We’ve all heard the stories: the successful startup mogul who retires at 40; the engineer who is pushed out in his fifties with a cushy retirement package. The reason you’re considering early retirement matters far less than why you want to retire and whether you have the financial means to do so. So is early retirement the best decision for you? There are no right answers—only some key questions you should ask yourself.
Are You Sure You Have Enough Money?
Early retirement demands that you have more money saved than on-time retirees. Not only will you have to cover more years of retirement; your investments will also have fewer years to yield a tidy return. Money can make or break your retirement at any age, so you need a crystal clear picture of how much you have. Sit down with a financial advisor early, and revisit your retirement projections often.
Do You Own Your Home?
You could theoretically retire while renting an apartment, but why would you want to? Your home is likely your biggest asset, and can be a source of emergency cash in retirement. Once you hit 62, if you own your home you can access a reverse mortgage—money that you don’t have to repay as long as you remain in your home and comply with the loan’s terms. A reverse mortgage, selling, and other real estate-based sources of income will yield more if you own your home outright, so pay down your mortgage now.
Do You Actually Want to Retire?
Retirement can sound great when you’re getting up at the crack of dawn each morning. To enjoy your retirement, though, you need a better plan than just no longer working. How do you want to spend your retirement? Do you really feel like you’ve done all you can with your career? Do you have a sense of purpose outside of work? If you’re not sure, it’s time to get clear on your retirement goals before taking the plunge and quitting.
Do You Have a Plan for Your Retirement?
How are you going to spend your retirement? Are you going to work part-time? Travel? Pursue an avocation? What will you do if you experience a financial or medical emergency? How do you plan to compensate for the socialization you once got at work? Retirement might seem like a purely financial question, but it’s so much more. Most of us glean part of our identities from our careers. So when you remove work from the equation, it’s easy to feel lost and depressed. You need a clear plan for how you want to spend your retirement. Until you have such a plan, continue focusing on earning money.
Have You Given Yourself Time to Think?
While it’s possible to return to work if you decide your retirement decision was hasty and ill-advised, the transition back is riddled with challenges. So you need to view retirement as a permanent decision, since taking time off of work can permanently alter your career prospects.
You can’t make such an important decision under pressure or on a whim. No matter how cushy the retirement package you’re offered is, no matter how much money in your savings account tempts you to leave a miserable job, take time to think. Talk it over with your spouse and children, and never take the plunge without consulting a financial advisor.
