Retirement is no longer the passive time of your life when you sit on the porch and drink tea. It has become the time to fulfill all your desires. Retirement activities can cost you time and money, and the earlier you retire, the more significant savings you’ll need.
I can’t think of a person that would imagine retirement as a struggling time. It’s supposed to be enjoyed; after all, it’s a product of years of labor. To indulge in what your heart desires and attend to your health needs as well as possible, you must prepare correctly.
I don’t know about you, but I’d choose to spend half of my retirement days traveling around the globe. The other half I’ll dedicate to people watching at my front porch with a couple of dogs. I’d love to spend 100% of my retirement days not worrying about money.
Having the option to retire earlier is fantastic; you get plenty of free time while you’re still in great shape. You’re able to go on adventures, travel the world, volunteer, or devote yourself to your hobby. But to transfer seamlessly into retirement at 60, you must prepare correctly.
Outline your retirement life way ahead. This way, you can discover the yearly cost. If the current estimations point you’re short on money, you’ll have time to improve your retirement savings and lower the expenses. You also must pay off any debt, calculate how much income you’ll get from your social security, and assure adequate health insurance.
Calculate The Income You Expect From Your Retirement Savings
Depending on what retirement savings plan you have, try to calculate how much cash you’ll get yearly. The 4% rule stands for withdrawing 4% of your retirement savings the first year. If you follow that rule, would you have enough money to live on for years into retirement?
Check how much pension and social security you’ll receive if you retire at 60 and add that to your retirement income. It’s essential to answer yourself if this sum can secure you a comfortable and stress-free retirement.
Devote Time To Retirement Life Planning
How you imagine your retirement life is the answer of how much money you’ll need to save today. Where do you plan on retiring is crucial. Living and housing expenses make up the part of our budget.
Break up your retirement plan into multiple phases. The first period is the time slot between the day you decided you want to retire at 60 and the day you turn 60. This is when you still make retirement contributions and must strive to max out your ROTH IRA or 401K.
The second part is optional – it’s from the day you turn 60 and retire but are still paying off some debt, mortgage or college tuitions for your children. Your retirement income needs to cover the debt payoff and your cost of living.
The third part is from your retirement day till the end of life. Retiring at 60 means you have to have savings to support yourself for at least 30 years. This part can be costly if you plan on significant expenses like cruises and cars; or budget-friendly if you move to some retiree haven in Europe or Asia.
Increase Your Retirement Contributions
We’ve talked about the many benefits of starting your retirement savings as early as possible. But even that sometimes can’t generate insufficient funds for early retirement.
The average 401k balance for Americans aged 50 to 59 is $160,000. That’s far from enough for a comfortable retirement at 60. Make use of the catch-up option 401k offers to deposit more money into your retirement savings after the age of 50 or max-out your IRA to increase your retirement balance.
No matter what retirement savings plan you use, make extra contributions when you decide to retire earlier.
Start Social Security At A Later Stage
The later you start your Social Security, the more monthly income you’ll receive.
If you’re born after 1960, then 67 is considered your full retirement age. If you decide to begin receiving your benefits earlier, the amount gets reduced by 6% per year. Imagine your full retirement age benefit is $3,000. If you start it at 60 you’ll receive $3,000 – (7×6%) = $1,740.
If you decide to get your full retirement age benefits later than 67, you receive 8% more for each year delay up to 70. So if you start your FRA benefit at 70, you’ll get $3,720 monthly.
Optimize Your Cash Flow
Retirement involves no paychecks, bonuses or raises from your employer. You have a fixed income each month till the rest of your life. This suggests paying special attention to where your money goes and ensuring a good cash flow. Here are the basic steps to ensure stable cash flow:
- Monitor you budget regularly and make adjustments if needed to ensure you have enough money to cover your living expenses each month;
- Cut unnecessary expenses wherever you can;
- Carefully and well in advance plan big purchases like gifts, new car or travels.
Maximize Your Income And Protect Yourself From Risk
The more time you have between now and retirement, the more risky investments like stocks you can make. If you’re in your 30s, you have about 30 years to retirement, so you can keep a high volatility portfolio. Stocks have a history of a high return in a long period different from bonds. But as you’re nearing your retirement age, you can no longer play with high risk.
The older you are, the more you need to focus on preserving your capital. Keeping your securities in bonds won’t give you the returns of stocks, but it will provide an income you can live on.
Be Realistic With Your Retirement Expectations
Of course, retirement is not about sitting in front of your TV and living and religiously sticking to a routine. But to provide more diversity to your retirement days, you must be realistic.
Are you capable of saving enough to relocate to a retiree haven? Can you sacrifice current indulgences in the name of better retirement days?
If the answer is yes, then you’ll meet your retirement expectations. If the answer is no, or your finances can never provide you that, then be realistic. Extend your work life or make peace with a restrained retirement.
Lower Your Living Expenses
Your retirement income need to cover your current living expenses. If that seems unattainable you have to consider lowering your living expenses and making cuts wherever you can.
Downsize
At 60, you’re living by yourself, with a partner or spouse. You don’t need a mansion, a four-bedroom house, or a penthouse. A large home is an emotional and budget strain. Suppose you own your home; that’s a great asset. You can add to your retirement income by renting or selling it. Downsizing is the quickest way to cut your housing costs. There are plenty of options from house sharing, tiny homes, moving into a retirement community or an RV.
Trade Your Car
In retirement, you don’t have to drive to work every day or pick up and drop off your kids. An upscale car requires high maintenance; it has higher insurance and registration charges and hefty repairs. Even if it’s paid off, it still carries some expense. Consider purchasing an older model that will serve you well at a lower cost.
Shop Around
Time is money so use yours wisely. Take time to shop around for the big expenses, cable, phone, insurance, utilities. Examine the competitors and try to negotiate with your current service providers. If they don’t cooperate, switch to others who offer good service at a lower price.
Optimize Your Health Insurance
Health insurance is a great part of your retirement living expenses. If you don’t have an employer-sponsored pension, you’ll have to cover your health insurance.
There are no shortcuts or secrets for a lower health care bill. You can shop around and compare different providers for the best deal. For example, a household in California with two people at the age of 60 needs to pay $600 to $800 monthly for health insurance.
If you retire after 65, you can go with Medicare and add Medicare supplements.
Upgrade Your Personal Finance Knowledge
Start as soon as possible to learn more about personal finance. If you plan on retiring early, a wide personal finance knowledge will help you prepare.
You might not be able to save a tremendous amount of money, but you can learn to invest, save, and make the most of what you have. You can learn about low-risk investments you can make right before retirement and ensure a better retirement income.
You Can Always Reverse Your Retirement
Reversing retirement doesn’t mean you have to go back to the same job. You can choose to capitalize on your hobby or open up a small business.
Post-retirement careers can be completely different from your current day job. There are plenty of retirement entrepreneurship ideas to choose from. Coaching, consulting, and writing are just some of them.
Bottom Line
Deciding to end your career earlier might come as a blessing or a burden. To ensure a smooth transition into your retirement days, prepare well in advance. The risk of retirement depression is real, particularly when you’re faced with low income.
Retirement days are supposed to be carefree, relaxed, and spent doing what you could never find the time to do. The ripe age of 60 is an ideal time to retire and devote your days to learning, traveling, or volunteering.
Have you thought about retiring early? I’d love to hear your thought!
