Let's Talk: Retire Early!
February 9, 2023
For some of us, the pandemic was a wake-up call. It prompted us to rethink our health, our priorities, and our finances. And for over 3 million Americans, the pandemic pushed them into early retirement due to layoffs, job eliminations, or they simply decided to speed up their planned retirement to avoid the constant changes in the workplace.
You may wonder how all these now retirees were able to retire early? In short, early retirement depends on your financial situation and what lifestyle you want to have. Let’s talk about how to retire early!
What will you do in retirement?
This answer alone will determine how much money you will need in order to achieve the lifestyle you dream of. What are your long-term goals? You may plan to spend more time with grandchildren, perhaps downsize to a smaller home, or move closer to family. Whatever your goal is, it is achievable if you save and plan for the costs that come along.
What will your spending limits be?
You will need to create a realistic budget that lays out the spending limits, the maximum amount you are willing to spend, for your new lifestyle. This will give you an idea of the actual costs entailed and help you determine if early retirement is indeed possible. Try your best to research every expense, be sure to include insurances, and always factor in a bit of inflation. Once you have these amounts, you can figure out how much this lifestyle will cost you to maintain monthly, yearly, and ultimately over a few decades.
What is your current financial situation, and what will your income look like if you retire?
This may be a heavy question, but it is by far the most important component in retirement. You need to know your financial starting point. If you have debt, you may want to hold off on retiring just yet. Debt will take over your retirement funds and prevent you from ever living out your full retirement dream. Look at what is in your retirement fund now. Does this amount match or go beyond the amount you set for your new lifestyle? If not, determine how long it will take to reach your desired retirement amount. This is when you can retire. If the number of years does not meet your target date to retire, then figure out what amount is needed to put towards your retirement and bridge the gap. To get a better idea, check out our investment and retirement calculators.
What can you change in your life that will help you retire early?
You need to spend less and save. Earlier this year we talked about spending, and the takeaways were to track your spending, shop around, care for yourself, pay off debt, and start investing. Regardless of your income, the way you spend your money is critical to early retirement. What may seem like harmless purchases could add up and directly impact your long-term goal of retiring early. Any extra money you earn should be poured into paying off debt and investing.
With the above considered, retiring early is obtainable if you take a practical approach by considering all possible scenarios and by doing the math. Maybe it works out, or maybe you need to adjust your retirement plan a bit; nevertheless, you must take control over your retirement plan before you can begin the next stage of your life.
As always, please know that Gulf Coast Bank & Trust Company is committed to being the bank that cares about you. If you have any topics you would like us to discuss, we invite you to email them to firstname.lastname@example.org with the subject line Let’s Talk.