Is it time for an early retirement? Use this checklist

  1. Retirement Checklist: Nine Steps You Need to Take to Prep for Retirement
  2. 1. Take inventory of your assets.
  3. 2. Build an emergency fund.
  4. 3. Eliminate all debt.
  5. 4. Determine your retirement needs.
  6. 5. Square away health insurance.
  7. 6. Plan your estate. 
  8. 7. Investigate retirement investments.
  9. 8. Learn how to withdraw funds.
  10. 9. Say goodbye to your coworkers.
  11. Tips for Getting Retirement Ready
  12. Age 55-to-Retirement Checklist of Actions
  13. Know what and where your investments are.
  14. Know how your investments are doing.
  15. Calculate the income you’ll need
  16. Start thinking about where you may want to live in retirement. 
  17. Consider staying in your current location. 
  18. Understand all employer retirement plans. 
  19. Make your will and estate plans. 
  20. Understand your Social Security benefits. 
  21. Make your first downsizing and/or relocation decision. 
  22. Decide when to start receiving Social Security benefits. 
  23. Learn about Medicare.
  24. Plan for Healthcare Insurance prior to Medicare.
  25. Decide what to do with employer pension (if you have one). 
  26. Decide what to do with your 401k/403b/457 Retirement Accounts. 
  27. Make your final Medicare decisions. 
  28. Apply for Medicare. 
  29. Decide whether you’ll work in retirement. 
  30. Early Retirement Checklist Part One: Money Considerations Prior to FIRE
  31. Can I Afford to Retire?
  32. Set up Withdrawals from Deferred Compensation or Defined Benefit Plans
  33. Have a Plan for Your 401(k)
  34. Other Work-Related Items
  35. Craft a Drawdown Plan
  36. Basic Tax Planning
  37. A Giving Plan
  38. Consider Social Security
  39. How To Retire Early: A Guide To Early Retirement
  40. Early Retirement, Phase One: Pre-Retirement Planning
  41. 1. Your Vision for Early Retirement
  42.  2. Your Health Insurance Plan
  43. 3. Plan Out Your Early Retirement Housing
  44. 4. Plan to Keep Earning Income
  45. 5. Have a Social Security Strategy
  46. 6. Create a 10-Year Financial Buffer
  47. Early Retirement, Phase 2: Managing Finances in Early Retirement
  48. 1. Set Guidelines for Your Spending
  49. 2. Adjust Rate of Return Assumptions
  50. 3. Consider Segmenting Your Savings
  51. 4. Remember to Enjoy Your Early Retirement

Retirement Checklist: Nine Steps You Need to Take to Prep for Retirement

Is it time for an early retirement? Use this checklist

The U.S. Census Bureau states that the average American retires at age 63. Yet the Social Security Administration defines full retirement age as between 65 and 67, depending on your year of birth. Your employer may say something different.

Deciding when to retire is one of the hardest decisions you’ll have to make. Retire too late and you may not have the energy to enjoy it. But if you retire too early, you could end up in financial trouble.

So how can you know if you’re truly ready to retire?

When you’re mulling over your retirement readiness there’s more to consider than your current retirement savings. We made this checklist to help near-retirees determine if they’re really ready. Ideally, you’d cross off each item on this retirement checklist before leaving your job.

1. Take inventory of your assets.

First things first: You need to figure out where you stand financially. Evaluate your budget. Write down every debt, liability, savings balance, income stream and insurance policy you have.

Don’t forget about properties, vehicles and other valuable possessions that affect your bottom line. A good way to do this is by creating a worksheet that you can adjust on a regular basis.

This process will allow you to assess your current financial situation and plan accordingly.

As you review, keep in mind that you won’t be getting a paycheck once you retire. Experts often say you’ll need at least $1 million to retire comfortably, but Bureau of Labor Statistics records show that the average American age 55 or older spends $49,279 every year. Whichever benchmark you use, it will at least give you something to measure your current status against.

2. Build an emergency fund.

Before you take any major financial step, you want to be sure you’re protected should things not go according to plan. Hopefully you aren’t learning about emergency funds for the first time when you’re within years of retirement.

But if you have somehow gotten this far without a financial security blanket, now’s the time to create one.

It will cover you in the event of personal catastrophe, and it can also make up for delays in the start date of your pension or Social Security.

Some experts recommend that you sock away three months of living expenses, while others suggest you save enough for at least a year. Six months’ worth of funds should be enough to cover you in case of emergency.

Base the amount of this six-month fund on your expenses, not your income. No matter your current state of employment, this fund is about how much you’re spending.

