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Tips to Retire Early |
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Saying goodbye to your career life may sound like bliss but it’s not the best path to take, unless you are fabulously rich or have other sources of income. If you are thinking of retiring prematurely, do consider the following:
Slowing down of savings -No career means no regular earnings and this will affect how much you save. There is also not much time for the compounding effect to happen in the 401(k) account..
Inflation -Early retirement means that the benefits you will receive from a pension scheme (if any) and Social Security will not be indexed to inflation. The purchasing power of the amount of money you are expecting from these plans will be worn away by inflation, your savings will have to contribute to your pre- retirement income.
Susceptibility to sudden outcomes -We never know what life will throw our away. Nowadays there is a wider range of unpleasant surprises, from natural disasters to identity theft to terrorism. Dealing with losses is hard enough when you are earning but in early retirement, it can hit you like a ton of bricks if you are not careful. Make sure that you are covered for the unexpected, such as higher taxes, inflation, sudden disasters and medical emergencies.
Lifestyle and emotional issues -This is almost hard to believe when you are single-mindedly involved in your career but in reality, many of us feel out of touch and out of vogue in retirement. All the trips and pastimes you had in mind don’t sound that exciting after a while. Not only because lavish spending doesn’t seem justified anymore but because you simply miss the buzz in your life and the daily challenges. Some people get lethargic; some get restless and don’t know what to do with themselves. So always prepare for these changes as well as they monetary aspects so that you will have peace of mind when you retire.
Missing out on a pension scheme -If you one of the rare employees who will receive a traditional corporate pension, then you will know that you will only be entitled to this scheme if you retire at the age of 65.
Needless to say, packing away your briefcase requires some serious thinking. You may want to start by asking yourself these questions:
- When do I want to retire and why? Rethink your options and make a well-informed choice. Also, it’s best to make your retirement plans assuming that you will live up to a ripe old age of 95 years, unless there is a solid reason to believe otherwise. It is better to overestimate the lifespan than otherwise.
- Can I estimate inflation and return on investments? Try to calculate how realistic different retirement ages are, taking into account the above estimates and your savings.
- Can I account for high stand-alone expenses? These include your child’s college education, buying a house or an extended vacation.
According to experts, the capacity to retire when you want to depends on two rules of thumb: 1) downsize and 2) save, save, save. |
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