7 things you need to organize before early retirement
The dream of early retirement remains only a dream for many, but with a lot of planning and careful decision-making, it can be done.
If you’re trying to retire by age 40 like I am, you need to be doing a lot of planning now.
Early retirement is exciting and challenging at once, similar to the feelings I had when paying off $15,000 in student loans within 9 months of graduating college. But that wasn’t all, I managed my money well and I was also able to afford two European vacations and a trip to New York City. I crave a challenge, but I want it to be meaningful and helpful in my life.
Retiring early is a difficult feat, but the process reminds me of the same feelings and motivation I did when I was trying to pay off my student loan debt quickly while traveling to the places I wanted to visit. Here are seven things I’m focusing on so I can retire by the time I’m 40.
Trim unnecessary spending
The first thing to do if you know you want to retire early is to adjust your spending now to put more in savings and set up the kind of lifestyle you can sustain after retirement. For instance, do you need all the space in your home, or could you downsize and be comfortable? More than one study has found that we use much less of the space in full-size homes than we think we might.
Are you used to ordering out most nights of the week? Time to learn how to cook. Are there ways to make your travel plans less expensive? Is now a good time to acquire some handy new skills so you can do minor repairs, perhaps even start making things? Being able to retire at 40 takes a combination of stable income, aggressive saving, and realistic expectations about how you’ll live after retirement. Better to do it now than to wait until you retire and face abrupt changes in your lifestyle.
Finalize your end-of-life plans
It may seem odd to make funeral plans before you’re 40, long before you think you’ll need them. But planning in advance will help you (and your family) in the long run. Put together an idea of what you want your funeral to look like—plan your memorial service, decide what you want to happen to your body when you pass and, if applicable, where you want to be buried. Even if you only have a rough outline of your funeral, it’ll help you plan financially, and your family will be better prepared when the time does come to execute those plans.
Doing this now means one less thing to take care of later when you want to be focused on enjoying your time. Also, a good time to consider the various costs involved in funerals and what you want to happen to your assets is while you’re in financial planning mode as you prepare to retire early.
Handle your health insurance
Once you retire, you won’t be getting health insurance through an employer, so find out what your options are based on your health needs (and remember those will be changing over time). You may be able to COBRA your current plan, but that’s not necessarily the most financially viable choice and is only available for up to 18 months after leaving a job. Look into the ACA state or federal marketplace options as a starting point.
Other options may include a spouse’s health plan and private marketplace plans. You can also be proactive by using a health savings account while you’re still working. The money you put into this account is tax-exempt and available to you in the future as long as you use it for health expenses.
Lay-out you life insurance plans
If you have a partner or family, it’s time to get life insurance. Even if you don’t, seriously consider investing in this while you’re still young, when costs will be lower. Doing so now, while you’re still working, will also make it easier to wrap this expense into your post-retirement budget. Life insurance is, of course, useful to support your family if you die, but it’s useful in other situations too.
For instance, if you buy a home, a life insurance policy can cover your mortgage debt. It can also cover other debts you may have after death. If you support elderly parents or other family members, buying a life insurance policy for them for which you’re the beneficiary will help you handle their funeral costs and debt they may have. Life insurance can also be a way to build wealth, either for your family or to leave a financial legacy.
Get your assets in order
If you plan on retiring at 40, you’re probably already paying attention to this, but if not, it’s time to start. Is your house in good shape if you decide to sell? How about your car, or any other property you own? Invest now to keep all your property in marketable condition and have a car that will get you through many years or have good resale value.
Calculate your net worth as well as all liabilities and map out a plan to pay off all your debt, if possible, before you retire. This will make a significant difference in how long your income lasts after you take the leap. While you’re at it, figure out your retirement budget—that will also help you see just how big a difference getting rid of your debt will make.
Make a debt plan
Yes, I just mentioned this, but it’s worth more attention, especially for those of us retiring at a younger age. The debt you carry compounds over time and is perhaps the single most important financial matter to attend to while you plan for retirement. Paying off your debt should take priority over everything else.
For those of us with large student loan balances or credit card debt with high interest rates, this can seem like a Sisyphean task. But there are ways to accelerate the process. Consider monetizing a hobby, picking up a side gig, or negotiating with your credit card companies. Got a bike you never ride? Sell it and put that toward your balance. Once you start getting creative, you’ll find there are plenty of ways to acquire a little extra money to pay off your debts faster.
Find your new purpose
Any discussion of retiring early isn’t complete without addressing the fact that you’re about to have a whole lot of free time on your hands. The truth is, leisure time is fun for a little while, but most people will find themselves itching for something to do before long. And many of us have identity wrapped up in the work we do, so when that’s gone, something has to take its place. Start thinking now about what you want to do when you retire.
Do you have a hobby you could expand? Want to learn a new skill? Maybe you’re ready to do some work for a cause you love instead of for a paycheck and, like me, want to give up your normal comforts and journey across the globe doing humanitarian work. Whatever it is, knowing how you’ll spend your time in retirement gives you more to look forward to and some extra motivation to get there. Of course, engaging in some serious leisure time right after you leave the office forever is called for, too.
How many of these things do you have in order? Is there anything else you'd add to the list?