Tag Archives: Retire Early

How can I retire early?

Almost everyone at some time in their lives wonder, how can I retire early? They might be having a tough day at work. Or perhaps they are envious of someone who is retired and the life they are able to leave. When you ask yourself this question, how can I retire early, the next step is critical. If you want to retire early, consumers need to put a plan in place and answer the following questions. Then they must work towards these goals to achieve their objective. Unless you are lucky enough to win the lottery, most of us will just have to work hard to make it happen.

Questions to Help Answer – How can I retire early?

These are the questions that will get you started and help achieve your plans. Work with an expert to ensure that you are considering the right questions and making the correct assumptions.

  • How much should I save
  • How should I invest
  • What will my housing cost in Retirement
  • How much will health care cost
  • Manage your tax liabilities

How much should I save – how much income will you need? What interest rate will you assume? How many years do you have to save towards retirement? What pensions will you receive?

How should I invest – Most experts will tell you focus on blue chip, diverse investments that will protect you from catastrophic losses. The market will go up and down.  Over the long term it should continue to increase providing growth in addition to your savings and help with your retirement goals.

What will my housing cost in Retirement – Will you stay where you are, downsize, move in with the kids or live in a seniors home. Each one of these has different costs and must be factored into your planning.

How much will health care cost – this is a huge assumption with huge impacts. What health coverage will you have? What is your co-pay? How will you afford your medical costs.

Manage your tax liabilities  – taxes are present in life and death. Focus on minimizing your taxes. Leave more money in your pocket.

Retirement Saver’s Worst Mistake

Retirement Saver’s Worst MistakeWhat is a retirement saver’s worst mistake? Many people are saving for retirement. In fact our government encourages us to save for retirement. Their sole objective is ensuring that we do not end up in poverty once we retire. They also have a variety of programs that allow consumers to borrow against their retirement savings. They can be use the money for a down payment on a home. In some cases 1st time buyers can withdraw money from a savings plan to use the funds as a down payment for a home. Home ownership is an important thing to do for many consumers. But taking money from your retirement savings plan could be one of your worst mistakes. Can you replace the income that this investment would generate once you retire? This is the key question that many people do not give much thought to.

Retirement Saver’s Worst Mistake

If you borrow or remove money from your retirement savings plan it can become a mistake. If you are unable to repay this loan you are jeopardizing your retirement. When you repay the loan from your retirement savings plan, savers lose the interest / dividend income that you would have accrued if the money had been left in the plan.

Savers who borrow money from retirement savings plan should treat it as a real loan. Repay not only the principle, but also the income that they lost as a result  of the investment not being available to earn income.

Even just borrowing ten thousand to use as a down payment for your home purchase can make a huge difference in your total savings especially if you have a long time to retirement. The miracle of compounding can make a huge difference to savers. The total amount you have for retirement when you finally do retire will increase substantially.

If you must borrow from your retirement savings plan for a down payment on a home or some kind of emergency, develop a plan to repay the loan along with interest. Sometimes people are better off just arranging for a regular loan instead of borrowing from their retirement savings plan.

Discuss your options with a financial planner before making this decision to ensure that you consider a number of options. If you are good with spreadsheets, you can model the impact of borrowing the money vs. taking some of the money from your retirement plan. Completed properly this will quickly show the impact of both scenarios for your particular situation. If you are not good with this sort of thing, your investment adviser may be willing to help you with these calculations.

Save

How to Retire Early

How to Retire EarlyHow to Retire Early and have enough money to last well into your golden years is the big question that many people are facing. They turn to experts and to investment advisers, however there are some things that you need to do that the experts do not really talk about too much. They are often too interested in selling investment products to you. Retiring early is all about managing our expenses. If for example you can downsize and move to an area of the country that has lower taxes, lower cost for heating, lower property values and lower taxes then you can probably sell your existing home payoff your debt and live quite comfortably on much less money. This is what one couple who moved from Chicago to Tennessee did.

How to Retire Early – Save Aggressively

Another person made a very good salary, in fact they were making approximately $110,000 per year but lived like they were only making $50,000 per year so they were able to set aside $60,000 over a ten-year period and combined with interest income able to save $800,000 towards a retirement in less than 10 years.

Downsize and Mid Course Corrections

While downsizing might be the right answer for many people, retirees should always be prepared to make mid course corrections. If for example you have downsized and still found that your expenses are too high for the lifestyle that you lead or for your budget, be prepared to make another downsizing decision which will decrease your expenses even more so. For example one couple was paying $1000 a month for the upkeep of the grounds around their home. They found that they could move to another place and still only pay $93 per month for that same upkeep. They also were prepared to do more of their own landscaping etc. This is an example of making mid course corrections during your retirement years.