Remember to include expenses currently covered by your employer ( healthcare) because your emergency fund will need to transition into retirement with you.

Keep your fund somewhere safe and separate from your other savings so you aren’t tempted to spend it. A passbook savings or money market account could be a good option. They’re liquid in case you need to access your funds, but still earn interest.

3. Eliminate all debt.

In an ideal world, we’d all enter retirement without any debt. Since your income is ly to decrease, any fixed payments will start to take up a larger share of your expenses. If you’re nearing retirement, it’s time to take a look at the debt column of your inventory. Add interest rates and terms in a new column beside your outstanding debts.

So, how should you tackle your debts? There are generally two thoughts on where to start: either by paying down debts with the smallest balance or debts with the highest interest rates. If you can stomach it, we suggest starting with highest-interest-rate debts.

This is usually credit card debt, followed by personal loans and car loans. And we don’t just mean hitting the monthly minimum. To really make a dent, you’ll have to put as much money as you can to paying down your priority debt without sacrificing making the minimum payments on other debts.

 Mortgages are a good debt to save for last as these tend to have low interest rates.

No matter what repayment strategy you choose, the most important thing is sticking with it. Map it on a calendar, track your progress and ask a friend or family member to keep you accountable. Any time you successfully pay off a debt, give yourself a small reward to stay motivated.

4. Determine your retirement needs.

Before you can retire, you have to decide how you want to retire. Consider where you want to live, whether you’ll have a job (this may sound crazy, but some people to work in retirement) and what your expenses will be. Try to be realistic in terms of retirement length, too. This can be difficult to predict, but you can always refine your estimate down the line.

You should also create a timeline to show when different streams of income will begin. This will help you manage cash flow and determine how much you need to save to retire.

Look to your Social Security account, employee-sponsored retirement accounts, individual retirement accounts and, for some, wages and a pension. Be sure you’re thinking of each income in post-tax dollars, as many retirees fail to factor in taxes. See how your pre- and post-retirement budgets compare.

The more realistic you are, the better prepared you can be. If you need help building or vetting your plan, you can find a financial advisor to help.

5. Square away health insurance.

Healthcare is one of the biggest expenses you’ll face in retirement. According to the Bureau of Labor Statistics’ Consumer Expenditure Survey, healthcare costs account for an average of 11% – 15% of retirement spending, depending on the retiree’s age. Don’t feel bad if this means you have to make a quick adjustment to Step 4.

In addition to factoring these expenses into your budget, you’ll also want to consider where you’ll be getting health insurance coverage.

If you retire at or after the age of 65, you can largely rely on Medicare for your retirement needs. You can get an overview of Medicare’s coverage and costs at the official site.

Pay special attention to anything you need that isn’t covered. Some people to have a supplemental insurance plan.

Things get trickier – and more expensive – if you plan to retire early.

If you don’t receive health insurance from your former employer or through your spouse’s employer and don’t yet qualify for Medicare, you’ll have to get health insurance on your own.

Whatever your situation, just make sure your insurance doesn’t lapse when you need it most. Know the terms and conditions of your coverage as well as how much you can expect to pay in premiums, deductibles, co-pays and out-of-pocket costs.

6. Plan your estate. 

No one s to think about their demise, but as you near retirement you’re also realistically getting closer to the end of your life. Being prepared with an estate plan will ensure your family is not plagued with financial burden after you’re gone and that your money is dispersed according to your desires.

In addition to creating a will, you’ll need to assign a power of attorney and healthcare proxy to make decisions on your behalf should you become incapacitated.

You’ll also need to establish guardians for living dependents and appoint beneficiaries on life insurance plans, retirement accounts and shared assets. Consider taxes here too, as you don’t want your estate bequeathed to the IRS.

You can also craft a letter with any information that hasn’t been accounted for, desired funeral arrangements or dissemination of sentimentally valuable family heirlooms.

Ensure all documents are properly notarized and stored somewhere safe.

Include an inventory of personal data your Social Security number, date of birth, bank account numbers, insurance policy numbers and digital passwords to keep things organized and easy to access.

After you’ve created your plan, remember to review it at least every five years or whenever you experience a life-changing event.

7. Investigate retirement investments.

It’s never a bad thing to have more income. One of the worst mistakes American workers make is designing their investment portfolio around their retirement date. This leaves little earnings potential for their post-retirement life.

Investigate how retirement investments could supplement your retirement account earnings. Keep in mind that your risk tolerance may change as you age and stop earning a paycheck.

