Early retirement is a highly debatable topic due to its subjectivity. There is no fixed age or parameter that decides if the age you have planned to retire at is early or late or the right one. There can be several conditions which may force you towards an early retirement or it can be your well-planned act as well. Either way, early retirement can be a tough game if you have not worked through it thoroughly. Here are some Do’s and Don’ts to consider if you are planning for early retirement;
1. Don’t rely on outside factors
If you are relying on factors like steady returns from your investments, constant inflation, 100% benefits from your company pension plan, settled insurance costs and that all your assets are going to appreciate in the coming years, then we are sorry but a reality check is required on your part. Although we wish they do, there are very fewer chances of everything working in your favor at all times. It is highly advisable to minimize the dependence on these or any other outside and uncontrollable factors which later may prove to be fatal.
2. Doing the right-hand shopping
If you are not familiar with this phenomenon, ask the lady of your house and she will guide you. For the time being, we are happy to help. Right-hand shopping is one thing almost all of us do. It means buying things looking at their price; the more expensive the thing is, our perception of it being better is higher.
This absolutely needs to stop. There are plenty of things which come cheap and are equally good. A change in your shopping habits would be of great help post-retirement or nearing retirement.
3. Spending too much… Fast
While you are still working and earn that bonus every quarter or get a handsome paycheck every month, spending a little extra does not do much harm but once you have retired and that too early, spending over the top may hurt later.
On an average retirement last from 20-30 years, if you planning to retire early that means the span will increase to about 30-40 or even 50 years depending upon your choice of retirement year. Think about it, spending the next 40 years on a retirement plan would want you to spend wisely.
Look for features in your retirement plan which allows you to check exactly what amount can you withdraw/ spend on a monthly basis. Follow it strictly or you will have to cut down highly in the next months.
4. An empty mind is Shopper’s Workshop
Yes, I have rephrased the quote. Aren’t all of us guilty of shopping when bored? Or shopping when free? Or shopping when sad? Or shopping when distressed? All of this stands true. And trust me it is addictive. Early retirement would mean a lot of leisurely time to spend surfing and browsing the internet which in the end results in a thing or two shopped.
This may seem to be a tiny expense as of now but will add up to a huge amount in the due course of time.
5. Getting the early retirement, a little too early
I am not trying to make a contradictory statement but think about it. Is it really too early to retire right now? Or what does retirement mean in its truest essence? Retirement would not free you of your responsibilities or hobbies or liking, rather they grow as time passes.
What if you postpone this retirement plan for the next 5-7 years and earn more and save more? Now that you already have a hint of how retirement years are going to be, why not earn some more and make the later years smoother.
Until and unless it is absolutely necessary to retire completely, explore other available options. What if you start working part-time or work from home? Scaling down is far better than going zero on your income. Now that you can put in that extra effort, why not make the most of it and avoid a situation of regret later on when you do not have the physical strength to sit and work for some hours.
1. Adapt and adjust
Being flexible is a blessing and can be cultivated in behavior. Rather than taking a loan and buying your favorite smartphone, wait for your bonus to arrive and then buy. A few changes in lifestyle here and there at the time would not harm much as compared to some debt over the head.
Observe the situation and analyze repercussions if any. This way you will make informed spending decisions.
2. Start budgeting
Not just for retirement but otherwise also, budgeting is a must. You should keep a track of where your money goes. Make a separate room for one-time expenses and regular expenses. Before that save a tiny portion as an emergency fund. Use it when it is absolutely necessary.
3. Spend when you ‘NEED’ to and not when you ‘WANT’ to
There is a fine line between Wants and Needs. You need to identify and understand it. You need a pair of shoes but you want three different pairs which are ballerinas, loafers, and boots. Now you get it? I am not saying just cut all your wants but keep a track of where your money is going and what is the utility of that particular item in the near future.