earlier if you receive disability benefits for at least two full years.
For most people who retire at the age of 37, alternative insurance sources must be used until you reach the age of 65. For example, you may obtain COBRA coverage from your employer for up to 18 months after you leave your job. Most will then purchase an individual policy from a major health insurance company. The cost of your health insurance coverage can increase significantly as you get older as well as if you develop ongoing health issues. You should have a financial plan in place for paying for increasingly more expensive health insurance premiums. You may also need to think about long-term care coverage in the years to come.
Asking questions for retiring early can help you to better determine if you should be thinking about retiring now. Some people have been actively saving and investing for years in preparation for this monumental event. Even if you have ample funds saved, they should be allocated to an income-producing asset. More than that, you must carefully analyze these other questions for retiring early as well to ensure that you are fully prepared to make this move. If you have questions or comments about retiring early that you would like to share with others, please post a message below.