You may want to employ a total return portfolio that allows you to withdraw a certain percentage while working toward a long-term rate of return, but that isn’t your only option.

Retirement income mutual funds, government bonds, real estate, closed-end funds, dividend income funds and annuities are all good options for retirees. The more you know, the better you can decide which option is right for you.

8. Learn how to withdraw funds.

You’ve (hopefully) spent your entire adult life investing money into your retirement accounts, so it may seem crazy that it’s finally time to take it out. Of course, you’ll have to understand how to do this first.

If you have an employer-sponsored plan, figure out if you want to leave money there or roll it into an IRA account. Consolidating is probably the better option if you’re over 59 1/2. At this time, you can take money your retirement accounts without incurring an early withdrawal penalty.

 By 70 1/2, the law requires you to take required minimum distributions (RMDs). You should make your decision what’s both tax-efficient and what you and your family feel most comfortable with. You can work with the institution that manages your funds to figure out how withdrawals work.

Next, you’ll have to decide when to sign up for Social Security. Most experts suggest you wait to sign up until full retirement age so you can receive full benefits, but you can sign up anytime between the ages of 62 and 70. The longer you wait, the bigger your check will be. You can apply for Social Security online, by phone or in person at a local Social Security office.

9. Say goodbye to your coworkers.

Congratulations! Once you’ve ticked off each of the above items and reached your retirement savings target, you are officially ready to retire.

Tips for Getting Retirement Ready

  • Don’t hesitate to consult an expert. If you’re not sure where to begin or you’re worried you’re behind, a financial advisor is a good person to turn to. In thinking about how to choose a financial advisor, the advisor’s area of expertise and fee structure are two factors to consider. A matching tool SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you answer a series of questions about your situation and your goals. Then the program narrows down more than 3,000 advisors to three fiduciaries who meet your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while doing much of the hard work for you.
  • Make sure you’re investing in the right retirement plan for you. A 401(k) might be a good option for you if your employer offers one and a match to go with it. But that isn’t the only option. You may also want to consider traditional IRAs and Roth IRAs.

Image credit: © Alphan, ©, ©


Age 55-to-Retirement Checklist of Actions

Is it time for an early retirement? Use this checklist

As you come through your 50s and into your 60s, there are a number of very important things that need to be addressed.  The specifics of these areas may change with revisions in Federal and State laws, and certainly with your own goals, preferences, and desires.

However, this is the time when delaying some considerations, decisions, and actions can cause you big issues down the road.

  The hard truth is that you may not be able to easily recover from certain missteps or missed deadlines, or you may find that course corrections are difficult and even painful later on.

The implicit assumption here is that you will “retire” somewhere between ages 55 and 70 (probably between 60 and 67 – although, according to a recent Gallop poll, the average retirement age in the U.S. is 62).

 “Retirement” in this context means that you are no longer working full time in your “high” (relatively speaking) paying job; however, you may start a second career, a small business, or volunteer your time in any number of ways.

In any case, a number of specific things are critical during this period – at least under existing laws and regulations.

  Therefore, this section is a little more detailed in terms of what you need to do for wise retirement stewardship, so please look at it carefully.

Even if you don’t plan to retire until well after your “full retirement age” as defined by Social Security, this is still a very critical period.

Know what and where your investments are.

By age 56, be sure to track your retirement investments and pensions very closely. (You may or may not have any pensions to be concerned with, as they are becoming increasingly rare.

) Unless you continue to work after you retire, your savings, retirement assets, and pensions will be all you have to live on, so you need to manage them very carefully.

Plus, you want to make sure they can last a good long time!  Remember, you can’t receive Social Security retirement benefits until age 62, at the soonest, and they will be less than what they would be at your full retirement age, usually between age 66 and 67 for most people. Survivor and Disability Benefits are the only exceptions.

Know how your investments are doing.

You don’t need to (and probably shouldn’t) check on your investments every day. (If you do, you probably have a very low-risk tolerance, so you may want to make sure your assets are in relatively low-risk investments.) Understanding your total return on a quarterly basis should be fine.

Some may find that doing it annually is adequate. The good news here is that most financial firms will track and calculate returns for you, both capital gains and income. That way you can ensure that you are getting the level of returns you expect the economic and market conditions at the time.

[See Note (1), below.]

Calculate the income you’ll need

If you plan to retire before your “Full Retirement Age” (date you can start receiving full Social Security benefits that are not reduced), make sure you know exactly how much income your pensions and retirement assets can generate without having to dip into principal.

