How to Retire Early

How to Retire Early

smalljeffinacircleWhen I work with people about their finances, it usually ends up not being about JUST finances. There’s so much emotion wrapped up in how we view money that we end up working on an assortment of financial, emotional and behavioral issues.

Together with our clients, we are on a quest to find a combination of working / saving / spending attitudes that allow folks to not only work toward being able to retire before they need to, but also (and this is a biggie) to be able to live a happy, healthy and fulfilling life along the way.

We encourage everyone to consider building a strategy that will allow them to retire early. Although many clients are perfectly happy in their professions, (some even wishing to work well into their 70s) we still encourage building an early retirement strategy for two main reasons:

One, having built a plan to reduce or eliminate your financial dependence on your paycheck can actually increase enjoyment. I like to call it the “Johnny Paycheck Effect”. For many, being able to tell the world (or your boss), “You Can Take This Job and Shove It” can actually make it easier to enjoy your career. It can cleanse your emotional palate, lessen the chance for burnout and allow you to view your daily routine as more pure. Helping others, volunteering, achieving objectives, building something of lasting value etc. are all pursuits typically more fulfilling than the purely selfish pursuit of a paycheck. Thank you Johnny Paycheck.

The second major reason is the unpredictability of life itself. It’s possible that despite your best-laid plans, life just won’t allow you to execute them as you’d desired. A health crisis or injury to either you or a spouse can wreak havoc on even the most thoroughly planned strategy. By having an “early retirement” plan in place, you can use it as an escape hatch to a life that you could not have imagined years earlier. Maybe you won’t ever need it, but having the plan in place can make your life between now and then significantly happier and less stressful.

Everyone will need to design an early retirement plan that suits their particular situation. Both now and in an anticipated future. It’s not always about building a specific nest egg amount to insure a happy early retirement. Many early retirement plans we’ve constructed with clients involve some low-impact consulting income for a couple of years after full retirement, or a part time job in a completely unrelated field to help with the transition, or even a complete lifestyle transition to make it possible. Most importantly, it helps to think out of the box by reminding yourself that it’s not always about the money.

According to newly released data from Allianz Life’s 2014 LoveFamilyMoney study, there are six major traits that people who’ve fully developed and implemented early retirement plans have in common… and some of these traits may surprise you. Happily for most clients, coming from a life of privilege is not among them.

Have a happy marriage. Early retirees tended to describe themselves as in sync with their spouse. Some 76 percent of these people were married, compared to 68 percent of the people who never planned to retire, and they were also more likely to be in their first marriage. And 90 percent of early retirees found it at least somewhat easy to talk about money with a spouse or significant other, well above the 77 percent of people planning to never retire.

Appreciate what you have. People planning to retire early were significantly more likely to describe themselves as wealthy or financially comfortable, but that can depend on your perspective too. I’ve worked with a number of clients who struggle with drawing the distinction between being appreciative for what they have and complacency. They can be under the assumption that being appreciative of their present situation is akin to giving up or ceasing to strive for further success. Nothing could be further from the truth.

Follow your parents’ example. The would-be early retirers in the Allianz Life survey were more likely to compare their financial situation to their parents’, with 21 percent of them doing so, compared to 14 percent of those not planning to retire. They also tended to emulate their parents’ money behaviors. Of course, for this one to have a positive effect, you need parents who were or are fiscally responsible.

Teach your kids about money. Only 14 percent of people planning to retire early taught their children about money and finances, but that was well above the 6 percent of people not planning to retire who did so. Boomerang kids and supporting adult children can decimate your retirement nest egg. Better to prepare the kiddos from an early age to be self sufficient.

Save the drama for your mama. Having a fairly calm financial life also seems to encourage people to plan early retirement. Some 46 percent of those people said they had not experienced financial hardship as an adult, versus just 31 percent of those planning to stay in the workforce.

Plan for the worst, hope for the best. On the downside, early retirees were more likely than other workers to worry about dying young. Only 47 percent of them worried about running out of money in retirement, but 53 percent worried that they would not live long after they retired. But don’t sweat it, the good news is that leaving the workforce won’t hasten the process.

With some out of the box thinking to help build an agile financial plan, while adopting as many of the above traits as possible, you should be well on your way to an early retirement.

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