Can You Retire When You Want?

You may be frugal and in your 50s. You’re ready to retire. You think you’re ready to stop working now and want to make your money last as long as you do.

MarketWatch’s recent article, “Why early retirees should prepare for austerity,” says that for some resourceful people, an early retirement is a viable possibility. About 2% expect to retire before age 55, based on the Willis survey of 5,100 respondents. If your nest egg exceeds eight figures, you’re probably safe retiring in your 50s (or your 40s). However, for the rest of us, the arithmetic gets trickier.

Old-2742052_640Examine your household spending and project how this might change over time. Use your budget to identify what your lifestyle is and how it will change in retirement. If you don’t know how you’re spending money today, you have no idea how much you’ll need in retirement.

Along with health care, insurance, and travel expenses, calculate the risks of inflation and market swoons that can deplete your portfolio. This can thwart a well-planned retirement strategy. For instance, health care costs in your 50s and early 60s (prior to Medicare) might continue to outpace inflation. A couple retiring at age 65 in 2017 will need about $275,000 in savings to cover out-of-pocket medical expenses until they pass away. This doesn’t take into account long-term care and nursing home costs, over-the-counter drugs and most dental services.

Run the numbers based on various scenarios, such as if inflation grows to 4% or more. Multiple projections can help you determine if your savings can stand up under adverse conditions, especially if the conditions persist over long periods. A general rule of thumb is that you’ll need 75% to 80% of your pre-retirement income to maintain financial security, after you stop working.

To mitigate the risk of a sudden and steep expense, you could add to your retirement income with a part-time job, which can also help you delay taking Social Security—increasing its payout.

Imposed frugality works best for those who have experience living within their means. Otherwise, your impulse to retire early can lull you into a sense that you can cut back and enjoy it. Often those who’re planning early retirement believe they can exist on $4,000 a month, but when you look at their expenses, there’s a big disconnect if they’re currently living on $9,000 a month.

As a test, try out your austerity budget for six months (adjusting for mortgage payments and other expenses that may fall away in retirement) and see how you do. Then, adjust your retirement planning accordingly.

If you want to discover more about asset protection planning, join us for a one of our free educational workshops by clicking here to RSVP.

Jeffrey Bellomo, Esq.


Reference: MarketWatch (December 6, 2017) “Why early retirees should prepare for austerity”

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