Financial Planning For Early Retirees

| January 10, 2020 | 0 Comments

retirement planningRecently I came across an article of someone who retired early making less than $50,000 and whose plan is to continue to live frugally in retirement. I thought to myself that is interesting and to each his own.

But then I thought, if you’re working hard to eventually retire, you must be working super-hard to retire early – years or maybe decades early as compared to the traditional retirement age of 65. Unless you don’t see them as sacrifices, what’s the point of making sacrifices for early retirement only to continue to deny yourself with enjoyable things and experiences once you enter into retirement?

What Do Early Retirees Do?

When I think of retirement, I don’t think of leaving the workforce completely. Instead, I think of leaving the traditional full-time 40+ hour workweek. And once leave this schedule; suddenly you got a whole lot of time on your hands.

And this is what I’ve found from early retirees. They are fairly active in pursuing other interests like sports activities, arts, and crafts, learning new skills, coaching, tutoring, teaching and volunteering. And some of these activities translate to income. At the same time, these early retirees are able to pursue these interests without a rigid schedule, office politics, long commutes, and unnecessary stress.

It’s great to see early retirees continue to be productive and adding value to society in general.

Early Retirement May Not Be For Everyone

Personally I do not see myself retiring early because of a few reasons:

  • I might not have enough to do on a day to day basis
    • Because of this, I may want to do things I shouldn’t do like shop for useless items, eat junk food and watch excess TV
  • I might not be disciplined enough to do things on a day to day basis
    • So I may do things like stay up late for no good reason and sleep in late

Presently I enjoy the work environment due to the fact that it stimulates my mind, provides an opportunity for social interactions/development and a structured day to day schedule.  At my place of work, there isn’t much politics and gossip, and even if there was I would probably be oblivious to it.

Considerations For Early Retirees

If you’re single and planning on retiring early, you should consider the following factors which can significantly increase your expense budget, maybe double or triple:

  • The likelihood of finding a life partner and starting a family. The average cost per child is roughly $240,000 from birth to age 17. If you break that down on a monthly basis, it’s roughly an additional $1,000 per month in your budget. This could be offset with a spouse’s income.
  • Declining health once you get older. Healthcare is hard to calculate, but if you want to assign a number you can start off with roughly $360 per month in retirement, according to USA Today, for a single person’s healthcare expense. And it can go up fast once you get older.
  • Moving to a better home and/or neighborhood to improve your quality of life (e.g., better shops and restaurants, schools, and less crime). The increase in mortgage or rent expense, if you move to a better area, could be up to $1,000 per month. Personally, I live in a nice area. But just a five to 10-minute drive will put me in an area where housing costs are $100,000-$200,000 more for the same sized home.

Just considering these three expenses to maintain or improve your lifestyle at retirement can set your monthly budget back to roughly $2,500 more per month.

Typical Expenses To Increase In Retirement

After reading many articles about retirees, here are the top three things they spend on the most and planned for:

  • Healthcare
  • Travel & Entertainment (T&E)
  • Dining Out

Healthcare is basically a necessity so retirees don’t have much of a choice. And people who are 3-5 years away from their retirement goals list healthcare as their number one concern. It makes sense as private healthcare can be more than double the cost when compared with working for an organization and only having to worry about deductibles (if applicable) premiums, copays and coinsurance.

T&E and Dining Out are discretionary, but from what I’ve read and heard seem to go up significantly upon retirement. It makes total sense; once you retire you generally have a lot of time on your hands. And if you retire with a strong financial position, traveling and dining out can significantly improve your quality of life. It’s simple really, you get to visit new places, meet new people, and try new experiences and foods.

Plus you’ve worked hard to earn your retirement. And isn’t the point to kick back and relax a bit. I don’t understand the people who retire but still try to limit their spending and deny themselves of things that make them happy.

Continuous Income Stream(s)

For early retirees, it may make sense to generate income from one or more sources. For example, if you have another property that’s paid off, rental income can help offset your retirement expenses.

Other ways to produce income to offset expenses for early retirees can include the following:

  • Part-time consulting in a field you are an expert in or worked in during your career
  • Dividends from an after-tax account if you don’t want to tap into your retirement account just yet
  • Producing a product or service and selling it online
  • Working part-time in a low-stress environment, such as a local library or a locally owned coffee shop

Open To Going Back To Work

There are cases where early retirement may not be what you actually hoped for or expected. Or over time, your feelings concerning early retirement may change and so you may decide to go back to work. The reasons for this that I’ve read about or have actually heard from people include:

  • I have too much time on my hands
  • I need structure in my life
  • I want to contribute again to society and feel I have the skills to make a difference
  • I need a break from my kid(s)
  • I do better at work than taking care of kids
  • The extra income can help for X, Y or Z
  • The benefits of employment, including a retirement match, but especially healthcare

The point is even if you are retired, it’s a good idea to continue to stay up to date on your profession. It’s also a good idea to maintain communication with your business contacts. You never know what the future holds and planning for early retirement is just as important as planning for what may happen following retirement if that makes sense. 🙂

Note: This article originally appeared at Simple Money Man.


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Category: Personal Finance

About the Author ()

Hi there! A bit about me; well, I’m in my 30’s and have a steady job in Accounting & Auditing. I’ve been in the Finance & Accounting profession for almost 15 years and have held positions with a CPA firm performing audits of Federal agency programs, a Finance Services Fortune 500 company based in Baltimore, MD, a Federal agency in Washington DC, and currently am working for the State of Maryland. I have a CPA license and a CIA certification that I earned many years ago (full disclosure: may not remember some of the stuff I learned….c’mon it was years ago and like a gazillion topics). What you will get out of this blog: You’ll (hopefully want to) read about simple concepts, simple stories simple language and simple examples all related to money and personal finance cause I’m a simple man. You may also notice a touch of humor in my writing too (hopefully that doesn’t get annoying cause it’s just how I roll). What you may not get: sophisticated writing, complete sentences, corecet spelling (I do know how to spell correct though), and a bunch of stats, figures, and references to things (sometimes you may get a bit of that stuff).

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