How To Make Early Retirement Work For You In This Economy

Post written by

Brian Nelson

Brian Nelson, President of NB Private Capital, LLC.

Early retirement is truly the best of both worlds: lots of free time combined with enough youthful energy to enjoy it. But is it actually possible in this economic climate, with another recession possibly looming? That depends a lot on you.

If early retirement sounds impossible, well, it might be if you continue with your current lifestyle. Retiring early takes planning and discipline. But if you decide on the kind of lifestyle you want in retirement, crunch the numbers and then save and invest, you might have a real shot at a comfortable, fun, early retirement.

Define Retirement For Yourself

Before you can figure out if early retirement is possible, you need to decide what it means for you. Do you want to lounge around and volunteer occasionally? Do you want to travel without working? Do you want to travel and work along the way? Preparing for each lifestyle is possible, but some lifestyle choices will require more money than others.

No matter the lifestyle you want to pursue, early retirement does have its pitfalls. Preparing for early retirement might make you so busy, you miss out on time with family and friends. Once you've retired, you might get bored. And you might change your mind and find it difficult to get back into the career pipeline. It's important to be aware of these potential negative consequences before you commit to a course of action.

Run The Numbers

The normal rule of thumb for retirement is to replace 80% of your pre-retirement income. But early retirement changes things.

Arielle O'Shea, a personal finance contributor at Forbes, shared a hypothetical example of a 25-year-old who makes $50,000 a year and wants to retire by age 40. This person would have to save 48% of their income for the next 15 years. Once they retire, their monthly income would be $1,333, which is their "current income adjusted down for taxes, savings and those general work-related expenses that will disappear."

Figure out the lifestyle you want, and then run the numbers for your unique situation. Early retirement calculators can tell you how many years it will take you to be ready for retirement. Once you have a plan, it's time to execute it.

Get Out Of Debt

In a 2018 survey of retired adults, the Transamerica Center for Retirement Studies found that of those who had debt, "the median owed is $52,000 in mortgage debt and $4,000 in non-mortgage debt." Now, there are some situations in which debt is preferable for increasing your investing potential, and that's something to discuss with your financial advisor. But the more money that goes to paying off debt, the less money that goes to supporting your lifestyle.

If paying off your debts feels overwhelming, prioritize the debts, and take it one step at a time. Start with those that have the highest interest rates, like credit cards. Then add to the list debts with fixed rates and payments, like car loans or mortgages. Slow but sure progress will add up and make a huge difference in how relaxed you feel once you retire.

Invest And Save

When it comes to investing, you have lots of options. While the stock market has been strong over the past decade, several types of alternative investments, such as gold and income-producing student housing or multi-family apartments, have proven to be worth considering as complements to a stock portfolio. These investments add the potential for income, tax efficiency and capital appreciation on brick-and-mortar assets.

Looking at the stock market specifically, a NerdWallet study found that over 40 years, holding money in a savings account rather than investing it in the stock market could potentially cost a person over $3.3 million. Investing is always a risk, but when you have a healthy balance of saving and investing, investing has the potential to significantly boost your retirement fund.

Having your dream retirement lifestyle requires a change in lifestyle now — by cutting costs where possible and putting those savings into investments. Consider where you could cut costs in the following areas:

• Vacations and entertainment

• Groceries and eating out

• Clothing

• Personal care products and services

• Subscription services (e.g. streaming services, meal delivery kits, magazines)

If you cut just $10 from each of these categories each month, you'd save $600 a year. That's not a lot, but it's nothing to sneeze at, either. What if you cut $50? That's $3,000 to put into your investments, and that makes a huge difference.

Early retirement is possible, but it's up to you to make it work. Start by making lifestyle changes to prepare for the retirement lifestyle you want. Then crunch the numbers, save and invest. While no one can guarantee how their investments will work out or what the economy will do, you can make choices that will make your dream retirement lifestyle more likely.