Loss of principal so early in retirement can have disastrous effects later on. If you plan to retire before age 59 ½, be sure you don’t need income from your IRA or other retirement accounts to do so. Generally, you can’t take early withdrawals without paying taxes and penalties.

There are exceptions, but we won’t discuss them here.

Start thinking about where you may want to live in retirement. 

Start thinking about where you’d to live in retirement, even if you wouldn’t make a move for quite some time.  If that location is not where you have lived previously, make plans to spend some time there before making a permanent move (perhaps a couple of months).

  The location may be determined by where your kids live, where costs are lower, or somewhere that just seems fun and exciting. You could do this by saving up vacation time over two or three years so you can spend enough time there to evaluate whether the location will meet your needs. If you anticipate retiring in a location outside the U.S.

, determine how you’ll receive medical treatment (in the absence of Medicare).

Consider staying in your current location. 

Perhaps you will decide to downsize but stay in the same area. Many (in fact, most) do, in order to remain close to their family and friends, as well as doctors and other’s services. You are probably part of a local church. If so, consider whether leaving your local church community really makes sense.

Moving may make good financial sense for a lot of people, but it’s still important to do a financial analysis of your expenses in your current location or the alternative location so you can project your living expenses and income requirements in retirement.

 Don’t just assume that your income requirements will decrease just because you move to a lower-cost area.

Understand all employer retirement plans. 

If you have one or more employer retirement plans (e.g., pension, 401(k)), get the specifics (value, options for payments, administrative requirements, tax implications, etc.) by age 57 so you can make comprehensive plans.  If several employers (and plans) are involved, this may take considerable time, many months at least.

Make your will and estate plans. 

By age 59, ensure that your estate plan is in good order (including wills, trusts, beneficiaries, trustees, executors, etc.

)  Update all the documents you may have prepared earlier, especially executors, bequests, trusts, and health care wishes.

Also complete an instructions letter that would give a surviving spouse, executor, or family member all of the necessary details about financial accounts, insurance policies, etc.

Understand your Social Security benefits. 

By age 60, if not before, you need to understand the major characteristics of Social Security (as it exists at that time).  You should also be reviewing your annual Social Security Statements that provide your future benefits information.  (If you’re not receiving them, go to

Make your first downsizing and/or relocation decision. 

By age 60 (or retirement age minus 5 years, whichever is lower) develop a plan to move to your desired location at minimum cost.

  If you decide to stay put, think about any upgrades or changes you need to make to your current residence to remain in it or whether you plan to downsize but remain in the same area; if the latter, consult with a real estate professional about how to prepare your house for sale.

Decide when to start receiving Social Security benefits. 

By age 61¾ decide when to begin Social Security benefits.  (Under current law, benefits can begin no earlier than age 62.)  Even if you don’t start receiving early retirement benefits at age 62, you can start anytime thereafter.  Many people elect to receive the early benefit, but that isn’t necessarily the best decision in most cases.  There is no benefit to delaying past age 70.

Learn about Medicare.

Start learning about Medicare by age 62, if not sooner, so you can plan for your medical care both before age 65 (when Medicare is first available) and after that time.

Plan for Healthcare Insurance prior to Medicare.

Understand the new health care laws, impact on your current insurance, and Medicare in the future.  If you are paying for high cost (i.e.

, non-employer subsidized) health insurance, consider insurance through the Health Care Exchange (aka, “Obamacare”) as you may be eligible for a government subsidy. If you don’t currently have a primary physician – get one.

(It may be harder to find a doctor who accepts Medicare after you reach Medicare eligibility.  If you only have a General Practitioner, consider getting an Internist as well.)

Decide what to do with employer pension (if you have one). 

By age 62, research your available options and decide what you will do with your employer pension(s) if any – lump sum and roll over to IRA, lifetime annuity payments, etc. Different plans afford different options, so research them carefully.  Also, you should consider getting professional advice before making any final decisions.

But, as I have stated before, beware of commissioned sales personnel; get several consults and recommendations before making a decision. (Just to be clear, it’s not that I think commissioned financial representatives are dishonest or insincere, most are not.

Rather, my concern is possible conflicts of interest in terms of their tendency to promote high-commission/high fee products due to pressure from their employers to do so.)

Decide what to do with your 401k/403b/457 Retirement Accounts. 

By age 63, decide whether to roll over your retirement accounts into an IRA or other tax-deferred plan. Consolidation and simplification to make things more manageable should be your goal. Also, decide whether to hire a money manager or do-it-yourself.

