Have you ever had a rough day on the job and thought that early retirement sounds pretty good right about now? Retiring early sounds appealing to most people. Less stress. More time to travel, tackle your bucket list, and see the grandkids.
I’m 63, and I’ve already retired a couple of times, with each one looking a bit different. I’ve also partially retired, working part-time to free up time for volunteer work. So, I know a little bit about retirement and the thought processes involved.
If you think you want to retire early, it’s something to approach with intention. Specifically, there are two primary questions that need answering. The first one is about money, and the second is about motivation.
Money – Do I Have Enough Saved to Retire Early?
If you retired in your 50s, 40s, or even 30s, how much money would you need to live comfortably for the rest of your life? What’s the magic number, so you don’t have to worry about going broke?
Financial independence means no longer having to rely on income from a job to cover living expenses and enjoy life. As we discuss in How Much Do You Need to Retire?, here are a few questions you can ask to figure out your number:
1. What will I spend each year?
Calculate how much you need to pay your regular monthly expenses, including healthcare costs. Then, add in your budget for things like travel, hobbies, and periodic expenses such as a new vehicle or roof.
2. What fixed income will I have?
Determine what income you have coming in each month that isn’t dependent on the stock market. Examples include pensions, Social Security, annuities, and rental income. If you want to work part-time, you can include this income.
3. What’s my income gap?
When you subtract your monthly requirements from your fixed income, you’ll get your income gap. This is the amount you’ll need to draw from your nest egg monthly in retirement.
Your answers to these questions will help determine if you’re on track or not. If you’re not quite there, that’s ok! You can begin focusing more on the items you control, such as how much you spend, save, and earn, and when you retire.
In fact, there are many scenarios that can help you reach your goal. We recently created a case study examining some of the different ways the same couple could live on $150,000 per year in retirement. With some careful planning and the right roadmap, you’d be surprised at the possibilities.
Motivation – Why Am I Retiring Early?
The second question you’ll want to ask yourself is, “why do I want to retire early?” Retiring just because everyone else is doing it may not be the best answer. You’ll want to do a bit of soul-searching to ensure you’re making the right move for yourself and your loved ones.
It’s About More Than Just Finances
It’s important to consider your emotional well-being in addition to your financial health. If you retire early, what do you plan to do with your time? I’ve watched a few friends really struggle with this part of the equation, especially if a significant part of their identity was tied to their work. This question doesn’t have a right or wrong answer, but it deserves some thought.
Transitioning from working to not working can be challenging. If you haven’t figured out how you’ll spend your free time, the feelings of happiness and satisfaction that come with retirement can fade quickly.
“Retiring early” doesn’t always mean you fully retire.
In my experience, many people who want to retire early don’t want to stop working entirely. Instead, they want to make work optional and be able to pursue passion projects instead.
Maybe you’re tired of working 40+ hours per week and would rather be a part-time consultant. Or you’d like to finally write that book or help a small startup get off the ground. Retirement activities should be things that help you fuel your passions, not necessities that pay for your lifestyle.
My first retirement was at age 50, and I wasn’t ready to be done. I didn’t need a rest-of-my-life retirement plan, just a window of time to think and not feel pressure to make an immediate decision. After a year thinking through my finances and goals, I ended up coaching a college tennis team and doing some amazing volunteer work for the next ten years.
Create a Joy-Filled Retirement With a “Life Portfolio”
If you plan on committing to an early retirement date, consider how you’ll transition from one lifestyle into another. Instead of looking at retirement as the finish line, what if it was instead the beginning of a new adventure?
I recommend building a “life portfolio” to outline how you will invest your energy. Similar to your well-planned financial strategy, these four categories create a diversified and fulfilling life in retirement:
- Career continuation — Put your hard-won professional skills to work by consulting, mentoring, or teaching part-time. Or develop new skills to broaden your horizons.
- Volunteering — Devote some of your time and expertise to a cause you care about.
- Family — In addition to spending more time with your family, figure out ways you can instill in them values and lessons important to you.
- Hobbies — Don’t forget to carve out time for hobbies and relaxation, like golf, travel, and an occasional afternoon nap.
Whenever possible, avoid pushing yourself into an inflexible schedule that’s going to cause stress and resentment. The point of retirement is to enjoy what you’re doing. Build flexibility into each of these areas, and you’ll find more joy and purpose in each day.
George Russell, who I worked for at the time of my first retirement (and who had built Russell Investments into a very successful company), always said, “You shouldn’t retire; you should graduate to what’s next”. In my case, after ten years, I was presented with an opportunity to step back into the workforce. So, in addition to continuing some volunteer work, I’m now working part-time at Alterra and loving it!
Discuss Your Early Retirement Options
Retiring is a major decision; retiring early is an even bigger move. Partnering with a trusted advisor can help you navigate the complexities of your financial choices, estate planning, and charting the best roadmap for your future as you prepare for your retirement, or better yet, graduation to your next great adventure.
Whether now is the right time or not, you need answers. Each of our stories is unique, and we consider it a privilege to help our clients think through retirement questions.
Craig Hamilton
Strategic Advisor
About the Author
With over 30 years of experience as a Certified Financial Planner, Craig Hamilton joins Alterra as a sort of paternal figure and has a position of respected “special counsel” to the firm. This role is likely familiar to Craig as one of his four children is also a financial advisor. Mr. Hamilton is also a Certified Public Accountant with a degree in Business from Pacific Lutheran University in Tacoma, where he graduated magna cum laude.
Craig was born and raised in the Pacific NW and built a family here that now includes seven grandchildren. In Craig’s words, “coaching, counseling, and mentoring are in my DNA.” This approach also characterized Craig’s financial career for 20-plus years as an Investment Officer for Russell Investment Services and their later incarnation as The Threshold Group. Throughout that time, Craig approached financial planning as “a critical tool to manage financial priorities and achieve a client’s dreams,” a philosophy perfectly aligned with the Alterra approach.
Craig took an early interest in all things financial — purchasing his first security while still in elementary school. Given his history, it’s not surprising multi-generation investing and legacy planning are his special interest. Listening to the stories of his clients and then helping them along the path to their goals brings Craig personal joy. So, it will likely come as no surprise that Craig was also a college tennis coach for over 20 years. To repeat Craig’s catchphrase, “coaching, counseling, and mentoring are assets” that he will invest in Alterra Advisors.
The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.