Retirement is something that many dream about from a young age, including longing for an early retirement. Yet AARP says that three-quarters of Americans between 55 and 64 have less than $30,000 saved for retirement.
With life expectancy on the rise, early retirement comes with some needed additional planning. According to the Social Security Administration, about one of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. With less time to invest, and more time to invest for, preparing for an early retirement can seem like a daunting task.
Rich Ramassini, a certified financial planner and senior vice president at PNC Investments, takes a look at some of the best practices for those looking to successfully plan an early retirement.
While maybe not top-of-mind as part of retirement planning, your healthcare costs likely will increase throughout your retirement years. For those who have employer-sponsored healthcare coverage, early retirees may need to bridge the gap on medical coverage until Medicare coverage begins.
Having protection in place is paramount to achieving your retirement goals. Even at a young age, unexpected disability, premature death, long-term care and more, can wreak havoc on accumulation capacity and retirement goals. Life insurance is a personal affair, not one-size-fits-all. Calculate how much coverage to buy, and form a plan that’s easy to update.
Spending too much early in retirement and/or taking substantial withdrawals from your investment portfolios, especially during times of poor market performance, can have long-term adverse impacts on an early retiree’s quality of life, and could derail retirement plans. Additionally, investing too conservatively in the early retirement years may not be the best option for individuals who need to rely on those assets for the next 20, 30, or even 40 years. It’s important to create an investment strategy and financial plan tailored to your specific circumstances.
Heading into an early retirement means that you will be living income-free for much longer before your Social Security kicks in. Consider the impact this will make on your assets and develop a budget that will sustain your lifestyle both pre-Social Security and beyond.
It is extremely difficult to predict market performance and many investors who try, ultimately underperform the market. In order to make the market work most effectively for you, you have to guess right twice…when to get out and when to get back in. That doesn’t even take into account the frictional costs and potential tax liabilities that result from buy and sell transactions. Generally, investors are better served by sticking with a diversified portfolio that can help reduce exposure to market swings.
Allowing emotions to drive investment decisions in market downturns (i.e. pulling money out, buying high/selling low, etc.) can be detrimental. Rebalancing a portfolio is essential to help determine that the asset allocation is still appropriate given your objectives, risk tolerance and time horizon. However, rebalancing too often can be very inefficient from a cost, tax and opportunity standpoint, which is why it is important to take advantage of different market opportunities as they arise by differentiating between strategic and tactical positions.
Retirement can look very different for everyone, based on your lifestyle. Whether you’re nearing an early retirement or just starting your career, having a plan is crucial throughout every stage. Download our Retirement Checklist to confirm that you’re on the right track for an early and enjoyable retirement, whatever that means for you.
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