Benefits & Compensation News

Early retirement: How do some pull it off?

More workers are planning to push back retirement in an attempt to build up their nest eggs to withstand the beating they’ll take from rising healthcare costs and living expenses. Still, some will be able to retire early without having won the lottery, and risk management expert Del Lewis shares the steps they’re taking to do it … steps your employees should follow.

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Many working adults share one common dream: to leave the workforce and retire early. However, while many dream about living the charmed life of early retirement, often only a handful of workers are able to actually achieve this dream.

After all, you must have some source of income or a steady, reliable source of funds available to live off of during retirement to do it. And these years may extend for decades, so the amount of funds required can be significant.

But by taking a closer look at the steps others have used to achieve their goal of early retirement, your employees will be better equipped to develop an effective plan to retire early as well.

Share these steps with your workforce:

Step 1: Develop a plan

Unless you are intensely wealthy, retiring early will require careful planning and the development of an effective strategy. It’s necessary to first develop a budget for your current finances if you do not already have one.

This will tell you several important pieces of information:

  • how much money you spend on debt payments each month
  • what your base living expenses are, and
  • how much money — if any — you’ll be able to save from your income sources.

This is only one part of planning, however. In order to retire, you need to either save up enough money so that you can live off of your savings or purchase income-producing assets that can support your lifestyle throughout your retired years. These assets may include dividend-producing stocks, income-producing real estate or annuities.

Step 2: Eliminate debt

The vast majority of people who retire early have little or no personal debt. These are individuals who have paid off their credit cards and taken steps to pay off their home mortgage early — perhaps by obtaining a 15-year mortgage in their 30s.

Without debts, you will need a significantly smaller amount of income in your retired years. Your income may only need to cover basic living expenses like utilities, health insurance, food and clothing.

Establishing a debt repayment plan is an essential part of preparing for early retirement.

Step 3: Plan to live frugally

In addition to eliminating debt, those who retire early often adopt a frugal lifestyle. Living frugally allows you to have additional money to save for your future retirement needs and eliminate debt more quickly.

Some frugal living practices may include avoiding meals at restaurants or downsizing your housing accommodations.

Step 4: Carefully monitor progress

Preparing for early retirement is not something that happens overnight. Preparing a plan or strategy for early retirement is only one part of the process. You also need to monitor your progress regularly to make sure you’re following the plan.

Some people will monitor their progress with a spreadsheet that includes investment balances, their current level of residual income and the balance of their debts. And they may update this spreadsheet any time they pay bills, once a month or at another regular interval.

The fact is that early retirement is a feasible goal for many people, regardless of their current level of income. However, it’s something that requires considerable planning and regular effort. If you’re serious about achieving your goal of early retirement, it’s necessary to begin laying the foundation for your future by developing a solid plan today.

Del Lewis is an experienced risk management and pensions administration professional. You can find his most recent articles and opinions on The Risk Rut blog. You can also catch up with him on Twitter.

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