Make your final Medicare decisions. 

By age 64½, decide on what medical insurance plan you will use (e.g., Medicare or whatever wonderful alternative Congress creates). If you choose Medicare, you will also need to decide which type of Medicare plan you want. They are too numerous and complex to elaborate on here.

Apply for Medicare. 

By age 64¾, apply for Medicare (if that’s your plan). (Employees of the Federal Government have the alternative of a more generous plan, so they probably won’t want to apply for Medicare. Many employees of municipalities have been promised better medical care than provided by Medicare, so they probably won’t either. We should all be so lucky.)

Decide whether you’ll work in retirement. 

This may be necessity or that you just enjoy working. Perhaps you’ll start a new career or a small business. If you do, make sure you understand the tax implication of working while receiving Social Security income. It doesn’t reduce your benefit, but it may increase the percentage of your Social Security income that is taxable.

Note (1): According to Morningstar, total return is typically calculated by taking the change in asset price, adding in all relevant income and capital gains distributions during the period, and dividing by the starting price of the asset.


Early Retirement Checklist Part One: Money Considerations Prior to FIRE

Is it time for an early retirement? Use this checklist

It’s never too early to start checking boxes on an early retirement checklist, even if you don’t plan on retiring early or at all.

Preparing your finances for the future does set you up for retirement, but there are other aspects, planning for future taxes, Social Security, and perhaps charitable giving, that can apply to anyone.

I checked a lot of boxes on a pre-retirement checklist before I retired from medicine in 2019. Some items were taken care of months and years ago; some happened as I retired and even after retiring.

Before leaving the workforce, potentially for good, you’ll want to take care of items related to money, insurance, and family and social matters. We’ll cover the money part today; insurance, family, and social considerations are covered in Part II.

Can I Afford to Retire?

First things first. Can you afford to retire? This topic has been covered thoroughly here and elsewhere. In general, a minimum of 25 times your anticipated annual expenses, passive income that meets or exceeds your expenses, or a combination thereof is what you’ll want to have.

Hopefully, you won’t get tripped up here in step one. If you’re checking off the boxes, this is the biggest and most important box you need to check.

Set up Withdrawals from Deferred Compensation or Defined Benefit Plans

I’ve got a non-governmental 457(b) with between two and three years worth of our anticipated retirement expenses in it.

I’m planning to take that money over about four or five years to have the account drained before the current tax rates sunset at the end of 2025.

The tax code could change before then, but it would not be advantageous to take a lump sum and pay the taxes on all that income at once.

My plan states that I must elect a distribution plan by March 1st of the year after I separate from service. If I do not, a lump sum of the full balance will be issued, potentially creating a tax headache. I sent in the paperwork while writing this post.

The money in a non-governmental 457(b) belongs to my employer and could be subject to creditors if the hospital falls on hard times — another reason to drain the account in relatively short order. A governmental 457(b) is less risky and can be rolled over into an IRA, a feature that the non-governmental 457(b) lacks.

If you’ve got another form of deferred compensation an NQDC or a defined benefit (a.k.a.) pension plan, you’ll want to determine how and when you’ll access those funds, as well.

Find a Great Credit Card

Manage Your Student Loans

Earn More Money

Have a Plan for Your 401(k)

If you’ve got a 401(k) (or a 403(b) or 401(a)), as most employees and many self-employed individuals do, you’ll want to decide what do with it.

If you’re younger than 55, your options are to leave your money where it is or roll it over to an IRA or another 401(k). I’ll be rolling my 401(k) balance over to my individual 401(k) to save some money on quarterly fees.

If you’re turning 55 or older in the year that you separate from your employer, you have the option of taking withdrawals from the account as you wish without penalty. Note that if you roll the balance over to an IRA, you’ll have to wait until you’re 59 1/2 to access it penalty-free.

As a side note, if you’re retiring mid-year, you may want to make the maximum contribution to the account while you have the opportunity. Doing so may require a different biweekly contribution amount than you’ve used in past years, so be sure to double-check your automated contribution schedule.

If you have a 403(b), the rules are nearly identical. You should be able to do all of the same things with this account as the 401(k), but you should doublecheck with your plan rep or accountant.

Does your workplace pay out unused PTO (paid time off)? Be sure you get that.

Do you have a computer, phone, or cell phone plan provided by your employer? If so, you’ll need to replace those.

Look at all of your workplace perks, and decide which are worth paying for yourself and which you are comfortable letting go. These may include a gym membership, meal services, child care services, and all kinds of other goodies that most of us physicians have never had (but have heard of from other industries).