Started a business

Another approach to retiring early, is to start your own hobby type business. If you can augment your income by $10,000 a year, this may be sufficient to provide you with sufficient income to bridge the gap. And you get to do your hobby as well.

The writer for example has retired when he was 48, but has been building websites and blogging for the last 15 years. He has been able to augment his income sufficiently to live very comfortably.

Become a landlord

Another approach to generating income and allowing yourself to retire early is to buy property. Rent it out and use the rental income to pay for the property mortgage and taxes. Once the property is paid for you have the choice of either selling it. Or using the capital to live on. Or continuing to rent it and using the rental income as part of your own personal income to live on after payment of all expenses associated with property.

Live on one income

If you are lucky enough to have two incomes, can afford to live on only one income? The best approach is to save the second person’s income toward your retirement. This will provide a great deal more savings opportunity and quality of life for you when you plan to retire. It is all about saving sufficient money to invest in to live on when you retire.

For many more posts about retirement planning, click here.

Save

Retire early: a second paycheck comes in handy

second paycheckMany people dream of retiring early and enjoying the good life. The reality is though that there are a number of reasons why people cannot retire early. For example they may not have sufficient savings. They may still have children going to university and college. Or they may not want to retire. In fact many would prefer to continue working to maintain their social life.

The second paycheck comes in really handy and augments the family income. This same income can be used to enhance your savings. The family can prepare for the quality of life that they would like to have during retirement. It also keeps your hand in the business and keep you current with what is going on in your career area. Many people will move from the regular career oriented job, into a new consultant type job for a number of years after they retire.

The question that many people ask themselves is what kind of a job should they consider after they retire? There are several schools of thought about these jobs. For example many would like to continue in the same career. There are many consulting type jobs that may be available within your industry.

Other people would prefer to try something brand-new. They only want to work for several days or maybe 20 to 30 hours a week. This will give them time to pursue some of the other things they like to do. They did not have the time before they were retired. Either way they have income coming in.

What Second Paycheck or Job do You Want

While some of these jobs may not be as challenging and as interesting as the job they had during their career, it still gives them an opportunity to get out of the house and an opportunity to meet people as well. If you try something outside your career experience it is also a learning activity for you.

Many colleagues of ours have very specific requirements about getting a second job after they retire. Yes you want the money, but also there are some specific issues that they have concerns about.

For example many people want to get away from the office politics. They just want to do the job and leave when the job is finished. They don’t want to become an employee, preferring to work as a consultant with a specific start date to the contract and a specific end date to the contract.

Many other people would prefer to work in retail where they have specific hours that they work everyday and then are finished with no issues or politics to be be concerned about at the job. When they leave the store their finish for the day and don’t think about it again until they come back the next day or whenever the next shift is scheduled.

If you’re looking for a second paycheck we urge you to think about and plan the kinds of jobs that you would like to pursue to make sure that your objectives are being met, whether it’s additional income, a social life, something interesting and challenging to do or something just to fill the time that you now have available.

For more ideas about retirement income, click here.

$800,000 saved; can I afford to retire early?

can I afford to retire earlyCan I afford to retire early when I have $800,000 saved towards retirement and when I retire, I will also collect a pension along with various government pensions. Our home is paid for and we have no debt to be concerned about. We have been doing a lot of research on this topic to understand what the correct answer is for someone in this position, who by the way is in a very enviable position. Most people nearing retirement are not anywhere close to this situation, however that is a topic for another article.

Can I afford to retire early – Factors to Consider

The quick answer to this question of early retirement under this situation is that it really depends on a number of factors, such as:

  • How long this couple will live during retirement, some people will spend 40 years in retirement
  • Exactly when will they begin to collect their pensions, some companies have restrictions that make people wait until they are 60 or 65.
  • What kind of life style do they want to lead? The 70% rule is very broad and really does not apply if you plan to do a lot of travel around the country or the world.
  • What will your expenses be over this time period and where will you live? Will you downsize, buy a vacation home or stay where you are and travel on shirt trips to various places.
  • When you retire will you have medical coverage or is this something you need to purchase separately?

We suggest that any person who is thinking about retirement take a look at each of these questions and try to address them for themselves and any family members, especially if you have dependents. Preparing a budget on a spreadsheet or with the help of a good adviser will help to clarify this question.

Assess Your Income

Start by determining all of your income streams. Also the year when you can begin to collect them and how much they will be. You can also factor in growth if these income streams are indexed. The $800,000 is a little more difficult. Some people will decide that they do not want to touch the investments or the income they generate, While others will draw the income off and retain the investment principle. In some cases you may also want to being drawing down the original investment in addition to your income that is generated by this investment. You can try different scenarios. Which will reflect these we just mentioned plus volatility in the stock market and the income stream associated with your investments, whatever they might be.

