Forced to Retire Early? Follow These Five Tips

Retire Early

Sometimes, we may be forced into a position where we have to retire early. While this may cause some initial problems, it might benefit you in the long run. However, preparing for an early retirement will involve some difficulties. Due to this, we want to share five steps you should take if you need to retire earlier than you expected.

Think About Pensions and Social Security

As you worked at your job over the years, you most likely put money into social security, and you may have a pension. This means you will need to strategize your pensions and social security to get the most out of your benefits. Each of these will provide you with a certain amount of money. While social security benefits automatically accumulate as you pay taxes, you will need to see if you have a pension. 

Identify A Location

As you plan to retire, you need to find the best location available. You will still need to pay certain bills and taxes, so you need to find a location with a low cost of living. On top of this, you should purchase the home you want to live in to avoid paying rent. Once you identify the location you want to move to, you can create your plans around that idea.

Look at Investments

Many people will have different investments they contributed to as they worked. This can include IRAs, 401k plans, and purchasing stocks that increased in worth. You will need to review your investments to see how much money you earned through all of them. From here, you can add these investments into your funds alongside your pensions and social security. This will help you see how much you will have during retirement.

Create a Budget

Once you know how much money you will have, you can create a budget. Depending on the options you have available, you could easily identify how much money you will have access to each year. From here, you can divide your money to see how much you can spend each month. This will assist you as you plan for your retirement.

Make Necessary Life Changes Immediately

If you plan to move, get a new home, or anything else that will change your life, you should do it immediately. If you hold off on these changes, they will become major expenses later on. Since you will most likely receive your money in portions, you won’t be able to pay them all off at once. Due to this, it’s better to make those changes as soon as you can.

Conclusion

While you will face some problems when you need to retire early, these steps will help you out. Following them will let you see the amount of money you will need to retire alongside any other preparations you should consider. These steps will get you on the right track as you prepare for your early retirement. Make sure you review and apply them to make your retirement process as easy as possible while ensuring you have enough money for your needs.

How to deal with debt in retirement

The day you retire is the day you walk out of where you work for the last time and say to yourself “job done” – the smile on your face will barely fit through the door! All you have to do now is find a way to spend your time that involves only doing the things that you want to do all day. Should be simple enough. Perhaps you’ll start by learning to bake bread. Maybe after that you’ll get down to some serious reading. Then, the garden might need some work. But there could be something you’re avoiding – debt. 

First of all, if you are a veteran, you could already be entitled to support that you are not yet claiming. Depending on your circumstances, the level of support that you could reasonably expect to receive could vary – find out the current VA disability rates. Now, let’s take a closer look at how you could deal with debt in retirement, so that you can work towards finally closing the book on monthly payments. 

Prioritise your outgoings 

Some bills prioritise themselves, because without them, you wouldn’t have anywhere to live. This would include mortgage payments or rent payments (and any arrears), as well as energy bills, for example. But they are unlikely to be the reason you’re in debt. The reason for your debt is likely to be credit card bills and bank loans. By going through the various terms of your agreements and by noting down the interest rates, you can begin to formulate a list starting with the highest interest rates and progressing steadily to the lowest interest rates. 

The aim is to continue to pay the minimum monthly repayment on the lowest interest rates, and pay more towards the higher interest rate credit cards and loans – paying these off faster will save you money in the long term. 

Cut back on all expenses wherever possible

If your retirement has resulted in a lower monthly income, the fact of the matter is that your monthly outgoings must come down to meet your new circumstances. How can you do this? You need to be brutally honest over your expenditure, realising what is strictly necessary and what is an extravagance that you can live without. 

For example, your energy bill. If you don’t need heating and lighting anywhere near as much as your bills would suggest, cut them out as much as possible – we’re not suggesting that you should live in a sleeping bag in your own home and spend your evenings reading by candlelight, but you could reasonably cut down on your energy bills by being sensible with heating and light.

If you really need to tackle debt, you could look at downsizing 

People don’t like to leave their family home – and for good reason. This is where your children took their first steps. This is where the good times and the bad have been shared over decades. This is where the heart is. However, if your home is sizable, downsizing to a smaller property could free up valuable funds that could see you handsomely out of debt and into positive figures.

Is It Worth It To Retire Early? What Does Retirement Even Mean?

FIRE, or Financial Independence/Early Retirement, sounds like you really want to just retire while you are young and then do nothing. Well, maybe for some this is an accurate idea of how they envision retiring. Sitting on a beach all day drinking mojitos.

What it means for most is freedom. The freedom to decide when you want to do things and for how long. When you are financially independent then you don’t have to punch a time clock. Unless you want to.

