How to Retire Early: An Early Retirement Checklist

How to Retire Early: An Early Retirement Checklist

1600 1064 Stefanie OConnell

Are you itching to ditch the nine-to-five and enjoy financial independence well before age 65? Early retirement may seem like a dream, but with some careful planning and dedication, it can become a reality.

Whether you want more time to spend with friends and family or the freedom to travel the world, here’s what you need to know about how to retire early.

1. Build a Retirement Budget

Try playing with your retirement budget while you’re still working to see what, if any, adjustments you need to make while you have the flexibility of a full-time income. Reducing your expenses now will also free up more money to channel into your early retirement savings.

Beyond basic living cost considerations, think about what you want to do in retirement. If you’re hoping to use your newfound freedom to see sights or indulge in expensive hobbies, it’s important to build those added costs into your budget. Add in buffers for inevitable curveballs like car repairs or medical emergencies. And don’t forget any other lump-sum expenses that might not otherwise be part of your monthly cash flow, for instance paying your children’s education expenses.

Some experts suggest saving 25 times the amount you plan to spend each year you’re retired. This amount, of course, can be adjusted depending on your expected retirement income. For help on adding that factor to the equation, keep reading.

2. Estimate Your Retirement Income

As you’re identifying what your expenses will be in retirement, don’t forget to think about the other half of your budget — your estimated income. Important questions to consider include:

  • Will you work part time or gradually phase into full retirement?
  • Will you have a pension or any annuities you can rely on for stable income?
  • Will you be able to negotiate a severance package or convert outstanding vacation and sick days into pay?
  • Will you have any sources of passive income, for example from investment dividends or rental property income?
  • When will you start withdrawing from Social Security, and what will your estimated benefit be?

Again, give yourself time well before you plan to stop working to think through these questions. Are there any adjustments to your options for retirement income that could be the key to making it happen, for example maintaining part-time work? Is it worth channeling some money now into investments that will pay off later? After you’ve done some thinking, it may be wise to bring these questions to a financial adviser.

3. Pay Off Debts

Paying off your debts can make your monthly cost of living much more manageable in retirement. It can also give you greater peace of mind, allowing you to truly enjoy the time and freedom you’ve made for yourself.

List out all your debts, from car and home payments to credit cards and other loans. While it might feel good to knock out the smallest debts first, starting with those with the highest interest rates is your best bet in the long run. Especially with high-interest credit card debt, pay as much as possible above the minimum.

Don’t underestimate the value of the security you’ll feel knowing that you don’t have debts hanging over your head.

4. Know Your Health Care Options

If you’re not old enough for Medicare coverage when you retire, you’ll need to purchase primary health insurance and budget for planned and unplanned associated expenses.

If you’re employed by a company that offers health insurance benefits, take a few questions into consideration:

  • Does your employer offer any form of health insurance benefits to retirees?
  • Does your employer’s plan include a health savings account, which can help you pay for health-related expenses before age 65?
  • Are there any procedures you should avoiding putting off while you still have employer-sponsored insurance?
  • Does your plan have a wellness program you can use to build solid health habits that can help prevent issues later?

If you’re relatively healthy, pairing a lighter, cheaper plan with supplemental coverage like criticial illness or fixed indemnity insurance might be a smart option. Or, if your 65th birthday won’t be too far off when you stop working, ask your employer about insurance extension options like COBRA or read up on how short-term plans can help you bridge insurance gaps.

Knowing how to retire early is all about knowing how to plan in advance. If you want to leave your job behind before you turn 65, it’s important to get to work now.

Stefanie OConnell

Author of the book, "The Broke and Beautiful Life," Stefanie O'Connell has been dubbed 'a financial expert, helping millennials feel as confident with their money as they do in their lives.

All stories by:Stefanie OConnell

Stefanie OConnell

Author of the book, "The Broke and Beautiful Life," Stefanie O'Connell has been dubbed 'a financial expert, helping millennials feel as confident with their money as they do in their lives.

All stories by:Stefanie OConnell