Early
Retirement
By Roger Sorensen
Planning
and saving for retirement is a serious financial issue for most
of us. We spend years building our nest egg, with the goal of stepping
into retirement financially and psychologically prepared. However,
sometimes retirement arrives earlier than planned on.
A
recent survey found that among people who retired early (before
age 65), 43 percent retired earlier than they intended. For a few
it was because they come into sudden money such as lottery winnings
or an inheritance. But many in the survey cited “negative” reasons
for retiring early including health, disability, being laid off
or having to take care of ill family members. University of California
researchers found that half of Californians retiring before age
50 cited health reasons as their reason for the early retirement.
Whatever
the reason, w hen an unplanned early retirement occurs, you’ll need
to plan carefully to make adjustments. Not only your lifestyle may
need adjusting, but so will your attitude.
First,
don’t make any immediate, rash financial decisions. Making a wrong
decision now can cause financial problems the rest of your life.
As an example, if you’re retiring early because you’ve suddenly
come into money, don’t make major investment decisions within the
first 60 to 90 days. Put the money into a bank or mutual fund money
market, and leave it alone until you have time to think about what
it can really provide for you, even if it takes you six months.
If
you’ve suddenly left your job because of a layoff or because you
have to take care of a sick family member, you may want to immediately
do a little financial belt tightening. Otherwise, don’t make other
immediate major financial decisions.
Second,
revise your financial plan, or create one. This act will be the
most important thing you can do to give yourself control of your
new retirement. This is especially critical if you’ve been forced
to retire for “negative” reasons. You’ll want to review the entire
gamut: income and outflow, insurance, estate planning, investments,
possible government assistance and so on.
Maintaining
control of expenses is a critical component for any retiree, since
income tends to be more limited. Controlling expenses is especially
critical for unplanned retirements. Early retirees typically face
major expenses that would often be gone in normal retirement: mortgage
payments such as a child's college expenses. Early retirement to
care for an ill relative will probably result in money out-of-pocket
expenses for that relative. A spending plan becomes absolutely vital
to keeping expenses within line of income.
Retiring
early means more years of retirement and the costs that go with
retirement. This is a double whammy because you not only have more
years to pay for but you end up with fewer working years to fund
the retirement. Your later work years are usually when you earn
your most income and can best sock away for retirement. Traditional
pension plans also are skewed toward late-career earnings.
Investments
present another area of challenge. You have a longer retirement
to fund than originally planned is the biggest challenge. More aggressive
investing can help make up some of that shortfall.If you’ve retired
earlier than planned for negative reasons such as a loss of job
or health, you’re going to need immediate cash flow from your investments
to help cover expenses, and that means investing less aggressively
and going with cash producing investments. Review with an investment
advisor how best to get the kind of investment you need. Aadjusting
your portfolio so that part of it generates more income while the
other part grows more aggressively through non-income producing
investments may be a solution.
Retiring
early means more years until you qualify for Medicare. It is vital
that you are covered by a major medical health insurance policy,
even if finances are tight.
Do
not fail to address the psychological implications of early retirement.
Even for planned retirements, leaving the workforce can be a difficult
emotional adjustment. It’s tougher with an unplanned early retirement
because you haven’t had time to mentally prepare for it. When you
retire, take a breath and sit down to think through your new situation.
Then start planning for your retirement years.
Roger
Sorensen
America's
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