Assess Your Regular Expenses

Develop a budget for your day to day expenses. This would include utilities, food and clothing, taxes and medical coverage, entertainment and gifts. All of the things that are part of your normal lifestyle. Once you have this expense identified, add in an inflation factor of 3% for each year of your budget. Compare your income to your expenses. Hopefully there will be still some money left over. Which can be applied to the next area of your budget. Your income may not be sufficient at this point to cover all of your expenses. Some difficult decisions will need to be made. Somehow your expenses will need to be reduced to match your income. Or you will find yourself in a difficult debt situation at some point in the future.

Assess Your Lifestyle

The 70% rule that many people talk about during retirement applies to what we have discussed in the preceding paragraphs. Now you have all of this free time which needs to be filled. Some will go back to work,  Some will volunteer and some people will become involved in activities that they never had time for while working. Travel is usually a big factor for many people, which takes a lot of money.

The basic question is what will your life style be like. What will it cost to achieve this lifestyle over and above your basic budget for regular expenses. Readers are urged to give this part a lot of thought. Discuss this planned lifestyle with the family to make sure that everyone is on board. Develop a budget for this part of your retired life. Compare to your income and regular expenses etc.

Only then will you be able to determine if the savings that you have set aside will be sufficient to provide the quality of life you expect in your retirement over the next 30 to 40 years.

 

Age 60-Do You Have Enough for Retirement

Do You Have Enough for RetirementOk this is a question that everyone wants to know the answer to. Do you have enough for retirement? The answer is different for every person, since it depends on their financial situation, their pension plan if they have one and their savings in registered plans and non registered plans and whether they own their own house or not.

Let’s assume you are 60 and thinking about retirement and wondering if you have enough savings set aside. To start with if you are 60 today and in relatively good health, there is a good chance you will live for another 30 years. If you work to age 65, then you will have 25 years that you will need to live on your retirement funds, pension and social security benefits.

Average Account Balances

According to  recent studies consumers in their 60s had an average account balance of $144,000 at the end of 2009 in savings. This is a very low number and may not take into account savings in non registered plans, homes, cottages etc.

If you are married and your spouse also has some savings, then you might be a bit better off, so before you get really paranoid about retirement savings, make sure you take into account these other factors. Were will your income come from? Here is a list of items to consider for both you and your spouse:

  • Company pension
  • Social security
  • Registered plans ( 401k’s, RRSP’s etc)
  • Non registered savings
  • Sale of cottages, 2nd homes etc
  • Sale of investment properties
  • part time jobs

Complete your own inventory to assess what you may have in terms of annual income based on the list above. If we missed some, please let us know by leaving a comment on the blog at the end of this post.

If you find that you do not have enough savings and / or income, here are several steps you can take to begin rectifying the problem. Note that you are starting very late if you are 60, but better than not at all, right?

Do You Have Enough for Retirement – Build a bigger nest egg

If you’re in your 60s and all you’ve got saved is $200,000 in a registered plan, you may not have enough funds to live on.

Using a common rule-of-thumb withdrawal rate, you would withdraw 4% of your $200,000 nest egg in the first year of retirement, or $8,000. That amount is likely to be inadequate. If you do not have other sources, then this amount is not enough and you really do not want to touch your principle if you can avoid it. What to do?

Reduce consumption now and save more is the only real answer we can give. This is all about your personal comfort and quality of life during retirement and it is important that you take control of it now to try to make some level of quality of life work for you that is acceptable.

The rule of thumb currently is that you need about 30 times in assets of the initial withdrawals during the first year of retirement. For example, if you need $50,000 per year indexed to inflation starting at age 65 until age 95, then you need $1,500,000 in your portfolio at age 65. This is a far cry from the $200,000 average savings that many people have. If you can reduce the $50,000 by accounting for pension, social security and other income, the amount of savings you will need will decrease accordingly.

Check your asset allocation

It is time to be conservative with your investments and focus on generating income from your investments. You cannot risk investing in speculative stocks and you need the income. Triple A bonds, blue chip stocks with a history of paying their dividends and increasing their dividends year over year is a good thing to consider.

Diversify your savings. Do not put all f your savings in one investment and do not chase that too good to be true sounding investment. You cannot afford to lose everything in something that is very risky. Speak to several advisers and form your own opinion. Don’t follow someones advice blindly.

If you are concerned about risk, GIC’s are the safest investment, however they do not pay very much in terms of income. You will be able to sleep at nights!

Find out what your limits are in terms of contributions to your retirement plan and contribute the maximum every year until retirement to maximize your savings for retirement.

Do You Have Enough for Retirement – Delay retirement

Now this is an ugly thought, especially if you were  planning to retire shortly. However if you do not have the savings and the income, you may not have any alternative. Delaying retirement for several years can make a huge difference in terms of spending, savings and your own well being. You also delay the draw down on your savings as well which will benefit you over the life of your retirement.

