Five Key Steps to Planning an Early Retirement

Tania Brown, Contributor, Forbes
November 1, 2017

Retirement means different things to different people. For some, retirement means a second chapter of a “fill-in-the-blank” opportunity. For others, it’s the choice to work or not work.

In any case, retirement is a destination we all aspire to reach. The age we want to reach retirement varies, though. Some articles cite 63 as the average age of retirement. Then there are those who want to retire by 55.

If this is your dream, it is possible. It just requires a lot of planning. Use the list below as a starting point to create a strategy to retire early:

Create and test drive your retirement budget
Create a retirement spending plan to account for all of the projected expenses and spending you may have in retirement. Be honest with yourself when you create your spending plan. If you can’t live below your means now, what makes you think you can do it once you retire? If your new budget includes big drops in expenses like eating out, clothing or entertainment, test-drive the changes now to see if you can stick with them into retirement.

Thinking about travel? Great — first think of how often you want to travel. Next, estimate how much your dream destinations will cost annually, divide that number by 12, and use that amount in the vacation category of your spending plan.

Have a healthcare game plan
First, make sure you estimate the cost of insurance until you qualify for Medicare. According to ehealthinsurance.com, the average cost of health insurance for an individual age 55 to 64 years old was $580 a month in 2016. This number can change dramatically depending on where you live. For some, it’s a pretty big financial gap to cover if you plan on retiring at 55.

Second, contact your HR department regarding retiree healthcare benefits and the rules to get them. The last thing you want is to retire at 54 only to later realize you could have gotten healthcare benefits if you retired at 55. If you retire without healthcare benefits, consider working part-time. More employers are offering healthcare benefits for part-time workers.

Finally, consider maxing out your healthcare savings account (HSA). Contributions are pre-tax and qualified medical withdrawals are tax-free. After age 65, you can withdraw from your HSA for any reason and avoid penalties, but you will pay taxes on nonqualified withdrawals.

Run and review your retirement estimates
Now that you have an idea of your expenses, run a retirement estimate to gauge how on-track you are to replace your income when you retire. If there is a gap, consider bumping up your 401(k) plan contributions. Also review your investment mix to make sure your money is working as hard as you are. If you are married, review each other’s 401(k) plans.

If you get a pension, run an estimate to see how much you get if you retire early, by 65 or later. The difference can be substantial depending on where you work. If you are married, find out how much of a pension your spouse gets at retirement and how much you are entitled to if they pass away.

Lower your expenses
If you have debt, consider using a debt calculator to come up with a debt payoff game plan prior to your retirement. In addition, make it your mantra to not take on any new debts or expenses five years before retirement. This may sound obvious, but many employees actually increase their debts prior to retirement.

If you find your expenses exceed your retirement income, consider moving to another state. States tax retiree income differently so look for retirement tax-friendly states. If you are thinking of moving, compare the cost of living. Also factor in possible additional expenses like traveling to see the grandkids.

Map out your life game plan for the next 30 years
There are only so many golf games and naps you can take before you are bored out of your mind. Our careers are so entwined with our identities that you may find it harder than you think not having a career. Take some time and create a plan for life after retirement.

For example, now you can have the job you always wanted but could not do because it paid so little. Volunteer your time and talents to causes you care about. You have decades of talents many nonprofits cannot afford. Your experience is valuable and desperately needed.

Early retirement can be planned for. The name of the game is to stretch your income for as long as you can. Use the strategies above to not only get you to early retirement, but keep you retired.

This article was written by Tania Brown from Forbes and was legally licensed through the NewsCred publisher network. 

The strategies mentioned in this article will often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice. This information is provided to you as is, does not constitute legal advice, is governed by our Terms and Conditions of Use, does not necessarily reflect the views of First Republic Bank, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Clients’ tax and legal affairs are their own responsibility. Clients should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this article.