Is Early Retirement for You?

Are you thinking of early retirement? It's not for everyone, of course; some simply can't afford it. For instance, you might not be able to leave your career early if you're facing tuition bills for your children's education well into your fifties. Or, your pension may be inadequate (or nonexistent) if you work for a small firm or have done a considerable amount of job-hopping during your working years. Some people are psychologically unprepared for early retirement: you may not be ready to give up the camaraderie of business associates or to spend a lot more time with your spouse (nor may he or she be ready to spend a lot more time with you!). Sometimes, one spouse may want to retire early while the other one doesn't. Fear of boredom can be quite daunting for those who have no earthly idea how they would be able to occupy their days without the pressure of pending deadlines.

However, for those intrigued by the concept of early retirement, the main prerequisites are preparation, creativity and dedication. You'll have to reposition your investments while working to amass the assets needed for the retirement age that you select. Quitting early obviously means that your savings will have to last longer than otherwise. For example, assuming a 4% average annual return after inflation, if you want to retire at age 55 you'll have to accumulate $560,000 in order to collect $30,000 a year until age 90, compared with only $468,000 if you waited until age 65 to quit. What's more, you'll also have ten fewer years in which to accrue that additional cash reserve. Shrewd investing alone may not get it done; indeed, there could well be some necessary trade-offs that you'll have to contemplate in the future. You might have to make a few sacrifices either before or after you retire – such as cutting back on luxuries or entertainment expenses.

The more creative you are early on in the process, the less frugal you'll have to be down the road. For instance, try to devise ways of building your own retirement annuity, not through an insurance company but from your own skills. Consider what you could do right now that would bring in a steady annual income after you retire. You may be able to turn a hobby that you've been tinkering with into a sideline business. Or, you might buy rental property today with a mortgage that you'll pay off by the time you retire, thus practically guaranteeing a fairly substantial positive cash flow.

The expertise that you've gained over the years could also be turned into a lucrative occupation. But consulting, which is the most popular form of post-retirement entrepreneurship, ideally requires building contacts and a reputation before stepping away from your current employment. Trying to market yourself as a consultant after you quit working can end up taking more time than you spent at your old job. So, if your dream of independence involves running your own business, do yourself a favor by starting right now. Even if you're not contemplating a second career, you should start gearing up today to make sure that you have enough money to make your retirement comfortable.


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