Three Key Elements to Early Retirement Success
With the long financial nightmare of the recession and financial crisis shrinking in the memories of those who endured it, Americans are, once again, setting their sights on a shorter retirement time horizon. What didn’t seem possible following the steep market decline and ensuing economic turmoil, is becoming more than just a pipe dream for those who would like to retire early. Although it can be a steep hill to climb, with the right planning, it’s possible. It will require focus, discipline and some creativity.
For the better chance of success, an early retirement strategy will include these three additional elements:
Dial back your lifestyle needs today
If your vision of an early retirement is to be able to maintain your current lifestyle for the rest of your life, you may want to consider dialing back your lifestyle needs today. If an early retirement truly is your priority, then it needs to take precedence over lifestyle needs today. Most people find themselves having to downsize significantly in retirement in order to ensure lifetime income sufficiency. Learning to live with less today can not only increase your savings towards retirement, it will also enable you to transition more smoothly into retirement. It’s important to note that lifestyle does not have to equate to quality of life which is shaped more by your own sense of fulfillment than a level of spending.
Clearly define your spending needs
With a new attitude and outlook on your current lifestyle needs, you can put in a more realistic perspective for your actual spending needs in retirement. While there are some guidelines you could follow (i.e. saving enough to replace 70 percent of your earnings in retirement), setting your sights on an early retirement requires realistic spending assumptions. If you know what your spending budget is today, you can create a spending budget for the future based on current lifestyle needs minus certain expenses. For instance, you'll likely want to target being debt-free and try to purchase the major toys you’ll want before retirement.
You'll want to build and maintain a substantial emergency fund or cash reserve, ideally at least two years of living expenses, that can be tapped for unexpected expenses.
Cultivate your unique ability
Learn what you do exceptionally well (outside of your trained skills) and drives your passion. Then cultivate it, work on it, and improve it. Ideally, it is something that you can exercise in a second career or a business that can generate an income in retirement. Even if you can’t monetize it later in life, being able to exercise your unique ability each day can lead to a high quality of life and satisfaction.
There are other factors important to early retirement success, such as executing a well-conceived investment strategy, staying healthy to keep health costs down, and avoiding big financial mistakes that can lead to setbacks. A serious early retirement goal requires the same number-crunching planning as any long-term goal and, for most of us, a mindset that emphasizes quality of life over lifestyle for a better chance of sufficient lifetime income.