You might not exactly have FU money so you can walk out on an aggressive boss, but you have enough money that you don’t necessarily need to go back to work if you don’t want to.

So, you can see that retirement means different things to different people and how to get there is also going to look very different.

Here are some things to consider before you set out on a FIRE journey as it might not be the best idea for everybody.

What it takes to retire early

It takes a lot of sacrifice and a lot of hard decisions on your path to early retirement, as well as a great retirement savings calculator. Sure, there are some easy ways to put money aside like apps and software that can help. This Stash app review is a good place to learn more about how they work.

Those ways of passive saving can only get you so far, though. It will take a lot of planning and cutting some things out of your life that may be uncomfortable just to be able to retire early.

You also have to have a very minimalist lifestyle while you do this that you will then have to maintain even while you are retired. Are you ready to live this kind of a Spartan lifestyle forever? This is of course, only if you aren’t fabulously wealthy. Even saving money on ATT Wireless will help you reach your goal.

For most regular people this is going to have to happen on a regular income. Now, many people are quite happy living this way and don’t consider it a sacrifice, but it does bear considering.

What do you want to do when you are retired?

Many people that think about retiring early focus on the event. The day they decide to quit their job and become independent. But, that is where it usually stops. The problem is that they don’t know what they want to do when they retire. Sure, they want to have more time to dedicate to hobbies like travel or woodworking, but days are long when you are not working.

Will those hobbies sustain you for another 50 years? You may want to actually enjoy your life through vacations or try to find a job that doesn’t require long hours instead of retiring early and not working anymore after that.

Of course, early retirement can also mean that you go do a simple job that doesn’t encompass most of your life and requires only minimal commitment. To some this also qualifies as retiring early, so have an idea of what you want it to look like as well.

How to Save For Retirement the Right Way

Saving for retirement should be a priority as soon as you start your career. Putting off your saving to take a grand tour of Europe might be appealing, but you could end up working well past 65 if you make these kinds of financial decisions. If you would rather not rely on the support of your children or social security when you can’t work anymore, here are some of the best ways to save for retirement.

401k

For most people, a 401k is the first place they start investing. A 401k is a retirement savings account that allows you to deposit untaxed income from your paycheck. However, there are limits to the total amount that can be deposited annually. In 2018 the annual limit for contributions rose from $18,000 to $18,500. This includes any salary deferrals, as well as after-tax contributions to designated Roth accounts. If you’re lucky, your company will offer to match your 401k when you retire.

IRA

IRA stands for individual retirement account; unlike a 401k, the contribution to your IRA are taxed before they go into the account. However, when you decide to pull the money out of your account, only the earnings will be taxed, not the principal investment. A smart retirement strategy is to use a combination of a low fee IRA and a 401k savings account. The maximum contribution you can make to an IRA account under the age of 50 is $5,500. As a young person just starting out, maxing out your IRA account and putting the rest of your savings into a 401k is the best way to get started.

Roth IRA

A Roth IRA provides a unique advantage that a traditional IRA does not. While a Roth IRA doesn’t offer you the same tax break as a traditional IRA, your earnings on your contributions won’t be taxed when you pull the funds out. Additionally, Roth IRAs don’t have age restrictions, but they do have income eligibility restrictions: single tax filers must have a modified adjusted gross income of less than $135,000 to contribute. Anyone with earned income who is older than 70 ½ can’t contribute to a traditional IRA.

Manage Your Debt

It’s important to manage your debt while you save for retirement. Whether it be a student loan or a car loan, your debt is accruing interest. Tackling your debt as soon as possible will give you more control over your finances in general. Make sure that you don’t forgo contributing to your retirement accounts in order to pay off your debt, however. If you focus solely on debt repayment, you could end up in an awkward position that might delay your retirement age. Develop a financial game plan that will allow you to pay off your student loans and save for retirement at the same time.

Create a Budget

It can be easy to ignore the numbers in your bank account because you know you’re always going to have enough money to go out on weekends and buy whatever you want, and it can be incredibly easy to fall into the habit of living paycheck to paycheck. Set aside some time on a weekend to map out your monthly expenses including things like gas, eating out, and entertainment. Mapping out your spending will allow you to see where you can cut back and focus on your priorities.

Savings Accounts

Life can throw some pretty unexpected curveballs your way. If you aren’t careful, one financial emergency could devastate you financially. When mapping out your budget, be sure you’re making some contributions to your savings account. Savings accounts aren’t going to produce a significant amount of interest or return on investment, but you’re going to have a much easier time accessing your funds than you will with a retirement account. If you’re using a traditional bank like Wells Fargo, they will typically only offer you .01%-.03% interest on the funds in your savings account. If you take your finances seriously, it might be time to open a separate savings account with a bank like Synchrony that offers 1.65% and no minimum APY.