Many people enjoy getting out every day to mingle with people and it gives them something to do.

Semi- retirement might also be an option for some folks. Working three days a week for example, still generates some income. But also allows more time for you to explore your interests and spend time with the grand lids. It also keeps you sharp in terms of the business world as well. They say that you need to exercise the body as well as the mind to lead a fit life well into retirement.

Delay taking Social Security

Taking social security early comes with a price. Most plans as well as pension plans penalize the retiree by reducing the amount of money they pay out each year if you retire early. Every year you delay taking your pension or social security benefits will provide you with an increase in your payments, which can be a huge benefit in later years.

One last point to consider if you do plan to take your pension and social security early. If you are also planning to work, your taxes could claw back some of these benefits depending on how much you make.

Check with an investment adviser or pension specialist to assist you in any of these decisions.

Ten Years to Retirement-Are you Ready

Ten Years to Retirement-Are you ReadyTen years to Retirement – are you ready: Most people do not think about this aspect of retirement. They just know that they want to retire. They cannot wait until they walk out the door from the office. However it is always a good idea to plan your retirement in all aspects. Planning 10 years in advance seems like a long time ahead of time. However with a 10 year window you may still have time to fine tune and make adjustments to your financial plan to get ready for your retirement.

This assumes of course you do not wait until 10 years before retirement to suddenly start saving for retirement. All of us should save for retirement. Start with your first job and then when we get close to retirement. We just need to find tune things to be ready for our leisure years. Saving from when you start work means that you have money working for you. Increasing your retirement nest egg for a much longer period of time . If you only begin 10 years before retirement you will have to save relatively large amounts of money.

Ten Years to Retirement-Are you Ready: Meet With Your Financial Planner Now

If you do not have a financial planner, it might be a good idea to find one and ask them for help in evaluating whether you are ready for retirement or not. Financial planners will provide this service  as a free service with the understanding that you will give them some business and either transfer your investments to them or begin investing with them. They get paid through commissions on any investments you may make through them.

We strongly believe on diversification, not only of your investments across mutual funds, stocks and bonds, but also across investment advisers. Never place all of your investments, especially your retirement funds, in one investment or with one investment adviser. There just has been too many stories of seniors being ripped off by people and/or the investments not doing well. You just have to recall Enron or the market crash of 2009 to know what the potential impact is. Ten Years to Retirement-Are you Ready?

Financial Planning Tools

Most good financial planners will have various tools available that can be used to develop a profile for you. They can also develop a  cash flow for you well into your retirement years based on your income, current savings, planned retirement date and expected life span. In addition you and the financial planner will make assumptions about the level of inflation and the amount of income you should expect for your investments. Most will error on the safe side of the assumption to provide you with a conservative estimate.

A combination of graphs and reports should be expected and you should be able to quickly see whether you have sufficient savings and retirement pension income to assess your financial health in retirement years.

It is never too soon to do one of these plans, however 10 years in advance of retirement is a good time to take stalk of your financial health.

Make Adjustments and Get Ready for Retirement

Doing a financial health assessment 10 years in advance of retirement provides you with sufficient time to make adjustments. As we said before this assumes you already have savings and are not starting at the beginning.

For example you might find that you need to work an extra year or so to achieve your financial objectives, or you may find that by increasing your savings rate, you can actually retire earlier than you thought from a financial perspective. Of course there are many other issues to take into account other than finances. Focus on these separately to make sure you are ready for retirement.

With this assessment you will have a clear picture of what you need to do to get ready. However you are not done yet. Be prepared to re-evaluate your financial plan every year and also after any major change in your life. You may find that no changes in your approach is necessary. On the other hand if inflation is high, interest rates change significantly etc, you may need to make adjustments to your plan. This is all good and part of every day normal planning for your financial adviser. In fact he or she should be encouraging you to review your plans every year.

Retirement Earlier Than Planned

Some of us are forced into retirement earlier than planned for a variety of reasons. For some it is health issues, for others it is the economy and our companies needs to down size. What ever the reason, you need to be prepared financially for this kind of thing. Although it is not fair or nice, it is reality and the only person who will look after you is yourself.

If you are faced with this situation, some belt tightening is probably in order. You should quickly re-assess your plan, then decide what you need to do re getting a job or developing additional income if it is needed.

A word of caution. In these situations some of us tend to take more risk and go after higher income investments to make up for losses in income. This is dangerous especially when you are so close to retirement. Something is better than nothing which is what could happen to your investment nest egg if you invest in the wrong thing. Discuss this strategy carefully with your adviser and ask for more than one opinion. You should have spread your investment across several adviser, so use then to gather various opinions.

Comments on this blog are welcome and encouraged. Ten Years to Retirement-Are you Ready?