Retirement

When to Retire: Establish Financial Longevity

When to retire is something many people start pondering early in their career. It’s a good question to ask yourself—even if you’re a 20-something fresh in your field. Thinking about retirement means having the presence of mind to plan for it. And while most people settle on “as early as possible” for their retirement goal, there’s something to be said for the planning that comes along with it. 

The earlier you choose to retire, the more effort you’ll need to put in upfront in planning for retirement. For every year you retire earlier than the average age of 65, you’ll be one more year without a job that provides income. That means dipping into your retirement, which means you’ll need to have enough saved to get you to the end of your days. 

The key to retiring when you want to is the foresight to establish financial stability. While you’re daydreaming about early retirement, make sure you’re also taking proactive steps to make it a reality. Here’s how.

A man who just found out when to retire

Start Saving More, Earlier

There’s no mysterious secret to retiring with more money in the bank. All you need is time! The marvel of compound interest means that the more you save and the earlier you start saving, the higher your returns will be. Here are a few very simple illustrations of how powerful compound interest is. 

  • If you save $1,000 every month for 10 years at 5%, you’ll earn $150,935
  • If you save $1,000 every month for 20 years at 5%, you’ll earn $396,791
  • If you save $1,000 every month for 30 years at 5%, you’ll earn $797,266
  • If you save $1,000 every month for 40 years at 5%, you’ll earn $1,449,597

As you can see, the exponential growth is astounding. The earlier you start saving, the longer the time horizon before you need to access that money. And, even a few extra dollars here and there can increase returns substantially. It’s the first, best and simplest way to establish financial longevity. 

Allocate Your Investments Properly

Once you establish a routine of saving money each month, you can maximize the returns on those investments through a smart allocation. For example, index funds might generate returns of 7%, while small cap funds return 9%. There is, of course, risk and reward to consider when dealing with investment allocations. 

As a rule of thumb, the younger you are, the more risk you can afford to take on. Your retirement portfolio might have heavy holdings in riskier securities when you’re younger, but move into defensive allocations as you near retirement age. As a result, your annual rate of return can change. This is another reason to start investing for retirement early.

There are also modes of investment to consider. For example, a dividend-heavy portfolio might compound your returns even further—especially through a DRIP program. Or, you might invest heavily in growth stocks and emerging markets when you’re younger, to capitalize on high-yield investments early on. Investments aren’t limited to securities, either. You might invest in property and let tenants pay the mortgage over the next 30 years! 

Have an Early Retirement Strategy

If you’re eyeing an early retirement date, set yourself up with a strategy as early as you can. This means having a plan for supporting yourself until you reach retirement income thresholds. You can’t take distributions from qualified accounts without incurring a penalty until you’re 59½. Likewise, Social Security payments don’t kick in until you’re 65. 

Often, retiring early means getting creative with your income. Some people choose to get by on Substantially Equal Periodic Payments (SEPP), while others live off of passive income through investments. Have your strategy picked out and solidified if you’re retiring early. 

If you’re planning to retire at or after 65, you won’t have any trouble maintaining your income. The key to financial longevity is, of course, ensuring you have enough saved to last you the rest of your life. Moreover, your savings need to support your lifestyle. Crunch the numbers to make sure you have enough to live how you want in retirement. 

Make Smart Decisions

The road to retirement is paved with temptation. Learning to live within your means and keep your eyes focused on retirement is the best way to ensure financial longevity.

Buying a home you can’t afford or splurging on a sports car that’s beyond your budget could compromise your retirement savings plan. This isn’t to say you can’t buy nice things and treat yourself! Just make sure it’s not in any way interfering with your savings allocation strategy. 

Stay Focused on Retirement

After you choose when to retire, stay vigilant in working toward that goal. It might be tempting to set it on autopilot and splurge financially here and there. Don’t! Stay the course. That means living within your means and sticking to the plan that will help you achieve your foremost goal of retiring when you want to. Having the discipline to establish financial longevity results in a huge payoff when you leave the office for the last time. 

For the latest retirement strategies, sign up for the Wealthy Retirement e-letter below. You can discover your path to financial freedom and a healthy retirement.

Whether you’re in your 20’s or approaching 60, retirement should be on your mind. Make sure you’re taking the appropriate steps to retire when you want, with the funds you need to live comfortably. It’s easy to put a price on retirement, but the peace of mind that comes with financial longevity is priceless and invaluable.


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