Saving for retirement doesn’t have to be as complicated or challenging as it might seem—use this helpful advice to take charge of your life and your finances.

 

 

Should You Consider a Late Retirement?

If you don’t have enough saved for retirement, a late retirement is probably the easiest way to catch up on retirement savings. A few more years of work mean much more money to invest at a time when you may be at your earning prime. Of course, inadequate retirement savings isn’t the only reason to keep working. Some people love their jobs, and can’t imagine retiring to a more quiet existence.

So should you consider retiring late? Here’s what to consider as you make your decision.

Benefits of Late Retirement

A late retirement means more time to save money, and less time spent with a fixed income. You may also earn delayed retirement credits through Social Security, which can mean up to an 8% increase in annual payouts. If you’re worried about pinching pennies in retirement, that’s money that’s hard to turn down.

Working into retirement doesn’t even have to mean staying at your current job. You might cut back to part-time work or become a consultant. If you have some savings, then late retirement might mean a more flexible approach to how you work.

Signs a Late Retirement Might Be for You

So how do you know if a late retirement is the right choice? Some signs that continuing to work could be in your best interests include:

  • You don’t have a compelling reason to stay home.
  • You’re in good health and are able to keep working.
  • You like, or can at least tolerate, your job.
  • You don’t have enough saved to retire now.

How to Avoid Late Retirement Penalties

Early retirement can cost you a lot, but there are no real late retirement pennies—aside, of course, from the gamble that you might not live as long as you hope. The one penalty you need to watch out for is the Medicare late enrollment penalty. You must enroll when you turn 65. If you don’t, you could pay higher premiums for the rest of your life. That’s money you could put toward your savings, and money you can’t afford to lose if you’re already worried you don’t have enough.

You Only Live Once

If you’re on the fence about late retirement, it’s time to get realistic about things. Talk to your spouse, your children, to other loved ones you trust, and to a retirement advisor. If you can make retirement work now, you might want to. You only get one life, and you don’t know how long you’ll have. You might be happier knowing you spent time with your family instead of toiling away at the office—but only an informed conversation can help you make that decision.

If you think you have enough money, one way to build a small extra pile of cash is through a reverse mortgage. Available to seniors over the age of 62 who own their homes, this option taps into your home’s equity to give you money. You don’t have to repay the funds as long as you live in your house and comply with the loan’s terms. The money can be used to start a savings account, as a rainy day fund, or even to help support your grandkids.

How to Figure Out What You Need for Retirement

Retirement may be a long way off for you, but the years will pass by more quickly than you think. Unless you’ve already got a sizable chunk of change socked away, you are likely already behind in your retirement planning. If you don’t end up with the money you need by the time you retire, you may have other options, such as continuing to invest and striking it big or getting a reverse mortgage on your home. But the best thing you can do is start planning now so that you have more control over your retirement. Start by checking out these reverse mortgage facts.

But planning for retirement may seem like a daunting task. Where do you even begin? How do you account for all the variables? Here are some easy steps you can take to figure out how much you will need in retirement:

Calculate Years of Retirement

You can’t know how much you will need for retirement if you don’t know how many years you will spend in retirement. Start by figuring out when you plan to retire. If you’re like most people, you want to retire as soon as possible. But if you’re like most people, you won’t actually retire until the full benefit age of 66. Soon, that age will rise to 67. Eventually, it may rise even more. So if you are in your 30s now, you may be looking at a later retirement age in the coming years.

Next – and here’s the uncomfortable part – you need to figure out how long you are likely to live. Of course, no one can know this for sure. You may smoke every day and live to be 100 like your dear old granddad, or you may get hit by a car on your 67th birthday. The only thing you can do is figure out how long you are likely to live and use that for planning purposes. You can use a mortality calculator that considers your unique lifestyle factors, or you can just use the average lifespan in the United States, which is 79 years old. If you retire at 67 and will only live to 79, you need to plan to have about 12 years’ worth of income for your retirement.

Determine Your Needed Income

You won’t need to make as much money as you do now to support yourself in retirement – or, at least, that’s the idea. The general rule of thumb has been that you need about 70 percent of your current income during retirement. So if you make $100,000 a year now, you will need about $70,000 a year in retirement. Ideally, you would have your home paid off by then and you wouldn’t be supporting children or buying a lot of new things, like furniture and household goods. Therefore, you won’t need as much to live.