Has your workplace offered severance packages to those taking voluntary retirement in the past? If so, try to negotiate a similar package to one that’s previously been offered.

If you’re going to lose the contact information of people you want to be in touch with after you leave, be sure to find a way to maintain contact after you stop clocking in.

If your employer offers free basic legal services, you may want to take advantage of them before you leave. For example, a past employer partnered with a legal service that helped me create a will at no cost to me. The same is true for counseling if you want someone talk to through the transition.

Finally, be sure to clean out your locker / desk / cubicle / office. No one wants to clean up after you once you’re gone.

Craft a Drawdown Plan

It’s one thing to know you have enough, but you also have to have a plan to access that money. There are a number of ways to access retirement money before age 59.5.

I already mentioned the 457(b), which is accessible at any age and the fact that a 401(k) can be easily accessed if you retire during or after the year in which you turn 55.

Substantially Equal Periodic Payments via IRS rule 72(t) are another option. There’s also the Roth conversion ladder, Roth contributions, and a plain old taxable brokerage account.

Your plan will be highly individualized, and the source of funds will change as you progress through the different epochs of early retirement. Eventually, you will have full access to your retirement assets, and by age 70.5, you’ll be forced to take Required Minimum Distributions if you still have tax-deferred dollars to your name.

Related: Our Drawdown Plan in Early Retirement

Basic Tax Planning

After years of paying substantial income tax, your income is ly to drop dramatically, and your income tax should plummet right along with it.

Since you need to include taxes as a part of your anticipated annual expenses, you should have a rough idea of what you’ll be paying in future years. It’s easily possible to pay nothing in federal income tax when retired if your portfolio consists of a variety of pre-tax and after-tax money.

However, if you have a healthy fatFIRE budget or most of your retirement money is in tax-deferred dollars, you can expect to pay some income taxes. Taxcaster is a great tool for estimating your future tax burden.

There will also be property taxes for homeowners, sales taxes, vehicle registration, etc…

Depending on what you come up with after outlining your drawdown plan and tax expectations, you may want to consider a couple of smart tax moves that you can benefit from now that your income is much lower.

Tax gain harvesting (not to be confused with tax loss harvesting) is an easy way to increase your cost basis in a taxable account if you’re anticipating taxable income of less than $78,400 in 2019, the top end of the 0% capital gains tax bracket.

Another option is to make Roth conversions. I think the ability to move tax-deferred dollars to Roth dollars makes sense in the 24% federal income tax bracket. You’ll increase your taxable income with every dollar converted, but with the top of the 24% bracket at $321,450, you’ll ly have lots of room in which to do so.

Roth conversions are a no-brainer if you have room in the 12% tax bracket, which is very similar to the 0% capital gains bracket, and have no plans to tax gain harvest.

A Giving Plan

If you’ve been donating to charitable causes while working, I would assume you’ll continue to do so in retirement. If neither are true, skip to the next section.

One way is to keep giving is to simply include charitable giving as a line item in your post-retirement budget, much you will with the taxes you expect to be paying.

The downside is that you may not get much of a tax break for those donated dollars after you retire. In other words, for every dollar you part with, the charity will receive less than if you had donated in a tax-advantaged manner.

If you’ve paid off your mortgage, you will probably be taking the standard deduction ($24,400 if married filing jointly in 2019) rather than itemizing deductions. In this case, you get no deduction for charitable giving. If you do have itemized deductions exceeding the standard deduction, you will be taking that deduction at your now-low marginal income tax rate.

is your house paid off yet?

Another option, which I believe is a better option, is to build up your giving fund while still working. A donor advised fund allows you to set aside a large pool of money from which you can donate over the rest of your lifetime if you wish.

If you grow this balance while working, you’ll be taking a tax deduction at a higher marginal tax bracket, the result of which is more money for your chosen causes for every dollar that you give away.

Consider Social Security

You may be years or decades away from taking Social Security, but it’s best to take a look at your potential future benefit before you take the leap.

With a calculator that I update annually, you can determine what your check might look (using today’s dollars) when you actually begin to collect.

If you haven’t yet reached the second bend point, you’ll see your benefit increase a decent amount with each “one more year” you work. Beyond the second bend point ( contributions to date), the increased benefit is greatly reduced for every additional dollar contributed.

You should also give some thought as to whether or not you’ll delay collecting to the latest age possible, which is currently age 70. The White Coat Investor and Dr. Cory S. Fawcett had a healthy debate on whether or not that’s a good idea.

