The Financial Independence/Early Retirement movement is on everyone’s minds these days it seems. The year 2018 saw the rise of the movement across America.
A vigorous debate on the practicality of the idea has taken center stage; something continuing well into 2019.
With such arguments arising on both sides of the fence, the question now emerging is, “How practical is it to retire early?” For parents, how can they realistically achieve an early retirement while still accomplishing and maintaining their family’s financial freedom?
Early Retirement doesn’t Necessarily Mean no Hours on The Job
Retirement costs the typical senior $828,000, according to The Motley Fool’s estimation. Using the U.S Bureau Of Statistics’ estimate of seniors spending approximately $46,000 annually and an average retirement length of 18 years, you’re looking at a retirement fund goal of just under $1 million.
Additionally, for those with kids, there are rising childcare costs and college tuition that parents may need to contribute to.
Finally, there are other costs such as health care to take into account. All of these combined have impacted the need for seniors to establish income streams beyond retirement and carefully plan their finances to retire early.
It isn’t uncommon to hear of people establishing second careers post-retirement or starting up their own business. So while the typical 9 to 5 are finished upon retiring, this doesn’t mean you’re done putting a bit of work.
Setting up passive income streams will be the key to being able to leave your full-time job early. However, going early doesn’t necessarily mean you stop earning.
Making it Possible: Eradicating Debt, Boosting Financial Literacy
There’s one thing noticeable in those that claim financial independence and early retirement: they have little or no debt to their name.
This means more families are struggling with credit cards, loans, and other consumer debts. With average credit card interest rates continuously rising, it makes sense this category takes priority in your debt repayment plan.
The reasoning is simple – consumer debt carries a sizable finance charge attached to it. The finance charge also eats up a significant portion of your monthly payments. It can begin to feel like you’re not making much progress on your debt journey as your efforts go primarily towards keeping interest charges at bay.
Besides employing (and sticking to) a debt repayment plan early on, it takes an aggressive approach to pay off debt and sacrifices in other parts of your family life such as opting for preowned purchases or debt consolidation. Family budgeting and cutting expenses will be paramount to your success with this plan.
Providing for the Unknown: Address Health Care and Otherwise
As of 2019, the estimate for retirees’ health care stood at $285,000 per couple according to Fidelity’s research. Compounded to the future and you’re looking at a sizable increase. As health care continues to rise, one of the best things you can do on your path to early retirement is to decide and provide for health care; and do so early enough.
According to Medicare guidelines, you become eligible for coverage at the age of 65. Therefore, choosing to retire early will require you to cover the gap between this.
One way is to sign onto employer-provided plans if existing. Otherwise, you will need to subscribe to private health care insurance. You could also establish a specific post-retirement health care saving fund.
Here’s where post-retirement income streams become extremely useful in providing for the ongoing expenses after leaving work. While you are taking care of your own health care needs, take a minute to do so for your family.
States, employers, and some non-profit organizations all offer programs with reduced or no fees for children under 18. Take advantage of it to enable your family to access low-cost health care and avoid medical debt.
This isn’t to say early retirement isn’t possible. It’s completely feasible but to be a successful retirement, it entails a few critical moves on your part.
Above all, it requires early planning. An ongoing commitment to saving and a retirement plan will go a long way in meeting your goals.
As a family, it also requires close monitoring of your spending habits and dedication to reducing their cost of living in the years leading up to your goal age. Finally, the establishment of income streams is needed to continuously fund life post-retirement including the gap between retiring and your access to social security benefits.
