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Achieving Early Retirement

Seven Considerations for Financial and Mental Preparedness

Many people are captivated by the dream of early retirement, which promises freedom to pursue passions, travel, or simply savor the joy of a leisurely life. Retiring early is a big decision, driven by a desire for adventure, personal projects, or more time with loved ones.

“Before embarking on the journey of early retirement, it’s crucial to ensure you are 100% ready—both financially and mentally,” says Michael Kinkel, Branch Manager at David Lerner Associates, “Early retirement hinges on robust financial planning. Before taking the leap, evaluate your financial situation comprehensively.”

Here are seven essential considerations to keep in mind before setting an aggressive early retirement goal.

  1. Assess Your Financial Readiness

Consider your current savings, investments, and anticipated expenses in retirement. Calculate your expected annual living costs, including healthcare, travel, and other lifestyle goals. Ensure that your retirement nest egg is sufficient to sustain your desired lifestyle throughout the potentially extended retirement period.

  1. Plan for Healthcare Costs

Healthcare costs can be a big deal. Research from Fidelity Investments’ 2022 Retiree Healthcare Cost Estimate found many Americans underestimate the amount they need for healthcare. The average American couple reckons the total healthcare cost in retirement is $41,000.

Unfortunately, the reality is far worse. Research found the average 65-year-old couple retiring now is expected to spend an average of $315,000!

Research healthcare options and costs, including insurance premiums, out-of-pocket expenses, and potential long-term care needs, all add up. Incorporate these costs into your retirement budget to avoid unexpected financial strains due to healthcare-related expenses.

  1. Consider Inflation and Market Fluctuations

Inflation and market fluctuations can erode the purchasing power of your savings over time. Factor in the impact of inflation when projecting your future expenses, and implement investment strategies that consider market volatility. Diversify your investment portfolio to mitigate risks and ensure that your assets can withstand the potential challenges posed by economic fluctuations.

  1. Establish Multiple Income Streams

A lengthy retirement may require more than relying on a pension or retirement savings. Explore opportunities to establish multiple income streams. This could include part-time work, freelancing, or investment income. Diversifying your income sources can provide added financial security and flexibility, allowing you to adapt to changing circumstances during retirement.

  1. Plan for Longevity

Early retirement often means an extended period of relying on your savings. Consider your life expectancy and plan for the possibility of a longer retirement horizon. Ensure that your financial plan accounts for a potential increase in healthcare costs, lifestyle changes, and the need for sustainable income throughout a more extended retirement period.

  1. Reassess Your Risk Tolerance

Your risk tolerance may need adjustment in early retirement. Assess your comfort level with market risks and consider a more conservative investment strategy to protect your retirement nest egg. While growth is essential, preserving capital becomes a higher priority to ensure financial stability during the extended retirement years.

  1. Cultivate a Retirement Mindset

Early retirement isn’t just a financial transition; it’s a mental shift. Cultivate a retirement mindset by envisioning how you want to spend your time, what activities bring you joy, and how you define a fulfilling retirement. Preparing mentally for the shift from a structured work life to a more flexible retirement lifestyle is key to a successful and satisfying early retirement.

Early Retirement, a Journey of Preparation

Deciding to retire early is an exciting prospect but requires meticulous planning and preparation. The journey towards early retirement involves aligning your financial goals with your desired lifestyle and cultivating the mindset necessary to embrace retirement’s freedom fully.

Remember, the key to a successful early retirement lies in the balance between financial preparedness and the mental readiness to enjoy the journey ahead. Talk to an experienced investment counselor to refine your plans.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice

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