Not an offer/solicitation to sell/buy securities. Securities offered through Emerson Equity LLC, member FINRA/SIPC, only in states where Emerson is registered or exempt from registration. All investing involves risk. Speak to your financial professional before investing. Past performance is not indicative of future results.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?
">

Early retirement is truly the best of both worlds: lots of free time combined with enough youthful energy to enjoy it. But is it actually possible in this economic climate, with another recession possibly looming? That depends a lot on you.

If early retirement sounds impossible, well, it might be if you continue with your current lifestyle. Retiring early takes planning and discipline. But if you decide on the kind of lifestyle you want in retirement, crunch the numbers and then save and invest, you might have a real shot at a comfortable, fun, early retirement.

Define Retirement For Yourself

Before you can figure out if early retirement is possible, you need to decide what it means for you. Do you want to lounge around and volunteer occasionally? Do you want to travel without working? Do you want to travel and work along the way? Preparing for each lifestyle is possible, but some lifestyle choices will require more money than others.

No matter the lifestyle you want to pursue, early retirement does have its pitfalls. Preparing for early retirement might make you so busy, you miss out on time with family and friends. Once you've retired, you might get bored. And you might change your mind and find it difficult to get back into the career pipeline. It's important to be aware of these potential negative consequences before you commit to a course of action.

Run The Numbers

The normal rule of thumb for retirement is to replace 80% of your pre-retirement income. But early retirement changes things.

Arielle O'Shea, a personal finance contributor at Forbes, shared a hypothetical example of a 25-year-old who makes $50,000 a year and wants to retire by age 40. This person would have to save 48% of their income for the next 15 years. Once they retire, their monthly income would be $1,333, which is their "current income adjusted down for taxes, savings and those general work-related expenses that will disappear."

Figure out the lifestyle you want, and then run the numbers for your unique situation. Early retirement calculators can tell you how many years it will take you to be ready for retirement. Once you have a plan, it's time to execute it.

Get Out Of Debt

In a 2018 survey of retired adults, the Transamerica Center for Retirement Studies found that of those who had debt, "the median owed is $52,000 in mortgage debt and $4,000 in non-mortgage debt." Now, there are some situations in which debt is preferable for increasing your investing potential, and that's something to discuss with your financial advisor. But the more money that goes to paying off debt, the less money that goes to supporting your lifestyle.

If paying off your debts feels overwhelming, prioritize the debts, and take it one step at a time. Start with those that have the highest interest rates, like credit cards. Then add to the list debts with fixed rates and payments, like car loans or mortgages. Slow but sure progress will add up and make a huge difference in how relaxed you feel once you retire.

Invest And Save

When it comes to investing, you have lots of options. While the stock market has been strong over the past decade, several types of alternative investments, such as gold and income-producing student housing or multi-family apartments, have proven to be worth considering as complements to a stock portfolio. These investments add the potential for income, tax efficiency and capital appreciation on brick-and-mortar assets.

Looking at the stock market specifically, a NerdWallet study found that over 40 years, holding money in a savings account rather than investing it in the stock market could potentially cost a person over $3.3 million. Investing is always a risk, but when you have a healthy balance of saving and investing, investing has the potential to significantly boost your retirement fund.

Having your dream retirement lifestyle requires a change in lifestyle now — by cutting costs where possible and putting those savings into investments. Consider where you could cut costs in the following areas:

• Vacations and entertainment

• Groceries and eating out

• Clothing

• Personal care products and services

• Subscription services (e.g. streaming services, meal delivery kits, magazines)

If you cut just $10 from each of these categories each month, you'd save $600 a year. That's not a lot, but it's nothing to sneeze at, either. What if you cut $50? That's $3,000 to put into your investments, and that makes a huge difference.

Early retirement is possible, but it's up to you to make it work. Start by making lifestyle changes to prepare for the retirement lifestyle you want. Then crunch the numbers, save and invest. While no one can guarantee how their investments will work out or what the economy will do, you can make choices that will make your dream retirement lifestyle more likely.

Not an offer/solicitation to sell/buy securities. Securities offered through Emerson Equity LLC, member FINRA/SIPC, only in states where Emerson is registered or exempt from registration. All investing involves risk. Speak to your financial professional before investing. Past performance is not indicative of future results.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

Brian Nelson, President of NB Private Capital, LLC.