By Michael G. Shinn, CFP
I retired when I was 51 years old and my son was just a sophomore in high school. One of my joys was to teach part-time at his high school and to be available for him, when he needed me, comments Pat Jenkins a single mom and schoolteacher who retired after 30 years of teaching.
However, I was not prepared for some of the other things that have occurred, such as the doubling of my health insurance premium, the high cost of my sons college education and living on a fixed income.
Successful Early Retirement
Early retirement to many people means being able to tell their boss, take this job and shove it! and then blissfully live a comfortable life of golf, fishing, traveling or whatever else they may desire. Well in advance of their retirement day, successful early retirees have aggressively planned for three major issues---their finances, time and heath.
Early retirement presents some special financial planning issues.
Pension benefits- if a person retires at age 55 when their normal retirement age is 65, their pension benefits will be significantly lower. First, they will have shortened their pension contributions by 10 years and they will be withdrawing benefits for 10 years longer.
Life style costs- a person at age 55 will typically have significantly higher lifestyle costs, than a person at age 65. For example, they may still be incurring their childrens education expenses, home mortgage debt and the general costs of a more active lifestyle.
Inflation- inflation, even at todays relatively low rate of 3% can have a dramatic multiplying effect over a couple of decades. If a retirees desired lifestyle cost is $50,000 per year in todays dollars, that persons equivalent lifestyle cost in 10 years will be $67,000 and in 25 years it will be $105,000.
Other income sources- for early retirees, some potential income sources are not available until later. The earliest Social Security retirement benefits are available is age 62 and then at a reduced rate. Penalty free withdrawals from most qualified plans, such as 401K and 403B are not available until age 59, although there are some exceptions.
Fringe Benefits- Important benefits such as employer paid life, health, dental and disability insurance may not be available for retirees and, may have to be funded by retirement income.
After working for 30 years, many people think that they can change to life of travel, golf, fishing or just relaxing and still be satisfied. Well, it does not work that way! There are other aspects to a job, besides the work itself. There is the structure, the challenge and the whole social process that is a part of the workplace.
The social status that is a part of a job may be difficult to replace. For many, a job helps create ones reason for being and motivates many individuals to get up in the morning and to prepare for the job challenge. Many retirees work as greeters at Wal-Mart or drive an airport shuttle bus just for something to do. They have not prepared for life after the job.
Adequate finances and time management are not the whole story. Unfortunately, too many early retirees have developed a financial plan and have a challenging new career planned, but end up suffering from poor health or disability before they have the opportunity to enjoy the fruits of their labor. Besides physical health, early retirees need to prepare for escalating health care costs.
Over the last few years, group health insurance costs have increased at the alarming rates of 14%. Many employers are passing on these costs to their current and retired employees. Older employees and retirees are a significant part of employers health care cost liability. Early retirees must be prepared to shoulder increasing health care costs.
Early retirement offers a wonderful opportunity to pursue some of lifes dreams and opportunities. However, it takes serious financial and personal planning to make it successful. Meet soon with your financial advisor to begin developing the framework for a successful early retirement. If your financial position is not where you want it to be, you must take control and make it happen!
Michael G. Shinn, CFP, Registered Representative and Advisory Associate of and securities offered through Financial Network Investment Corporation, member SIPC and SIA. Visit www.shinnfinancial.com for more information or to send your comments or questions. © Michael G. Shinn 2003
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