These Golden Rules will Make The Life of Early Retirees, Easy
Can you afford to retire early but are also weary of the trade-offs; moving to a smaller home or restricting your hobbies? Retiring early is something that a lot of us want to do, but only a few of us are fortunate enough to, given the level of financial security they have. You need to know certain facts if around 60, but some basic game rules have changed for Americans.
1) Don’t fear losing Health Insurance
Health insurance was a challenge with conditions like diabetes or heart disease declaring you uninsurable, while healthy over-50’s paid much more than youngsters for the same coverage. Health reforms changed that and irrespective of your health, you can have a comprehensive insurance policy through the state online exchanges with age determining premiums.
What to Do:
Visit healthcare.gov to find your state options and understand that the premium is only the sticker price and 50% buying own insurance today, qualify for a subsidy calculated on what percentage of your salary goes towards insurance. A person who retires early with more premium qualifies for a break, particularly if retiring means spending wisely. Obamacare removed non-rejection or more charges for pre-existing health conditions, not cheaper than that available on the private market. Price out both options before buying in.
2) Early retirement means continuing Trade-offs?
Safe sources of retirement incomeare tougher, now and interest rates are at historic lows, possibly persisting for decades. Earning on low-risk cash and bonds remain paltry and the only solution is saving more and living on less. You enhance savings once expenses like college fees or mortgage payments reduce. Saving in excess of 15% of incomes for eight to 10 years, sometime in your career, ensures adequate savings to retire comfortably when 65. Power saving with rates exceeding 25% is common among early retirees.
What to Do:
To manage with low savings, live on less. Experts recommend replacing 70% to 80% of your pre-retirement income, without dramatic lifestyle changes after eliminating savings, commuting costs, and Social Security taxes. If managing on 50%, you need to save about 12 times your income by age 60, as against 17 times if living on 70 %.
3) Moving makes a Difference
The recent housing markets recovery provides confidence and funds to retire early. Don’t count on housing booms to pad up net worth. Set realistic expectations from your house sale, but plan assets prudently which may mean leaving your house.
What to Do:
Lose some bedrooms if selling in a strong market now and buy a smaller house, thereby adding to your savings or wiping out past debts. Retiring early means learning to live frugally by cutting housing costs. Or move to a town with low property taxes and lower living costs, as also cheaper homes. Whether downsizing locally or cross-country, never trade repair costs for steep association fees.
4) Don’t blow it all early
Early on in retirement, you indulge on costly hobbies, travel, or on eating out. After 75, your outlays drop, even after health care spending. People aged 65 to 74, spend 37% more than those after 75 do, as per Consumer Expenditure Survey findings. Retire young but remember you starting the free-spending years early when crafting an income is difficult as Social Security is possible at age 62, with lock-in at higher payment if waiting for full retirement age to claim (67 for those born in or after 1960). If eligible for a pension and collecting before 65, you settle for 30% less, leaving you dependent on your investment income.
What to Do:
Be prudent about withdrawals. With low bond yields, a portfolio withdrawal rate of 3% adjusted for inflation is safer than the traditional 4% rule for 30 years and not the 35-40 year time horizon of early retirees for whom, a safer rate dips to 2.6%. When living entirely on withdrawals, 2% to 3% will not matter. Boost your withdrawal rate and you risk of running out of money. To improve prospects, manage on less. A higher withdrawal rate early on ensures cut-backs when Social Security begins. As spending patterns and market returns often vary, reassess your plans annually.
5) A second pay-check does come in handy
Take up a part-time job after retiring from normal work to ease financial pressure. But too many retirees are unrealistic about landing part-time work. Lining up a 15- to 20-hours-a-week job sounds great, but there aren’t many stimulating / well-paying jobs in professional fields available. Flexibility is great, but not for employers.
What to Do:
Try senior staffer projects and high-level work as consultant, not jobs. Start with your old workplace and your network. Attend industry events and visit contractors doing similar work or about jobs they can’t take. Visit elance.com and peopleperhour.com, to match employers with freelancers in design, marketing and writing. Keep fit and employable, maintaining professional credentials, follow industry changes, and communicate with former colleagues. Your long-term financial plan also provides answers.
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