Tips to Prepare for Early Retirement
Hey Taylor – Aside from having lots of money, what do I have to do to retire early? I feel like I hear so many stories about people retiring early not because they made millions, but because they just figured out how to do it. Am I being naive? - Rebecca
Hey Rebecca – No, I don’t think you’re being naive. People with a good understanding of their financial goals and lifestyle often manage an early retirement that doesn’t seem feasible to the rest of us. While everyone will have their own variables to deal with, I feel like there are three basic components of an early retirement that doesn’t involve millions of dollars in savings.
1. A reasonable amount of savings. While you don’t have to have millions, you do need to have several years of living expenses covered before you stop working. Remember, ordinary living expenses are not going to come out of your retirement account. If we’re really talking about early retirement, you should still have an account that will keep growing until you’re in your later years. So, in addition to an IRA, you should have a short-term savings account that will generate a little income while covering your expenses. You have to work hard to save this money, especially because it needs to be in addition to other savings accounts.
2. Live frugally. If you believe these non-millionaires are retiring early and living a life of excess, you’re missing the point. An early retirement usually leads to a life of cost-cutting, which works well for some people. If you have a couple kids and mortgage, you know you can't leave the workforce just yet but you can start adjusting your lifestyle in preparation for it. For those who can handle a minimalist lifestyle with cheap meals and sparse lodging, there’s hope for retiring a decade or two before everyone else. You should be aware that a lot of these young retirees doctor their lifestyle very specifically to avoid working; they live in vehicles or with family, they travel to other countries where the dollar can go further, and they happily forgo a lot of the amenities that most people take for granted.
3. Be prepared to change. When you give up the structure employment offers, you start living a very fluid life that can throw you a lot of curveballs. While you need to go into it with a plan, you need to be just as prepared to change that plan when something unexpected happens. Retirement doesn’t eliminate the need for medical treatment or reduce the cost of gas. Assuming you’re open to the frugal lifestyle and you have the ability to spread savings out over a number of years, you still have to be ready to either go back to work or switch things up when your situation demands it.
Early retirement is an awesome goal if you know what you’re getting into. If this sounds like the life for you, keep your eyes on the prize and make it happen!