Broker Check
Can You Afford to Retire Early?

Can You Afford to Retire Early?

| March 20, 2024

Whether it’s because they’re dissatisfied with their jobs, they’ve joined the financial independence/retire early (FIRE) movement, or they simply want to kick back and relax, more Americans than ever seem to want to leave the workplace early. 

If you’re wondering whether you can afford to retire early, the answer is “yes, but.” 

Being able to afford to retire early depends on several factors. For instance, what do you expect your retirement to look like? Will you stop working altogether? How much have you put away for your twilight years? What kind of health are you in?  

How do you know if you have enough money squirreled away? Leaving your job earlier than the traditional retirement age of 65 means you’ll have to stretch your savings long, but it is doable — you just have to do more planning to get there. 

Take Care of the Basics First 

If you’re contemplating retirement, you’ll first want to consider whether you’ve taken care of two basic financial planning issues: outstanding debt and an emergency fund. If you aren’t careful, the existence of the former and/or the lack of the latter could wipe out the money you’ve worked so hard to accumulate. 

Obligations like student loans or high-interest credit cards could burn through your retirement income. If that happens, a major medical issue or some other emergency could force you to pull out a chunk of money from your savings, possibly causing you to pay penalties and taxes. 

It might seem counterintuitive to stop saving for a moment now, but paying off your debt and ensuring that you have an emergency fund can go a long way toward giving you the retirement you want later. 

Picture the Kind of Retirement You Want 

No matter when you want to retire, you must have a vision of what your retirement will look like. The earlier you start thinking about it, the earlier you can start planning and saving for your goals. 

Retirement is about more than just not working anymore. More than anything else, it’s a numbers game. Age is the number most workers consider when thinking about retirement. As significant as it is, how much money you have for retirement is a more important figure. 

Having an idea of where and how you want to live will help you determine how much money you’ll need. Do you want to lounge on a tropical beach sipping margaritas? Will you work part-time in the pet shop down the street? Do you want to volunteer with your favorite charity? Or will you just sit at home and relax? 

Once you’ve thought about what you want to do, you can begin plotting your exit from the workforce. Pulling out at 40 is a lot different than calling it quits at 50, which is a lot different than retiring at 60. The earlier you stop working, the more money you’ll need to get through retirement, assuming an average lifespan of around 80 years. 

Once you know what your retirement will look like, you can begin formulating a budget and developing a plan to save enough to cover it. 

Steps to Take to an Early Retirement 

Trying to figure out your future expenses and matching your savings to meet them might seem daunting. 

According to several studies, however, including the influential Trinity Study, you need 25–30 times your annual expenses. You can calculate your necessary savings based on a 4% withdrawal rate from your retirement savings, with a 2%–3% adjustment for inflation. 

If that still sounds complicated, here are some steps you can take to kickstart your retirement planning: 

  • Assess your financial situation 
  • Increase your income and reduce your expenses 
  • Max out your 401(k) and a Roth individual retirement account (IRA) 
  • Invest in an early-retirement account to withdraw income before 59 ½ 
  • Work with a financial professional 

Since no one can predict the future, determining how much money you’ll need later can seem next to impossible. But it’s not. A financial professional can work with you to develop a money-management and retirement plan that will allow you to reach your retirement goals. 

Find a Financial Professional for Retirement Planning 

A financial advisor firm like Good Life Morehead City can help you create and follow a roadmap to arrive at the retirement experience of your dreams. Our financial team will listen to your objectives, values, and concerns to understand your situation and deliver a personalized plan for an early retirement. 

Contact us today to schedule a free consultation with one of our experienced financial advisors.