If I delay to age 70 and my wife begins collecting at age 67, we’d receive about $43,000 in 2019 dollars. That’s over 50% of our anticipated initial budget.

Yes, the program can and will change between now and then, as will our budget, but it would be foolish to disregard this significant fixed income stream entirely.

Continue to Part II for a rundown of insurance, family, and social considerations prior to FIRE.

What other monetary considerations would you recommend prior to FIRE? Which do you feel is the most important? Or the most overlooked?


How To Retire Early: A Guide To Early Retirement

Is it time for an early retirement? Use this checklist

Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

For those with an eye on early retirement before age 65, it helps to break your retirement planning into two phases: before retirement and after retirement. By planning for each phase, you can move toward an early retirement with a greater level of confidence.

Early Retirement, Phase One: Pre-Retirement Planning

When people talk about retiring early, they most often focus on the investment strategy known as FIRE: Financial Independence Retire Early. Outside of planning which retirement accounts and brokerage accounts to use and how much you need to save, you also need to think about:

1. Your Vision for Early Retirement

It’s critical to start your retirement planning process with a clear vision of your life during retirement, says Jake Northrup, CFP, founder of Experience Your Wealth, LLC.

“I’ve found a lot of people say they want to retire early, but they don’t actually paint a picture of what early retirement looks for them,” he says. “You don’t want to climb the retirement ladder and get to the top to realize it was leaning the wrong way.”

Phil Lubinski, CFP, co-founder of IncomeConductor, has found over his 30 years as a financial advisor that pre-retirees don’t measure their emotional readiness to retire.

“Fishing and golfing are great part-time activities, but what are investors going to do with the rest of their time?” says Lubinski. “They need to fill the 40 to 50 hours a week they were working with other activities.”

He also says that investors may not be prepared to replace the psychological and social benefits that their careers and work environments provided. That means thinking about the kind of part-time or volunteer work you might want to take on, the types of hobbies you want to pick up or the traveling you may to do, among countless other goals.

Knowing your goals for your early retirement will also dictate how much you need to save for it.

 2. Your Health Insurance Plan

“The most common thing people fail to plan for when pursuing early retirement is health insurance,” says Northrup. “You can’t receive Medicare until you’re 65, and early retirement ly means you’re no longer covered by an employer plan.” Early retirees need a strategy to bridge the gap from their retirement date until Medicare kicks in.

COBRA coverage is one option and allows you to continue your last employer’s health insurance. The catch? High costs. Right now, you’re probably covering about 18% of your plan’s premium cost. But once you leave your job, you’re responsible for 100% of the premium—and then some. Due to administrative fees, you may be stuck with a bill that’s up to 102% the cost of the employer’s plan.

Keep in mind that COBRA coverage only lasts between 18 and 36 months, depending on your circumstance, so it alone may not be able to bridge you to Medicare.

To save on costs or to protect yourself after COBRA ends, you may consider a health insurance plan in your state’s insurance marketplace.

While a policy through the marketplace may cost less than COBRA coverage, overall cost will ly be higher than you paid while still employed since most employers cover the vast majority of plan premiums.

Deductibles and out-of-pocket maximums may be markedly higher than your employer coverage as well.

When deciding on a pre-Medicare health plan, be sure to compare costs across any COBRA and marketplace plans. You may also reach out to a health insurance broker for estimates.

3. Plan Out Your Early Retirement Housing

“Most pre-retirees focus on getting their investments ready for retirement, but attention should also be paid to getting their home ready while they are still working and making a good income,” says Lubinski.

Prepping your home for retirement could mean different things to different investors. To prepare your home for your early retirement, you might:

  • Pay off your mortgage early
  • Downsize your home
  • Make major repairs (replace your roof or sewer main, invest in tuckpointing)
  • Complete renovations (kitchen, bath, landscaping)
  • Research homes in your dream locale (if you’ll be relocating)
  • Plan to pay off any HELOCs prior to retirement to protect your home equity

Your first priority should be any major repairs you’ve been putting off as you want to avoid tapping your retirement savings to finance repairs. “Major home repairs during the early years of retirement can be very damaging to a long-term investment portfolio,” says Lubinski.

4. Plan to Keep Earning Income

“Early retirement is not about stopping to work, but rather gaining complete control of your time,” says Northrup.

He suggests that after investors leave the 9-to-5 grind, they find part-time or gig economy work that fits with their new lifestyle while offering a modest income to offset living expenses.

These jobs may even offer benefits, health insurance, that can help bridge you to retirement.

