He reminds all early retirees to have a plan in place that factors in savings, taxable investments, passive income streams and other sources of funding. That way, you won’t prematurely deplete your assets.
These considerations are especially important at a time when people are living longer in general, and where many are opting out of full-time work earlier and earlier. Where “early retirement” has traditionally been defined as leaving work prior to reaching the Medicare age of 65, Peters says that age continues to go down.
“I’ve seen people opt for early retirement as early as 40,” he notes. “It really just depends on the individual’s lifestyle goals and whether they've prepared enough to go into retirement and feel fulfilled past that date.”
Emotional considerations of early retirement
In many cases, that feeling of fulfillment can be more important than having ample available funds to carry you through your retirement years. The emotional aspects of early retirement, particularly for those with lengthy careers and no real plans for “what’s next?,” deserve equal attention when laying down the path for the future.
“I've seen some early retirees experience an identity crisis because their careers gave them a sense of identity and purpose in life,” Peters explains. “They ended up bored and unproductive, wondering what to do with their time.”
There’s also the possibility of inflationary and “down market” economic conditions after retirement that could require you to stretch your nest egg further than anticipated. Peters recommends working with a trusted financial advisor to plan for this and other issues. The earlier you start, the better.
“I believe it’s never too early to begin planning for retirement,” he explains. “If you start budgeting now, for example, you can set a trend for the future and help establish where you are and where you want to go in a world where we really can’t predict what's going to happen once you actually retire.”
Stress test your early retirement plan
Healthcare and long-term care costs are other must-haves that should be factored into your early retirement plan and that a financial advisor can help with. That advisor can also “stress test” any retirement plans using various what-if scenarios to ensure that your plan can withstand unexpected events.
For example, Peters always tells his clients to overestimate their expenses as they go into retirement, knowing that inflation and other economic forces can turn even the best laid plans on end.
“Being conservative and overestimating future retirement expenses can help,” says Peters, “because many times people underestimate how much they're spending annually, whether it's their monthly expenditures or large purchases like new vehicles and second homes. Make sure you’re accounting for those future goals and expenditures as well.”
8 steps to take if you’re considering early retirement