Compare Rates

Look at how much you have in your current savings or retirement accounts, such as 401(k)s or IRAs. Now look at the rate of return on those accounts and compare that to the rate of inflation. That will let you know how much the money will grow and deplete over time. For example, you may have an IRA that returns an average of 6 percent each year, which you can compound over time to see how much you will have at retirement age. But then you have to subtract the 3 percent inflation rate each year to see how much that money will actually be worth in terms of spending dollars.

Determine Monthly Savings Amount

Once you know how much you are likely to have from your current retirement accounts and your social security benefit (assuming it’s still there when you retire), you can figure out the deficit between what you will need and what you will have. Then you can figure out how much you need to be saving every month to make up the difference. Even if you can’t save all that amount each month now, you can start putting aside a little and build up to the full amount when your income increases.

Whatever steps you can take to save for retirement now will save you a lot of heartache later. Use these steps to figure out exactly how much you will need.

Financial Priorities.

First things first, apparently I’m a little late to the game, but I made a Facebook fan page last night for Punch Debt In The Face (See the new widget in the sidebar on the right?). I don’t really get why that’s better than my Facebook profile page, but for some reason people tell me it is. I also don’t know why likes are important on a page, but again, someone told me they were. Would you take a moment to head on over to my new fan page and gimme a little Likey Likey. If you do, I will…well… do absolutely nothing for you. Sorry, just being honest.

Alright, on to the content…

Do you have an income? Do you have expenses? If you answered yes to either of those questions, you darn well better have some financial priorities in place.

While there are a million different things we could talk about in regards to financial priorities, I want to focus on just one. Which comes first: investing or paying down debt? Hey, speaking of…

Which came first, the chicken or the egg?

Answer: Chuck Norris.

In all seriousness, I think financial priorities are something most of us think we have figured out, but don’t always truly understand. Today I’m going to show you why investing in your 401K is often a better option than paying down high interest credit card debt.

Let’s look at an example:

Jane, makes $50,000 year. She’s 30 years old and her employer fully matches 5% of any contributions she makes to her 401K plan. Jane also has $5,000 in credit card debt, at 15%. What should Jane do, pay down the card as quick as possible, or start building up a nice little nest egg for retirement?

A 15% APR, on a $5,000 balance, means Jane will be paying about $62/month in interest. If she made nothing, but minimum payments, it would take her a little over 22 years to pay that sucker off. She’d also pay $5,729 in interest over that time resulting in a total payment just shy of $11,000. Yikes, that $5,000 original bill became a whole lot more expensive. Better pay that sucker off ASAP, right?

Now let’s examine the investing route.

Jane would be investing $208/month in her 401K if she contributed 5%. Her employer matches that and gives her another $208. If she earned a doable 6% return on this money, and never got a raise in her life, she would end up retiring at age 67 with $683,030 in her 401K. Not bad at all.

If Jane decided to postpone contributing to her 401K, she could use that $208 to make accelerated debt payments each month. But let’s not forget, that 208 number is pretax, so in reality she’d have about $175 extra to throw at her credit card. With the additional payment, Jane will now be credit card debt free in 20 months and will have only paid about $673 in interest. Sounds a heck of a lot better than the 22 years it was going to take in the first example.

Here’s where it gets interesting.

Wanna know what Jane’s 401k would look like if she didn’t start investing until after she became CC debt free? She lost nearly two years of company matching and compound interest, resulting in $596,388 in her 401K. That’s $86,642 less then if she started investing at age 30.

Guys and girls, this point is SOOOO important it can not be overlooked. It is absolutely in Jane’s best interest to start investing in her companies 401K, even though she is not debt free. If she waits until she has her credit card paid off, she loses a crap load of money. I know this seems to go against the grain. Credit card debt is evil, don’t get me wrong, but that doesn’t mean it should always be at the top of our financial priorities.

Obviously, in a perfect world you will have enough discretionary income that you can not only contribute to your retirement, but also pay down your debt quickly. I always have been, and always will be a DEBT PUNCHER, but only when it is in your best interest.

Does your employer offer a 401K match? (I’d like as many people as possible to answer this question since I’ve heard a lot of the retirement benefits in the private sector have been getting cut left and right). Are you taking full advantage of that match? If not, you’re stupid. I’m sorry, you just are. You are literally giving up FREE money. In Jane’s situation would you go the way of Dave Ramsey and still pay down your credit card first, or would you let number’s guide you and start contributing to your retirement?

p.s. Like me on Facebook, I’m desperate 🙂