“By planning to continue earning income, you are able to achieve early retirement far earlier because you don’t need as much money saved up in investments to support your lifestyle,” he says.

During your retirement planning phase, think about the kind of work you’d find rewarding during retirement. Take time to research your options. Knowing that you have options for retirement income can help alleviate concerns that you might outlive your savings or any feelings of discomfort from the thought of actually spending the savings you’ve accumulated over a lifetime.

5. Have a Social Security Strategy

Not only does your early retirement strategy need a plan for healthcare before Medicaid. You also need a clear vision for when you’ll tap Social Security. Starting Social Security payments as soon as you’re eligible can diminish your Social Security benefits up to 30%.

Talk with a financial advisor or use the planning tools on the Social Security website to make a plan for when you’ll start drawing benefits and potential delays you can make to ensure you receive the maximum benefit.

6. Create a 10-Year Financial Buffer

“At least five years before their early retirement date, investors should set aside the amount of money required to provide income for their first five years of retirement,” says Lubinski. “This will effectively put a 10-year buffer between the money they need for early income and any market volatility that could take place during their five-year countdown to retirement.”

This buffer helps investors safeguard the wealth they’ve accumulated by setting it aside from their main retirement savings. You could do this by opening a new individual retirement account (IRA) and rolling over the recommended five years of income. You can then invest this money in a capital preservation-minded portfolio, one focused on cash-based investments Treasury Bills or bonds.

By separating your funds you’ll need early in your retirement, you give yourself some buffer should the market experience volatility. Under this model, your remaining investments will have years to bounce back from any losses before you’ll need to tap them.

Early Retirement, Phase 2: Managing Finances in Early Retirement

Early retirement isn’t a destination so much as the start of a new journey. You can’t put your finances entirely on autopilot just because you’re no longer working full time.

1. Set Guidelines for Your Spending

To retire early, you need to know how much cash you need to maintain the lifestyle you envision. “The most critical variable in financial planning, and the one you can control, is your spending,” says Northrup. That’s why he helps his clients set up “guardrails” for their spending.

He recommends that investors identify a lean budget (left guardrail), a moderate budget (middle of the road) and a fat budget (right guardrail). “Most of the time you will drive in the middle of the road, but it’s helpful to know how far left and right you can go while still being safe,” he says.

This type of planning in advance will help you reduce anxiety about spending and also give you permission to increase spending on experiences you truly value, so long as you stay within the guardrails.

2. Adjust Rate of Return Assumptions

“The past five or 10 years is not a good measure of what the next 30 to 40 years might hold,” says Lubinski. Wise words, given that the U.S. was recently in the longest bull market in history.

If you’re relying on epic rates of return during retirement, it could prove more prudent to adjust expectations downward. Given the average rate of return for the S&P 500 has been 9.8% over the past 90 years, you’ll probably want to err on the conservative side and model your portfolio with a lower rate of return than that.

Instead of 10% annual returns, you might conservatively estimate 5% or 6%. You’ll also want to keep in mind that you probably won’t have a portfolio invested entirely in equities in retirement, meaning you wouldn’t reach 10% even in a perfect market.

That’s why Lubinski says investors should focus on “reliability of income” during retirement instead of “return on investment.” This means adjusting your investments to a capital-preservation and income-centric approach.

It doesn’t mean giving up all of your market upside potential, though your returns will ly be more modest than a portfolio invested only in stocks.

Rather, your steady income becomes the leading factor in the investment decisions you make.

3. Consider Segmenting Your Savings

You may think about bucketing your savings to try to capture market upside while preserving the money you need for income in the near future.

It can be helpful for some early retirees to break up their retirement savings into five-year portfolios and invest accordingly, allowing funds you won’t need to tap for 25 years to be invested more aggressively than those you’ll need to tap in the next five to 10 years.

4. Remember to Enjoy Your Early Retirement

Once folks are in early retirement, they should avoid a tendency not to enjoy their wealth. “My clients who were very good savers sometimes have trouble becoming spenders,” Lubinski says. That can be helped by creating a retirement spending plan.

“Retirees usually spend on a U-shaped curve, with higher spending in the early years when their health and energy is high, then a natural slow down, and in some cases an increased spending pattern in the later years when health care becomes an issue,” says Lubinski. “Having a written retirement income plan that is customized to the retiree’s actual spending goals gives them the confidence to spend and enjoy their retirement.”

You’ve saved it, and in early retirement, your plan is to have more years to enjoy what you’ve saved.


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