Earlier this year we talked about the FIRE (financial independence, early retirement) movement that some millennials have grabbed onto. Yet, this mindset is not necessarily unique to millennials. The idea of saving aggressively in order to retire early is not a new concept, many are on the path to early retirement. The underlying desirability of early retirement has to do with the idea of control: taking control of your financial dependence so you are not tied to a paycheck. Yet for everyone pursuing financial independence and early retirement, the one question that many wrestle with is, “when do I know I’m ready?” There is no black and white answer, but we want to share some food for thought as well as some testimonies from individuals in an article from Market Watch, “How Do Super Savers Know When They Can Quit Their Jobs?”.
There are two broad factors that come into play when determining when you are ready to retire early: emotional and financial readiness.
Emotional Readiness – Many tend to forget that their job, whether it is fulfilling or not, gives you a lot of structure and engagement with people. It provides challenges and pushes your growth. When it comes time to leave, you might actually find it harder than you anticipated. In the article from Market Watch, Ali Walker shares how even when she and her wife were ready financially to retire, Ali was not ready emotionally because she was attached to her work. Even with all their meticulous planning and hours spent daydreaming about what retirement would look like, Ali realized a lot of her self-worth was tied to her identity as a worker. It took Alison a year to feel confident enough to leave her job. As you plan for your retirement, early or otherwise, you may want to consider finding “work” or other activities you can do to continue providing structure and meaning aside from the typical goals of traveling or visiting family.
Financial Readiness – The dream of retiring early might be filled with visions of travels, more time spent with family, days relaxing and not getting caught in the stress of the normal day-to-day demands of a regular job. While, this can be factored into your retirement, the biggest issue in the feasibility of these visions is do you have the funds or income from assets to supports this long-term?
James and Emily Lowery’s jobs were both facing job cuts and position restructuring, but they knew they didn’t want to be under funded and underprepared for early retirement, so they buckled down on savings, and also looked to their rental properties. They knew that if they had a certain number of properties rented out, then they would have enough income for them to retire.
Market Watch, also shares Lief Dahleen’s story. He faced the challenges of both financial and emotional readiness when determining when to retire. He and his family didn’t want to have just enough to support early retirement, they wanted to have double that. Once they achieved this goal, Dahleen struggled with when the appropriate emotional time was to retire from his work as an anesthesiologist. For him, it was when a young man from his hometown reached out about open positions where he worked, and Dahleen ended up training young man and then left. He was able to create a job for a young person who wanted to come back home, that’s what helped him know the time was right.
Of course, the signs you will look for regarding financial and emotional readiness will look different than the three examples shared.
As you map out your plan for financial independence and early retirement, you also have to remember to plan for the years when aging catches up to you and more medical needs arise as well as for death and incapacitation. What if expensive and unexpected medical bills pop up? What if you need knee or hip replacements? Do you have money set aside in case you need long-term care several years down the road? What happens if while you travel you become incapacitated? While you may have thought about these questions, it is important to not set financial goals for early retirement without consulting a financial advisor and an estate planning attorney. A financial advisor can help you prepare a financial plan and set goals and an experienced estate planning attorney can help you plan your estate around your financial goals and counsel you on aging and what you need to set up to prepare for that. Estate planning is not an event, it is a process, just like saving money. This is why it is extremely important that your estate planning attorney works with you and your financial counselor as a team to help you plan for retirement, death, and aging, as well as work with you on an ongoing basis.
So, while there is no answer about when you will be ready to retire, the main goals to keep in mind are being financially prepared no matter the circumstances you may encounter now and until you die, and to emotionally prepare by either giving yourself the time you need to leave the workplace or find another avenue to provide structure and meaning to retired life.
As you prepare to enter the retirement phase of life whether that’s in three years or over 30, let Family Estate Planning Law Group plan for life with you, so your savings, assets, and family are protected no matter what your retirement status or age is.