Retiring Early

Anyone working for more than ten years has probably daydreamed about retiring early. But everything is relative, and 35-year-olds are going to have a different definition of early retirement than a 45-year-old. And what exactly is retirement anyway? Does that mean switch jobs or completely checking out of the working world?

In this publication, we're going to unveil the vision of early retirement. We'll talk about what it means to retire early, as well as its risks. Then we'll outline some approaches individuals can take to achieve this vision. Finally, we'll talk about some online tools you can use to create retirement "what if?" scenarios.

Planning for Early Retirement

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The vision some of us have of early retirement is clear. We know exactly what it means, and how it's going to feel. We know why we want to do it, and how we'll fill our days. Others might not have such a clear vision. They may be frustrated with work or just plain tired of the daily grind.

Saving Money

Whether you have a clear vision of early retirement or not, one thing is clear - money is one of the keys to a making the vision come true. We live in a material world, and we need money to survive. Shelter, clothing, food, and many of the other basics we need to survive are not free. So a big part of our early retirement plan will involve saving money.

The next logical question someone might ask then becomes:

How much money do I need to retire early?

It's an excellent question, but one that we need to examine before we can start to answer.

Financial Independence

For many of us, retiring is thought to be synonymous with the concept of financial independence. That's because a successful retirement is often predicated on one's ability to avoid working and still be able to pay the monthly bills.

That's not to say that everyone who is retired has reached a point where he or she is financially independent. And to the contrary, reaching a state of financial independence does not mean one must retire.

If we're going help define what it takes to retire early, then financial independence is one of the key elements in achieving that vision. Later on when we start our discussion that outlines how much money is needed to retire early, we're going to rely on formulas that help us to pay all our bills and live the lifestyle we're hoping to live.

Adjusting Lifestyles

It's possible to accelerate your retirement timeline if you're willing to adjust your lifestyle. Ideally, you'd want all of you major expenses behind you or fully funded. This includes life events such as paying for weddings and college costs. It's also a good idea to retire and leave your mortgage payments behind.

One of the ways you can help maintain your lifestyle in retirement is by pulling the equity out of your home. In a robust housing market, downsizing a home can result in a sizable return on your original investment.

Some of the other ways you can lower costs in retirement include:

Relocating to a state that doesn't require its residents to pay state-level income taxes. There are currently seven states that do not collect any state income taxes at all - Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
Relocating to a state or township that has lower property taxes.
Buy and hold cars longer. It's a well-known fact that buying a car and driving it until failure is one of the most economical ways to own a car.
Eat more meals at home / go out to restaurants less frequently.
Create a household budget to heighten your awareness of how you spend money.

Taking Risks

One of the biggest risks retirees face is outliving their retirement plan. We all wish we could be so lucky - beating the odds, living a long life, and running out of money.

But unless you're willing to go back to work, a sound retirement plan does not include seeking above-average returns on your investments by taking big risks. Taking a conservative approach to your investments will allow you to ride-out economic storms and bear stock markets.

One approach used by many individuals as they approach their retirement age target is to start moving money away from riskier investments (such as stocks) and into a more secure portfolio of government-backed bonds or banking instruments such as certificates of deposit.

Unfortunately, this planning approach is frequently misunderstood by the same individuals attempting to follow its guidance. More money is moved into this conservative portfolio than is necessary, and the investor's return suffers.

Financial planners typically recommend that a retirement portfolio hold two to three years of living expenses in cash, CDs, and short-term bonds. This money is usually sufficient to see you through a stock market decline. The last thing you want to do is have to sell stocks in a down market.

Working in Retirement

One of the ways you can retire early is by working in retirement. Here we're talking about "downsizing" your job to a less stressful assignment. Taking a part time job, or working at home may be the ideal way to supplement traditional sources of retirement income.

The key to knowing if you need to supplement your retirement income is by crunching through some numbers, and working through some what-if scenarios.

Online Retirement Tools

At the time of this writing, our website offered over 90 online calculators. The majority of these calculators were engineered to help answer questions related to financial matters. In fact, we've broken these calculators down into the following categories:

Automobile Loans - car depreciation, lease versus buy decisions, as well as the standard calculators that allow you to figure out monthly car loan payments.
Insurance Needs - including a long-term care calculator that can help you estimate the funds needed to care for loved ones.
Investments - the highlight here is an asset allocation calculator that contains a risk tolerance questionnaire.
Loans - if you're thinking about paying off a loan, consolidating your loans or paying down a credit card, then you'll want to look through this section of the website.
Mortgage - if you're retirement decision involves a mortgage, there are nearly 20 calculators designed to help answer every imaginable question you might have about your mortgage.
Retirement - finally, we've put together two dozen retirement calculators that can help you figure out exactly how much money you'll need in retirement, as well as how much money you will need to save to fulfill your dream of retiring early.